Retail pricing conflicts set to persist

May 09, 2024 | 20:00
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Businesses in areas such as retail and food and beverages are looking at different strategies to retain budget-conscious customers amidst the shrinking demand caused by the challenging economic environment.

FPT Retail recorded positive pre-tax profit in the first quarter of 2024. This is deemed a great relief to its leaders, who are still concerned about the tough lessons suffered by a price war beginning last year, and which eroded FPT Retail’s gross profits to 8 per cent in the second quarter of 2023 and 11 per cent for last year.

Retail pricing conflicts set to persist
Some items in food and beverages as well as electronics retail have been subject to deep reductions, photo Le Toan

Speaking at its AGM, CEO Hoang Trung Kien said, “The price war amidst the electronics retail businesses selling mobile phones and laptops since March 2023 forced FPT Retail to close 30 stores last year. The price competition continues to linger this year, so the company plans to shut down another 50 inefficient stores.”

The price war was initially triggered by massive discounts from Mobile World Group (MWG) on TVs and household appliances. A slew of other retail chains like FPT Shop, CellphoneS, and Di Dong Viet then jumped on the bandwagon to offer discounts.

However, the strategy came with a price. Mobile World posted a net profit of $7 million in 2023, a decrease of 96 per cent on-year, marking the lowest level since 2013. The company’s stock has been removed from the VNDiamond index. Other investment funds have also reduced the proportion of MWG shares in their portfolios.

Recognising the impact of the price war, FPT Retail turned its focus on expanding its product lines, like venturing into household appliances. The company will scale up this segment with a view that household appliances will contribute 10 per cent to FPT Shop’s revenue in the future.

Meanwhile, at Masan Group’s AGM, the company’s leaders said that they are making efforts to change shoppers’ price perceptions through WinCommerce, which operates WinMart and WinMart+ supermarkets.

Since the end of 2023, WinCommerce has started to rebuild its strategy by mobilising staff to introduce product prices to customers and stepping up marketing across digital channels. In rural areas, WinCommerce has stocked some products at competitive prices with other grocery stores.

WinCommerce’s net revenue witnessed an 8.5 per cent on-year increase to $331.6 million in the first quarter of 2024.

As the economic outlook remains uncertain, price competition is extending beyond the retail space to the food and beverage sector. Amidst the dampening demand, coffee and fast-food chains like Highlands Coffee, KFC, and McDonald’s are further promoting affordable combos to target budget-conscious consumers.

Dao The Vinh, CEO of Golden Gate, said, “Every business must retain consumers. For our restaurant chains, the price war has turned into a value war, including customer care, service quality, and the customer experience.”

Likewise, Masan Consumer is focused on innovative products for the fast-moving consumer goods segment rather than pricing strategies to entice customers. It has rolled out a self-cook rice product into the market and aims to expand by entering the out-of-home market and providing premium products in home meal replacement and restaurant meal replacement.

“The company targets to expand the addressable market from $1 billion in instant noodles to $17 billion in restaurant meal replacement with the launch of the self-cooked rice product,” said Nguyen Truong Kim Phuong, senior marketing director of the convenience foods category at Masan Consumer. “Despite being more expensive than other instant noodle projects, we believe this product line will be successful, as we have experience premiumising the instant noodle experience.”

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