Foreign giants seek profits in Vietnam retail market

22.06.2016

Dr. Le Huy Khoi, from the Institute of Trade, said the group of foreign retailers in Vietnam has grown very fast.

Dr. Ngo Tuan Anh, from the National Economics University, said as both major retail systems in the country – Metro Cash & Carry and Big C Vietnam – had been acquired by Thai investors in Thailand, up to 50% of the Vietnam retail market is now in the hands of the Thais.

Dr. Ngo Tuan Anh said that the participation of the Thai „giants“ in the retail market of Vietnam once again proves that the domestic retail market is a lucrative land for foreign firms.

Dr. Phan The Cong from the University of Trade and Mr. Phan The Thang from the Competition Administration Department, Ministry of Industry and Trade, said besides the development of well-known retailers of Vietnam as Saigon Co-op, Vingroup, Hapro … in recent years many large retail groups in the world like Metro, Big C, Lotte Mart, Aeon, Family Mart, Central, Auchan (Simply Mart) have stepped up their expansion strategy in Vietnam.

Regarding the attractiveness of the Vietnam retail market, Dr. Le Huy Khoi pointed out the following reasons: Vietnam has a large population (over 91 million people), of which 60% are young consumers, per capita income at $1,890 in 2015, fast pace of urbanization, and growing middle class.He added that the middle class in Vietnam is expected to double in 2020, from 12 million in 2014 to 33 million people. Along with this, Vietnamese consumers will be more willing to spend for quality service and products.Other experts said Vietnam’s retail market has much potential as the market scale reached $102 billion in 2015 (growth rate of 7.3% in 2010-2015 ) and the modern retail market accounted for only about 25% of total retail sales, but still achieved an average growth of 12% over the period of 2010-2015.Moreover, according to national retail planning by 2020, Vietnam will have from 1,200 to 1,500 supermarkets, 180 trade centers, and 157 shopping centers. It is forecasted that in the period 2016-2020, the retail market will grow at 11.9% annually, to reach about $179 billion in 2020, in which modern retail will account for over 45%.The reasons make Vietnam’s retail market a promised land and a destination of many foreign investors, especially those from neighboring countries like Thailand, South Korea and Japan.

Which way out for local retailers?

The signing of the Trans-Pacific Partnership (TPP) is an opportunity for Vietnam to join the supply chains of many major corporations in the world, especially the electronics and high tech supply chain.However, this is not easy because of the markets of TPP state members have been exploited fully by local firms and when the domestic market gets saturated, local enterprises are forced to expand their market to other countries.In other words, the pressure from foreign distributors on Vietnamese retailers is growing along with the schedule for opening the distribution sector.To survive, Dr. Le Huy Khoi said Vietnamese enterprises need to study and take advantage of and effectively exploit the market segments in which they have an advantage over foreign firms such as specialized supermarkets.Local retailers are also advised to research and develop business strategies towards the development of convenience store chains in service of specific residential area and market areas.

„Without good domestic production, there is no chance to develop good retail business. Thus, local firms need to link the production-supply chain more solidly in the domestic market in order to create regional links, production – distribution, distribution – distribution, wholesale – retail link… “ Dr. Khoi said.

He also asked the Government to have incentives for Vietnamese retail businesses, such as giving them retail spaces at favorable positions, reasonable rent, taxes, capital and interest rates.For foreign retailers, Khoi said that regarding land allocation and land lease, the State needs to set binding regulations. Specifically, they have to operate at profit and pay taxes for at least 3 years before getting permission to transfer their business in Vietnam, and in this case, Vietnamese partners must be given priority.

Source: Vietnam.net

Photo: CBR Investment AG