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Last updated: Sunday, January 25, 2015
Vietnam Retail Market: What Chances for Domestic Retailers?Posted: Tuesday, July 05, 2011
As one of countries having the fastest economic growth in the region, Vietnam is a potential and attractive market to foreign retailers worldwide. With big potential, the Vietnamese retail market is attracting many international retail groups all over the world which have planned business expansions in the country. However, Vietnamese retail businesses are meeting with difficulties to compete with foreign rivals and are struggling to survive.
Competing to gain market share
Three years ago when the Vietnamese retail market officially opened in line with the World Trade Organisation (WTO) commitments, local businesses were so worried about the inflow of foreign retail groups to the country. To date, Vietnamese retail businesses are struggling to compete with their foreign rivals to gain more market share though they have tried their best to stand firm in the local market. With financial advantages, and long-term experience... leading trademarks like Big C, Lotte Mart, Metro, Parkson... are taking up the local retail market, worrying local retailers. Over the past years, the leading retail groups have poured big investments into their business expansions in the country with the aim to gain more market shares.
With the high local customers’ demand, Vietnam remains an attractive market for foreign retail groups who want to expand businesses in the market. Taking Big C as an example, in 2010, Big C gained firm foothold in the local retail market by opening five more supermarkets in the country, raising the Big C network in Vietnam to 14. Though Big C’s development plan 2011 has not been revealed, Ms Duong Quynh Trang, external affairs director of Big C, said the goal of Big C in the upcoming time is to expand its network to other cities and provinces nationwide in an effort to better serve the demand of the locals. Similarly, Lotte group now operates two big supermarkets in Vietnam though it has been present in the country for only two years. Lotte is seeking locations to open 30 more supermarkets in Vietnam by 2018.
With the opening of trade centers in the country, international groups have won local customers’ confidence and are controlling the local market. Leading groups namely Parkson, Metro... are gearing preparations for opening of more outlets and trade centres to compete with local retail businesses.
Vietnamese retailers in fact are struggling to compete with foreign rivals to survive in the local market because of financial difficulties, and poor experience in global competition. Mr Nguyen Ngoc Hoa, Director of the Board of Directors of Co-op Mark, said though Vietnam’s application of Economic Needs Test (ENT) requirement before allowing foreign retailers to open the second retail outlets. The Departments of Industry and Trade will use many criteria to decide whether to grant licenses to the opening of supermarkets or not...). In fact, foreign retail groups had used different ways to enter the local market by joining hands with local partners, franchising to penetrate and expand their businesses in the Vietnamese market. With fiercer competition and the high inflow of international retail groups, local retail dealers are facing big pressures to survive and stand firm in the local market.
In the latest report on Vietnamese retail market, the Research and Markets confirms Vietnam is one of the five most lucrative retail markets in the world. Research and Markets at www.researchandmarkets.com, said with an economic growth of around 6.8 per cent in 2010, changes in Vietnam's regulatory structure favouring foreign investors, and increasing consumer attention towards modern retail concepts, retail sales in Vietnam are expected to surge at a rate of around 23 per cent during the 2011-2014 period. The report “Vietnam Retail Market Forecast to 2014" says the modern retail channels will play a crucial role in the future growth, improving their position in the market. Increasing purchasing power, changing lifestyle, and influence of western culture are some of the key growth drivers in the country's modern retail market, it says, adding that, during the next few years, a short wave of consolidation will emerge as foreign retailers are trying to consolidate their position and deepen their market penetration.
In fact, the local retail network for common goods in general and necessity goods in particularly remain poor and weak. Over the past years, though the State and local businesses have paid more attention to infrastructure upgrade, and expand the network, the lack of close cooperation and coordination among producers and businesses as well as between localities and businesses has led to ineffectiveness of goods distribution and uncontrollableness of relevant agencies. Businesses themselves could not control goods prices and their quality. Local retailers are still immature and lack experience. In comparison with regional countries, including China, Indonesia, where four retailers with biggest revenues are domestic ones, though Wal- Mark had entered China and Carrefour penetrated into Indonesia for years.
Closer cooperation for mutual benefits
Facing big challenges in the fierce competition, Vietnamese retailers and distributors have to work out proper measures to stand firm in the local market. At a conference held by the Association of Vietnamese Retailers (AVR), Ms Dinh Thi My Loan, general secretary of the Association of Vietnam's Retailers (AVR) said: though the country suffered negative impacts of the global financial crisis and the world economic slowdown in 2010, the Vietnamese retail market has developed strongly. The country’s total retail sales and services rose over 24 per cent in 2010. Talking about the outlook of the Vietnamese retail market in the future, experts confirmed that the country’s retail market would continue develop in 2011 and remain one of the most lucrative retail markets in the world.
In fact, the Vietnamese retail market is facing with many challenges and difficulties. Mr Ngo Trong Thanh – a marketing expert and executive manager of Mancom suggested the Government action program in order to further develop the retail market in the 2011- 2020 period. Thanh said that the Government should focus on priorities for the development and encourage powerful businesses in the field to become pioneers in the development process.
To gain more market share in the local market, the country should pay due attention to expansion of the national retail network, improvement of services quality, increase of administration capacity, development of human resources and application of technology. However, they are difficult tasks as most local businesses are small ones who lack capital and experience and have backward technology.
An expert of AVR admitted that it is very difficult for Vietnamese businesses to compete with leading international retail groups who boast rich experience, big capital, and modern technology... According to the expert, the best way for Vietnamese businesses operating in the field is joining hands with foreign partners for mutual benefits.
Not only Vietnamese businesses, but also multi-national corporations also meet with difficulties when they have to compete with other powerful distributors. Simply, foreign retailers would like to display products of their countries on their shelves of supermarkets that they cooperate with local businesses. Vietnamese enterprises should think about this when signing partnership agreements with foreign partners. This trend has been popular in many countries in the world and Vietnam would have to face with in the upcoming time. This is the reason why G7Mart has to take a long time negotiating with partners to ensure the position of Vietnamese goods in the G7Mart- Ministop chain which agreement will be signed to become a joint venture in the future.