Domestic retailers realise their potential of retaking Vietnam

While foreign retailers have partially been struggling to expand their outlet numbers, local chains are slowly beginning to overtake the market. Photo: Le Toan

Last month, Truong Hai Auto Corporation (THACO) inked a deal to acquire Emart Vietnam Co., Ltd., the operator of the Emart hypermarket in Ho Chi Minh City’s Go Vap district. Following the deal, THACO is planning to expand the Emart chain to 3-4 hypermarkets into next year and to 11 by 2025.

Around the same time Masan, with its vision to develop its retail arm into a one-stop shop for both online and offline shoppers, received $400 million investment from a consortium led by Alibaba and Baring Private Equity Asia. As part of the deal, Masan will team up with Lazada, Alibaba’s Southeast Asian e-commerce unit, to step up its online presence.

The recent merger of VinCommerce JSC of Vingroup (retail), VinEco (agriculture), and Masan Consumer Holdings (consumer goods), meanwhile, aims to create the leading group of retail and consumer goods in Vietnam. The new company owns a distribution network of 2,600 VinMart and VinMart+ stores in 50 cities and provinces with millions of customers along with a system of 14 high-tech farms of VinEco.

Before the pandemic hit, other local retailers also left marks in the retail market, such as Saigon Co.op’s acquisition of France’s Auchan, and BRG Group’s partnership with Sumitomo Corporation from Japan to develop the Fuji Mart supermarket chain, both in 2019.

Samuel Son-Tung Vu, partner at law firm Bae, Kim & Lee Vietnam, said that local investors making significant investment in the retail sector is the result of the shift in dynamics of both foreign and local investors. Specifically, the accumulation of financial potential and network along with the gradual formation of business chains from production to distribution have created motivation for Vietnamese groups to embark on aggressive expansion strategies.

“Local investors who have strong production capacity have successfully seized mergers and acquisitions (M&A) opportunities to acquire the distribution channels of exiting foreign investors to further control the flow of goods, especially those they produce,” Vu added.

Withdrawing foreign players

According to a report by Deloitte Vietnam on the retail market in Vietnam in 2020, key players in the hypermarket segment include Big C from Thailand, Lotte Mart from South Korea, and AEON Mall from Japan dominating the market with a 57.6 per cent market share. On the other hand, the supermarket segment is dominated by local players such as Saigon Co.op and Bach Hoa Xanh, which are leading the pack with market shares of 43 per cent and 14 per cent, respectively.

That segment’s consistent growth over the last four years can be attributed in large part to a deep understanding of their local markets, as well as increasing popularity of private label products, according to the Deloitte report.

The withdrawal of Emart reflects the challenges facing foreign retailers in Vietnam. Emart struggled for years but failed to open new hypermarkets due to legal and land site barriers. Previously, other retailers also departed from the local retail market like Auchan, Casino Group, and Metro Group.

Some retailers have to scale down operation due to a lack of modern retail concept to compete with new rivals. Malaysian retail giant Parkson Retail Asia also narrowed its loss-making businesses and disposed of its stores in Vietnam through 2019 and 2020.

The fierce competition in the retail market is forcing retailers to adjust strategies. Last week, Lotte Mart announced that it will shut down its Dong Da supermarket in Hanoi. The news sparked rumours about the potential withdrawal from the market. However, a representative of Lotte Mart denied them, stating that the closure was part of its strategy to develop and expand its chain in Vietnam, and does not affect the business operation of other outlets.

Lotte Mart said that the chain is in its investment phase, after opening a second supermarket in the south-central province of Khanh Hoa in April and planning to launch another one in the central province of Nghe An.

Lawyer Vu explained, “On the side of foreign investors, subject to obstacles from the instrument set by the state to control the expansion of foreign retail network such as the economic needs test, foreign investors often struggle with establishing their second and subsequent outlets to expand the distribution chain in Vietnam. Further, financial stress due to the pandemic is also affecting the business plan for scaling down operation.”

Realising their potential, local companies have jumped on the bandwagon. However, different from the traditional retail models as similar as the way that almost all of foreign players are implementing, which is the supermarkets and shopping malls, the domestic groups’ ambitions are to complete their ecosystem.

Talking about THACO’s deal, Tran Bang Viet, CEO of Dong A Solutions, said that THACO entered the retail market in order to sell more experiences to its existing customer files.

“Around half of the cars here are assembled or distributed by THACO. Meanwhile, the demand for car-washing services and maintenance is rising. Most customers feel bored while waiting for these services to be carried out, so we can turn that meaningless waiting time into relaxation time and for families via experiencing more utilities,” Viet said.

“For example, one parent can look for technical goods for the car while the other can go shopping, and the children can go to book stores or play at recreation centres. After that, the family can enjoy a meal together or go to the cinema. It is best if customers can enjoy all-in-one services such as these, in a model of hypermarket that is common in developed countries,” he added.

Successful restructure

Chairman Tran Ba Duong said there were certain reasons for THACO to acquire the South Korean retail giant’s Vietnamese operations. “THACO seeks to set up complexes where people can buy and service cars, hold conferences and weddings, enjoy amusement activities, and shop for groceries – and retail is the missing piece,” Duong said.

Nova Group also expressed its ambition to develop its own ecosystem after restructuring. It has announced the member companies in its economic group, after a long time of implementing the M&A strategy, which is a way for the group to complete its multi-industry ecosystem, adding value to real estate products.

Until the beginning of 2021, Nova Group successfully restructured with Novaland in real estate, Nova Service in trade and services, and Nova Consumer operating in agriculture and consumer goods.

Masan meanwhile diligently acquired stakes in domestic enterprises such as Phuc Long, VinCommerce, and Vinacafe Bien Hoa among others during the past 10 years to perfect its retail and consumer goods ecosystem.

Truong Cong Thang, CEO of VinCommerce, said, “I believe that in combining the Phuc Long products and current VinMart+ network of more than 2,200 stores and 10,000 stores in the next five years, we will provide 100 million Vietnamese consumers with the opportunity to enjoy the freshest and most delicious tea and coffee.”

“In the near future, we hope to take the Phuc Long tea and coffee brands global, contributing to spreading our cultural identity and promoting the signature drinks of Vietnam. At the same time, this partnership also helps speed up Masan’s strategy to develop the Point of Life consumer ecosystem,” Thang said.

Vu at Bae, Kim & Lee Vietnam shared the same view that local investors may have to look for unique development strategies, involving the omnichannel sales model.

“At the same time, creating synergy in business via placing different retail outlets next to each other would create convenience for consumers and make more products available to the same customer in one visit,” he said. “This model has been tested with great success in many countries with slightly different variants depending on consumer behaviour in each country. The local investors who truly understand the behaviour of Vietnamese consumers would reap great success.”