Vietnamese retail market – opportunities for local players still there

Vietnam’s retail businesses can survive and grow sustainably under competitive pressure from big foreign retailers if they know how to make use of their advantages, said local experts.

The attractiveness of Vietnam’s retail market has faded in the eyes of US-based consulting firm A.T. Kearney since topping the firm’s list in 2008.

Many market research firms have predicted that Vietnamese consumers will continue tightening spending due to an unclear economic picture. The slowdown in consumer price index growth in recent months has shown a trend of exhausting purchasing power.

However, for international retailers, such as FairPrice NUTC (Singapore) and Auchan (France), Vietnam's retail market still holds untapped potential.

Knowing your strength

Foreign retailers coming to Vietnam are often armed with financial strength, professional distribution networks and international experiences, which local retailers lack, said Dinh Thi My Loan, chairwoman of the Vietnam Retailers Association.

With high retail space prices, often up to 55-60 percent of the cost, it is difficult for businesses to expand their network in Vietnam.

As a result, in head-on competition with the world's retail giants, Vietnamese retail businesses will not have much chance of winning, said an expert.

However, foreign giants are not always the winners in many overseas markets.

For example, Wal-Mart and Carrefour, the two leading retail groups in the world, have shut down in South Korea due to the difference in buying habits of the locals. In Germany, Wal-Mart, with the slogan “low price every day", cannot compete with Metro.

A similar story has played out in China, where Wal-Mart is struggling to survive after key personnel quit, and German Metro axed its China electronics retailing arm in February this year. 

Wal-Mart is forecast to follow the footsteps of Home Depot and Best Buy, which have already pulled out of the Chinese market.

Therefore, some experts say local retail businesses still have their own strengths, and the most important thing is knowing how to make the best use of them.

The biggest strength of Vietnamese retail enterprises is understanding the consumer habits of the local people. With smaller and more streamlined administrative structures, Vietnamese enterprises can have more flexibility for their changing markets.

“These strengths have been successfully implemented by Lotte in Korea or NUTC FairPrice in Singapore,” said marketing expert Hoang Tung .

Besides, the presence of many foreign retailers will increase competition for local retailers, prompting them to change to co-exist and develop.

For example, the joint venture with NUTC FairPrice will be of great help for Saigon Co-op to hold and expand its market share in their home market.

Another upside is the opportunity for Vietnamese goods to be sold abroad.

The establishment of the joint venture between NUTC FairPrice and Saigon Co-op also opens up opportunities to promote the export of goods to Singapore through NUTC FairPrice’s system, said Nguyen Ngoc Hoa, chairman of Saigon Co-op’s board of directors.

Accordingly, NUTC FairPrice will provide market data about the items which are selling well. As a result, the joint venture will help local manufacturing firms sell their goods locally and internationally via official and safe retailing channels.

The operating model of the retail group Auchan is said to follow the same direction as NUTC FairPrice and Saigon Co-op.

Tan Kian Chew, the CEO of NUTC FairPrice said Singaporeans are interested in tropical fruit, so Vietnamese specialties, such as mango, grapefruit, and dragon fruit, have great potential to be exported to his country. It is expected that this year, Saigon Co-op will export several containers of jackfruit and dried bananas to Singapore as a trial.

Long-term vision

The most irresistible aspect of Vietnam’s market for foreign retailers is the large population of nearly 88 million people, according to many brand experts.

In particular, young people, who are easily adaptable to new trends, especially technology products and buying habits in retail stores, account for the majority. They are the main customers for such high-end retail chains.

“We believe in the potential of this market, and the evidence is the collaboration with Saigon Co-op," said Chew in a press meeting announcing the deal.

The Auchan group, which is rated on par with American rival Walmart and French Carrefour,  recently announced that it will invest $500 million in Vietnam over the next 10 years, becoming the second French retailer to establish a presence in Vietnam.

Aeon, a large Japanese retail group, has also announced that it will launch a shopping center in Vietnam in 2014, and then add 20 more centers.

As the modern retail channel in Vietnam only accounts for 20 percent of the market share, and there is a shift from the traditional one, the market, to the modern channels taking place, the potential is great, Phap Luat Newspaper quoted branding expert Doan Dinh Hoang as saying.

“While purchasing power is slow, this is still a lucrative market, a gold mine that many foreign retailers want to jump into,” he added.