Last updated: Wednesday, March 29, 2017
Retailers Vie for Market SharePosted: Wednesday, October 12, 2016
Vietnam's retail market has witnessed a strong and rapid penetration of many big foreign retailers. The wave of mergers and acquisitions (M&A) and the advent of giant retailers from Japan, South Korea and Thailand fuelled concerns about hostile takeovers of domestic companies performed by foreign rivals and about the losing presence of Vietnamese goods on the market and losing competitive advantages on the domestic market.
This was an overarching topic of discussion at an online conference titled “Vietnam Retail Market: Which way for local retailers?" held recently by Business Forum Newspaper in Hanoi.
Lucrative market for foreign investors
According to a recent report by a German market research company, Vietnam's retail revenue exceeded US$100 billion in 2015 and was expected to be much higher in 2016. Propelled by a population of over 90 million and a double-digit growth, Vietnam’s retail market is extremely attractive. This will be always a pie that both domestic and foreign investors want to bite into.
Thus, the Vietnamese retail sector witnessed a strong penetration of giant retailers from Japan, South Korea and Thailand in recent years.
In 2014 when the Vietnamese retail market was not fully open to foreign investors, at least three giant international retailers made inroads into Vietnam in the first four months. Aeon Group of Japan took over Celadon Tan Phu Business Centre in Ho Chi Minh City for over 13 billion yen. The group plans to open 20 large-scale shopping malls in Vietnam with a total investment capital of US$1.5 billion by 2020.
South Korea’s leading retail conglomerate Lotte Mart also opened its 8th Trade Centre in Hanoi. The firm wanted to invest US$3.2 billion to have 60 trade centres in Vietnam by 2020.
Berli Jucker Corporation acquired Metro Cash & Carry Vietnam for an enterprise value of EUR655 million.
In early 2015, Central Group, a leading retailer in Thailand, announced to buy 49 per cent of stake in New Solution and Technology Development Investment Company, which owns Nguyen Kim Trading Company - a leading electronics retailer in Vietnam.
In October 2015, Emart - a leading South Korean retailer - officially marked its entrance with a US$60 million shopping centre in Ho Chi Minh City. Especially, in early May 2016, Central Group of Thailand stirred up the Vietnamese retail market when it announced to acquire BigC from French investors for more than US$1 billion.
In addition, Simply Mart launched three more stores in HCM City. AuchanSuper, a major retail brand from France, is planning to open another 17 supermarkets by end-2017 in the city and 20 stores by 2020 in northern Vietnam. Thanks to increasing disposable incomes, big fashion brands such as Gap, Mango and Topshop have become the top choice of many young Vietnamese. And, a series of other foreign retail brands are completing necessary procedures to march into Vietnam early next year.
Retailers need smart linkage
Ms Dinh Thi My Loan, President of the Vietnam Retailers Association, said, it is not reasonable to say that Vietnamese retailers are weak in comparison with powerful foreigners because their resources are different. Vietnam needs to take measures to protect its retailers to develop. Vietnamese companies must define their positions and their competences because the retail market has changed dramatically. They cannot win alone in this context. They should form smart connectivity with other retailers to strengthen their competencies.
She said, they also look to cooperation with foreign partners. The Vietnam Retailers Association is striving to cooperate with peer associations to learn from their experience.
In addition to expanding the market and developing the network like all other retailers in the country, Vingroup - an emerging giant retailer - signed cooperation agreements with 250 domestic producers and suppliers of goods and signed agreements with 1,000 domestic producers. Nguyen Minh Phong, an economic expert, said that this is a very positive move taken by Vingroup. A supermarket or a retail chain can be successful only when it controls the supply and quality of products. The supply must be big and stable. This is an important criterion for a retailer to achieve success.
Mr Nguyen Ngoc Hung, General Director of GM Service Joint Stock Company
In fact, the wave of M&A in Vietnam not only happens to retailers with physical shopping premises, but also to online retailers. For example, Central Group purchased Zalora Vietnam through Nguyen Kim and Alibaba bought Lazada Vietnam. For foreigners, conducting M&A is the fastest and most effective way to penetrate the retail market in Vietnam.
Strategies of Vietnamese retailers focus on their core strengths and boost cooperation with suitable partners to increase their competitiveness and competencies. That is the way of a sharing economy.
Depending on product and sector, companies take different solutions to boost their strengths, but they share the fastest way of going with two steps. The first is applying technologies to business and management. The weakest point of most Vietnamese retailers is technological application to business and management. But, this is handy for foreigners.
The second is expanding modern distribution channels such as e-commerce or affiliate marketing. Joining e-commerce will help them reduce distribution intermediaries, retail space costs and inventory risks. And, this cost optimisation will add to its price competitive advantages.
Economist Nguyen Minh Phong
M&A is a regular process which gets accelerated in certain circumstances. It has certain rules. Foreign buyers will come to a retailer with an offer after it develops its business network. M&A is the active process of both sides. If both buyer and seller actively study and merge to become stronger, they will have resources and experience for development. However, after M&A, Vietnamese companies will lose the market if foreign players exercise monopoly and oligopoly.
In short, in my opinion, everything has two sides. This is also the case for M&A. Active M&A will be good for enterprises but it is bad if they lose brand names and market shares.
I think, if the government, business associations and enterprises prepare well enough, M&A will add vitality for development. Otherwise, we will lose opportunities and market shares.
Mr Vo Hoang Anh, Marketing Director of Co-op Mart
Competition between Vietnamese goods and foreign rivals is not a new occurrence. The novel occurrence is the competition between Vietnamese goods and Thai ones.
The anxiety of Vietnamese supermarkets is well-founded because foreigners possess a lot of strengths in experience, finance and support from parent companies to penetrate the market.
As far as I am concerned, foreign companies are using their price advantages to win the game. Our surveys show that price is not a decisive factor to the success of a company, but it depends on other factors like quality, service and attitude of employees.