Fierce Competition in Retail Industry

11:56:25 AM | 6/11/2019

According to Vietnam Report’s survey, although the retail industry has a great potential for development, it is accompanied by a very fierce level of competition with the "landing" of many foreign and domestic enterprises. Many domestic and foreign enterprises have been forced to leave the market.

In the retail business survey conducted by Vietnam Report in September 2019, factors related to the competitive environment and strategies are considered to have a significant impact on the production and business activities of the enterprises in the whole industry in general for at least the next three years.

In terms of experience in developing trade centers, Vietnamese enterprises will have difficulty competing with foreign retail chains with modern models and financial potential. However, Vietnamese businesses are showing strength in the field of convenience stores. Especially, when the market in urban areas is gradually becoming saturated, the modern retail market will need to spread to rural areas, which have potential for businesses to develop distribution channels. The rural area, which accounts for nearly 80% of the area and for more than 70% of the Vietnamese population, is a sizeable market and its demand for shopping is increasing exponentially due to rapid income improvement.

Although e-commerce channels are growing rapidly, traditional sales channels still dominate the market. According to Vietnam Report’s survey, up to 98% of retail businesses said that almost all revenue had come from stores and agents, only about 2% had come from e-commerce sales. This is also the impetus for distributors of consumer goods to enter the Vietnamese market. In 2018 and the first half of 2019, the market has witnessed the opening of hundreds of new convenience stores and supermarkets to meet increasing consumer demand in major cities across the country. Currently, Vietnam's retail market has more than 3,000 convenience stores (double the amount compared to the previous two years), more than 8,000 markets and 2.2 million retail businesses. It is expected that in the fourth quarter of 2019 and in 2020, many businesses will continue the trend of developing the retail chain in the country. The combination of modern retail system and traditional consumer channels has gradually met the needs of consumers.

With the investment environment considered to be much improved in the direction of supporting investors, local and foreign retailers are tending to expand their operations in Vietnam through the M&A strategy, franchise and other cooperation models to maximize the exploitation of the market size.

In recent years, Vietnam's retail industry has experienced rapid growth. The compound growth rate (CAGR) in the period of 2013-2018 was 10.97%. Total retail sales are also expected to reach US$180 billion by 2020, equivalent to an increase of 26.6% from 2018.

Many large-scale M&A deals, such as those of Metro Cash & Carry Vietnam (including 19 centers and related real estate valued at €655 million) and Big C Vietnam (32 supermarkets/hypermarkets) worth US$1.14 billion. Besides, the market also witnessed a strong rise of domestic investors. In some typical examples, VinGroup has implemented M&A activities with famous retail chains such as VinatexMart, OceanMart, Maximark and Fivimart; BRG Group performed M&A with Intimex and Hapro; Saigon Co.op with Auchan chain (France). In the coming time, Vietnam is expected to continue to be an attractive spot for M&A in the region and certainly the retail industry will still be one of the industries attracting the most capital inflows from M&A.

According to the World Bank's forecast, household spending will increase by 10.5% per year on average together with the strong growth of the middle class. Currently, about 70% of Vietnam's population is economically secured, of which 13% belong to the world-class middle class. These income classes are growing rapidly, about 20% per year, during 2010-2017. Economic growth, improved living standards and the rise of the middle class are a solid foundation to spur the growth of the retail industry in the future.

Quỳnh Chi