Retail Market: Which Model Will Prevail?

11:18:50 AM | 5/6/2019

European retail giants such as Metro, Parkson, Auchan, and other big companies like Parkson (Malaysia) have left Vietnam’s market, although the market is considered attractive with growing buying power.

Withdraw of Auchan Retail

Vietnam retail market is getting quite hot as Mr. Edgard Bonte, Auchan Retail Group President, has announced selling 18 supermarkets in Vietnam after nearly five years of participating in the market. The retail group earned only 45 million euros (US$50.4 million) in 2018 and is continuing to incur losses.

This is not the first European retail group to leave the Vietnam market. Before Auchan, Casino Group (a famous distributor of France) also sold Big C Vietnam supermarket system to Central Group of Thai billionaire Chirathivat with a total deal value of up to US$1.05 billion. Another deal is Metro Corporation (Germany), which also transferred the wholesale system of 19 trade centers in 14 provinces and cities, five transit warehouses and a total of about 3,600 employees to Thailand's TCC Group. Parkson commercial center system (Malaysia) entered Vietnam market in 2005, aiming to open 2-3 centers in big cities of Vietnam; however, it had to close trade centers one after another as its business results plummeted.

The common point of the "fleeing" of Auchan and Parkson was unprofitable business, while Casino Group left the market as part of its business strategy.

In a further analysis, a retail industry expert said that the common point of the loss-making retailers, who had to leave the Vietnamese market is that their business approach is not appropriate to the psychology and culture of Vietnamese people. For example, for Auchan's case, because the supermarket system was only located in residential areas, it was not able to spread the brand identity. Its stores could only serve the community in the area, not customers from far away with diverse needs: shopping, playing, eating, etc. For the case of Parkson, the losses came very fast when the group only targeted high-income customers and appeared in the top-rated buildings such as Paragon, Keangnam Landmark, Cantavil An Phu. It also lacked local market knowledge.

New structure and model of the market

In 2016, after Central Group buying Big C and then acquired 49% stake of electronics chain Nguyen Kim; Metro Cash & Carry Vietnam was also acquired by another Thai corporation TCC; Mr. Vu Vinh Phu, Chairman of Hanoi Supermarket Association, warned of potential bankruptcy of domestic retail. However, recently the resurgence of domestic retail businesses has created truly exciting competition for this market. Not only competing on hypermarkets, domestic businesses can also compete on par with FDI enterprises on online sales, mini supermarkets and convenience stores. Pioneer is Saigon Co.op with Co.opXtra and Co.opXtra Plus. It cooperates with TV station to open HTV Co.op sales channel to build a system of 300 Co.op Food and Co.op Smile convenience stores, two trade centers, 101 supermarkets and Co.op Mart hypermarket and online sales channel coophomeshopping.vn. In 2017, sales of Saigon Co.op amounted to nearly VND30 trillion (US$1.3 billion). Another Vietnamese enterprise that is also gradually becoming a formidable competitor for FDI retailers is VinGroup. With the acquisition of 23 supermarkets of FiviMart and expanding its participation in its hypermarket segment, VinGroup currently has 1,700 convenience stores labeled Vinmart +, 66 Vincom shopping centers, about 100 Vinmart supermarkets , VinPro/VinPro + electronic supermarkets and online channel adayroi.vn.

According to experts, in the segment of high-end products, leading European-American brands still dominate. For mass market segment, the old style will not develop but create niche markets with specialized retail chains such as furniture and construction mechanical tools, chains of auto parts. However, the most powerful directions will belong to the system of medium-sized stores serving as convenience stores, selling essential fresh goods. At the same time, Vietnamese people are gradually interested in e-commerce when geographical factors are no longer an obstacle, plus other advantages, making this type grow at an increasingly strong pace.

The common point of the loss-making retailers who had to leave the Vietnamese market is that their business approach is not appropriate to the psychology and culture of Vietnamese people.

Nguyen Thanh