New habits in health retail

April 22, 2021 | 08:00
Vietnam’s modern health and beauty retail sphere continues to gain traction as players are mulling over expansion plans.
new habits in health retail
New habits in health retail. Source:

FPT Retail plans to expand its Long Chau Pharmacy chain from 200 to 350 outlets in 2021. The group expects to account for 30 per cent of the local pharmacy retail market in the next two years, contributing to 25 per cent of its total revenue worth $217.16 million.

A representative of FPT Retail said that the company will develop its logistics capabilities and workforce to reach this target. The retailer has also started to pilot its FBeauty chain, selling cosmetics and functional foods to capitalise on the market potential.

Meanwhile, Pharmacity plans to double its network to more than 1,000 stores across the nation this year. Apart from drugs, Pharmacity also sells cosmetics, beverages, and toothpaste, among others.

According to Pharmacity founder Chris Blank, the retailer has taken advantage of the downturn during the pandemic to scoop up prime real estate at a discount.

“When everybody was closing stores, we were land-grabbing,” he said in an interview with Nikkei Asia.

Looking to the company’s next 500 stores, he added, “The future is definitely sunny in this business.”

Indeed, other foreign giants such as Japan’s Matsumotokiyoshi and Hong Kong’s Watsons have also realised the market potential and made forays into Vietnam’s fast-growing market in the last couple of years.

The expansion of health and beauty players is in contrast with other traditional retailers who have scaled down due to the pandemic. According to global market research firm Euromonitor International, in order to take advantage of an ongoing rise in consumer health-awareness, chained health and beauty specialist retailers’ brands are making significant efforts to expand their store networks.

Medicare and Guardian are among the expanding chains in drugstores/parapharmacies, while chemists and pharmacies are seeing gradual consolidation driven by the rise of chains such as Phano, Pharmacity, and Phuc An Khang.

Euromonitor estimated Vietnam’s health and beauty retail market to reach $11.59 billion in 2021, of which chemists/pharmacies will contribute $9.27 billion. By 2025, the market will reach $14.42 billion, up 24 per cent against 2021.

Phong Quach, head of Consulting at Ipsos Strategy3 Vietnam, pointed out that Guardian has nearly doubled its stores in Vietnam since 2019 and while Pharmacity only had six stores in January 2017, it is now planning to operate 1,000 stores in 2021. These two are examples of aggressive expansion plans to capture the growing demand for health and beauty products, and medicine, especially in major urban areas and key cities in Vietnam. The retailers will continue to expand while adapting to new shopping behaviours and the changing landscape in Vietnam.

“One of the key trends is multi-format expansion. This is a strategy that Guardian understands well in Malaysia where growth is not only about street outlets but also leverage on shopping malls and e-commerce,” Euromonitor noted.

Another trend is health and beauty product delivery service from outlets. With the acceleration of COVID-19 and the growth of delivery service in Vietnam, providing the convenience for Vietnamese consumers which is also critical for chain players, it can be expected that the player with successful network and branding will also think about adding this service where the delivery can be made quickly from a store that is near to the consumer, according to the expert.

Trang Ngo, head of Healthcare at Ipsos Vietnam, highlighted that players will focus on creating seamless customer experience across channels. With the pandemic amplifying the omnichannel strategy, making sure that key elements such as convenience can be part of customer experiences across channels, will be a big challenge for retailers.

Based on an Ipsos global survey with 12,000 online shoppers, “delivery delays” and “items out of stock” are key pain points for them with 25 and 16 per cent, respectively, followed by 14 per cent of “too many promotional emails”, so retailers will need to deal with different problems arising from different channels which make customer experience complicated to streamline. Last year in Vietnam, the survey showed that more consumers purchased online for health and beauty products and it has become a new shopping habit, and a new challenge for retailers.

According to Richard Burrage, managing partner of Cimigo, the expansion of modern pharmacy chain outlets in Vietnam in the past few years is accelerating and exciting to overserve. Modern pharmacy retail requires scale as margins are very low, hence it needs rapid acceleration to reach that scale. Vietnam is expected to see increasing expansion beyond pharmaceuticals to own brands of Asian remedies, nutraceutical, and personal care to increase the “basket size” with higher margins from own label products.

However, he noted that modern pharmacies organise a very disorganised category, bringing increased transparency and trust in the medicines sold and the ability to trace those medicines to their origin and ensure they are true and not expired.

Meanwhile, experts from Ipsos Vietnam agree that for health and beauty, imported products or those produced in Vietnam by foreign companies hold most of the market share, so both local and foreign retail players have to demonstrate the ability to understand the relevant brands and products for each segment, and market and distribute items properly. Foreign players such as Guardian have certain advantages and experiences from Malaysia and Singapore regarding their portfolio and how to introduce it to consumers.

“However, one key global trend is ‘supporting locally made products’ because of COVID-19 impacts, where Vietnamese consumers will prefer a Vietnamese brand,” the experts said. “This is a trend relevant to both local and foreign retailers whether they want to source for more local brands or to locally produce. However, both foreign and local players have their own difficulties. Vietnamese brands from top local companies are still struggling and it will not be easy for foreign players to find capable local partners to source from.”

By Thanh Van

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional