Retailers told link up or die

Vu Vinh Phu, chairman of Hanoi Supermarket Association told VIR that his association and the Vietnam Retailers Association (VRA) recommended domestic retail enterprises to enter marriages on convenience to build bigger firms in anticipation of an influx of foreign retailers following the further opening of the retail market to foreign investment.

Under Vietnam’s WTO commitments, from January 11, 2015, Vietnam will permit the establishment of wholly foreign-invested retail companies. Currently, foreign firms can only operate in Vietnam’s retail sector via a joint venture with a Vietnamese partner or through franchising.

Phu said that at the moment domestic retailers have not been good at promoting co-operation.

“Vietnamese retailers favour promoting joint ventures with a foreign partner but they should consider setting up an alliance with domestic retailers to increase their competitiveness rather than develop alone,” added Phu.

Local retailers were expected to continue facing difficulties next year as economic downturn and decreased consumer spending will continue to bite. Phu stressed that domestic retailers with scant capital, limited management ability and feeble logistics would need to work out how they would compete in a liberalised market.

The country’s total retail sales and service revenues in the first 11 months of this year reached VND2,386 trillion ($113 billion), the General Statistics Office (GSO) reported. The figure represented a 12.6 per cent year-on-year rise. However, the GSO added that the increase would have only been 5.5 per cent if price hikes were excluded.

One of leading Vietnamese retailers, Phu Thai Group Joint Stock Company’s general director Pham Dinh Doan said that many domestic retailers including Phu Thai had raised concerns about foreign retailers setting up shop in Vietnam. But the growth towards domestic alliances among retailers was regarded as something of a first in Vietnam’s cut-throat retail sector.

Doan said that the four largest domestic retailers Satra, Hapro, Phu Thai Group and Saigon Co.op had planned bigger firms seven years ago. However, the dream has not yet been realised.

“It seems that it won’t just be the big four retailers that are interested in such an alliance. More domestic firms want to develop it in the retail sector in order to compete with foreign retailers. Once Vietnam opens the door further, rich foreign retailers will no longer be forced into partnerships with Vietnamese firms,” added Doan.

According to the VRA, Vietnam’s retail market remains full of potential. In 2013, modern retail outlets in Vietnam only held a 25 per cent market share, in contrast to the Philippines 33 per cent, Thailand 34 per cent, China 51 per cent, Malaysia 60 per cent and Singapore 90 per cent.

The Ministry of Industry and Trade estimated that by 2020, Vietnam would host some 1,200 to 1,300 supermarkets, and more than 300 shopping centres.

The recently released Vietnam Retail Market Forecast to 2014 Report published by AT Kearney said that Vietnam’s total retail market was forecast to see an annual growth rate of 23 per cent, offering many opportunities for both domestic and foreign retailers. According to the report, in the next few years, a short wave of consolidations will emerge as foreign retailers try to establish their positions and penetrate the market.

So far, existing  foreign retailers in Vietnam have been quickly expanding their businesses.

Casino, owner of the Big C supermarket chain, has increased its total number of supermarkets in Vietnam to 24. The company plans to open five supermarkets and shopping centres annually over the next three years.

A source from Parkson Vietnam Co., Ltd told VIR that so far, the Malaysian shopping centre operator had eight shopping centres in Vietnam and last week, the company opened its ninth store in Ho Chi Minh City, with its tenth store due to open in mid-2014.

Meanwhile, Germany’s Metro Cash & Carry Vietnam now possesses 19 stores nationwide, a number expected to rise to 30-35 over the next three to five years.

The Korean company Lotte Mart has been gradually consolidating its presence in Vietnam with four centres already operating in Ho Chi Minh City, Dong Nai and Danang. The fifth Lotte centre will be opened at the beginning of next year in Hanoi’s Mipec Tower. The Korean company Lotte Mart has also unveiled its plan to open 60 supermarkets in Vietnam by 2020.

Saigon Co.op and Singapore’s retailer Fairprice has received approval for a commercial joint venture for the Co.op Xtra and Co.opXtraPlus joint supermarkets in 2014. The second Co.op shopping centre was opened last week in Hanoi.

Foreign retailers are maintaining confidence in Vietnam’s retail growth while the upcoming legal change has caught the attention of leading global retailers. According to the property consulting firm CBRE, France’s number one retailer Auchan, for instance, early this year stated it planned to invest $500 million in Vietnam over the next 10 years.

In another case, E-Mart, South Korea’s largest retailer would likely opt for a joint venture as it prepared to officially tap into Vietnam in 2015.