Vietnamese retail market: Uncompromising competition

By Hy Tran - Jun 30, 2017 | 04:29 PM GMT+7

TheLEADERRecently, “giant retailer" 7-Eleven officially opened its first store in Ho Chi Minh City, forecasting that the Vietnamese retail market will continue to have fierce competition in the future.

Vietnamese retail market: Uncompromising competition
Vietnam has increased 5 steps to rank the sixth place in the global retail index. Photo: Internet

This is the third largest convenience store chain of Japan in Vietnam, after MiniStop and FamilyMart. 7-Eleven currently has 62,000 stores in the world and Vietnam is the 19th market of this group. Thus, except WalMart of the United States which had much information for the purpose of exploration and sending word that it will enter the Vietnamese market, most of the world famous retail brands have joined in the retail sector in Vietnam in turn. 

Even, 7-Eleven has entered Vietnam earlier than this group’s expectation. It has been announced on some foreign media channels that it would not come to Vietnam until the year 2018. The Vietnamese retail market is witnessing the "competition" of giants such as Aeon (Japan), LotteMart (Korea), Big C (formerly of Casino, now sold to Central Group of Thailand), VinMart (VN), CoopMart (VN), Auchan (France), Circle K (USA), FamilyMart (Japan), MiniStop (Japan), B'sMart (Thai) and VinMart + of Vietnam….

Statistics show that, in2017, Vietnam has increased 5 steps to rank the sixth place in the global retail index. In 2016, the total retail sales all over the country reached over USD 118 billion, up 10.2% compared to the year 2015. This shows that the retail market is becoming attractive again. However, in addition to the participation of newcomers, mergers and acquisitions in the retail sector have also continued over the past several years.

Massive Mergers and Acquisitions

In two years 2015 and 2016, the retail market of Vietnam witnessed many acquisitions from the foreign direct investment (FDI) sector, in which the most popular case was that the Central Group of Thailand bought 49% of the share of the company holding the Nguyen Kim electronics supermarket chain. This Group itself also continued to shock people by the successful acquisition of the entire Big C supermarket chain (Casino - France) with a transfer value up to EUR 1 billion. 

Before that, Thai investors also bought the Metro Vietnam supermarket chain from German investors. In addition to the large mergers and acquisitions, the local retail market witnessed several silent closures of some shopping centers of Lion Group (Malaysia) which owns Parkson Shopping Centers. For convenience stores, in some streets in Ho Chi Minh City, it is easy to see many stores of brands such as VinMart +, FamilyMart, B'sMart have closed in turn. For example, on Vinh Khanh (District 4), Ben Van Don (District 4), Pham Hung (District 8)...

In the country, retail brands such as Fivimart and Citimart, in turn, have sold large shares to Aeon in a collaborative partnership. Maximart and Vinatext have also been resold to VinMart. Thus, in spite of latecomer, Japanese investors, Aeon, has rapidly promoted the strategy to "cover" the retail channels: open five supermarkets in two major cities, a series of small and medium supermarkets weaving in crowded residential areas when making joint ventures to buy large shares of Citimart, Fivimart and promote the expansion of convenience store chains. 

According to information from groups, Aeon is expected to expand market share to have 20 large-scale shopping centers with an investment capital of USD 1.5 billion by the year 2020; Lotte also plans to have 60 shopping centers in Vietnam by the year 2020 with a total investment capital of USD 3.2 billion.

It is not simply to be merger and acquisition or owner changing, the competition on the retail market is also the easy "kick off" for the Vietnamese consumer brands that seem to have sustainable places in the retail system. After being sold to Thai investors, the Minh Long 1 ceramic brand has withdrawn from the Metro wholesale system, while more than 20 retail stores of the Mobile World brand have left the Nguyen Kim electronics shopping center system.

The potential risk that domestic producers being out of breath

During the recent National Assembly session, many delegates also warned about the risk of disgrace of Vietnamese goods when appearing the deep participation and domination of the Vietnamese retail market from foreign investors. Currently the FDI sector accounts for 70% of retail market share of the convenience store channel, 17% through the supermarket, shopping center and 50% of online retail. After the acquisition, the opportunity to bring Vietnamese goods into the foreign supermarket system will be more difficult. 

Although most of the domestic and foreign retailers declare to support Vietnamese goods or even 80-90% of the goods in the system are Vietnamese goods. However, according to domestic producers, their path to supermarkets is extremely difficult, even denied by technical barriers, and raised the discount too high, required to support fees for sales promotion programs…

Just mention the convenience store sector, most investors assert that this is a very slow return on investment. A convenience store owner from Japan said: "At least five years to pay back, even if it does not work, investors will close the store immediately after opening." Therefore, to avoid risks, convenience store investors always find a "key" for themselves when entering the potential market, fierce competition like Vietnam. 7-Eleven entered Vietnam and declared to offer lunch with more than 20 dishes changed every day. 

This strategy is considered by retailers as the "trick of the wise" of latecomers. 7-Eleven succeeds in other countries by opening convenience stores on real "convenient" routes for consumers. However, in Vietnam, the group choose to open stores in large buildings or focus on locations where concentrating young and middle-income customers. 

Previously, convenience stores in Vietnam did not have a strategy like 7-Eleven, but the effort to make difference or "spin" on a product is considered their strength. VinMart + from the beginning when entering the retail market has promoted investment and supply of fresh vegetables at extremely favorable prices, B'sMart always have fast food, dumplings, coffee, soft drink to serve students every morning.

The risk that Vietnamese only buy foreign goods, most of which are Japanese, Thai, Korean goods in the retail system has been mentioned by many experts. However, the risk that Vietnamese goods being out of breath, or rather, being inferior in the retail channel of foreign owner has been warned. 

According to Vu Vinh Phu, Chairman of the Hanoi Supermarket Association, the picture of the Vietnamese retail market is extremely rich and it is an uncompromising competition. Currently, foreign investors are dominating the convenience stores sector. Competition will be fiercer, even retail competition now is spilling out into the traditional retail channel. 

There is not only the “giant” 7-Eleven, but a series of convenient store brands being "deployed" in Vietnam that will be a great motivation for changing the habit of miscellaneous consuming of Vietnamese by various and quality goods, service time around the clock, said Mr. Phu. And according to him, this is the challenge for modern retail chains in the country as well as grocery stores all over the place in the country.