Vietnamese Goods Vulnerable in Foreign-led Retail Systems
On the Vietnamese retail market, the opportunity is getting bigger for domestic manufacturers when their products can be distributed through foreign-led retailers. However, they also face numerous strict technical barriers and difficulties.
In the early 2000s, Vietnam's retail market was joined by world-leading retailers such as Central Group of Thailand with four hypermarkets, 19 Mega Market supermarkets, 75 B’smart convenience stores, and 32 BigC supermarkets. This group also holds up to 49% of stake in Nguyen Kim and Lan Chi Mart supermarkets.
Japanese retailers are present in Vietnam with popular brands including Aeon Mall, Saigon Centre, Family Mart and 7- Eleven,
Ms. Le Viet Nga, Deputy Director of the Domestic Market Department, the Ministry of Industry and Trade, said in the “Buy Vietnamese” campaigns which encourage Vietnamese people to give priority to made-in-Vietnam goods on their shopping lists, the Ministry of Industry and Trade has launched many programs to engage both Vietnamese retailers and foreign-led retailers. In addition to promoting goods consumption in distribution channels in Vietnam, the ministry also encourages them to seek exports abroad through their distribution systems.
Currently, two big retailers, Central Group with BigC supermarkets and AEON Co., Ltd with Aeon Mall supermarkets, already signed on commitments to sell locally made goods and export them abroad in 2017 and 2018 with the Ministry of Industry and Trade. BigC alone has regularly exported US$46 million or more year since 2017 and the figure is going up because of vast room for textile and agricultural products. MM Mega Market, formerly Metro, after being purchased by Thailand’s TCC Group, established four centers for buying agricultural products in Vietnam. Presently, this distribution channel is exporting indigenous goods of Vietnam to Thailand, including dragon fruit and sweet potatoes. They are striving to export 10 containers a week, from the current 2 -3 containers.
Especially, AEON’s export commitment to its distribution system in foreign countries has also been boosted. Currently, AEON is exporting US$250 million worth of Vietnamese processed goods a year through the Top Value brand (exclusive product of AEON). The firm already inked a commitment with the Ministry of Industry and Trade to bring this figure to US$500 million by 2020 and US$1 billion in 2025.
However, according to many experts, a majority of Vietnamese producers have yet to hold their advantages on the domestic market and they find it hard to approach major retailers. Mr. Vu Vinh Phu, a retail expert, said only one in 10 Vietnamese producers can afford to bring their goods to foreign supermarkets.
Major weaknesses of most Vietnamese products are quality, design and stability. The volume of organic agricultural products sold via supermarkets and trade centers is still quite modest relative to production capacity of Vietnam. This compels Vietnamese products to stand on the downside and retreat from foreign-led retail systems.
According to Ms. Tran Thi Phuong Lan, Deputy Director of Hanoi Department of Industry and Trade, the lack of effective coordination between farmers and producers weakens quality control and assurance and destabilizes long-term supply to the market. In fact, many products are unhygienic, unpacked, uncoded or uncertified for food safety and hygiene. These are mandatory standards in international retail systems.
To be present on the shelves of foreign-led supermarkets, Vietnamese producers must have high technical barriers, with many strict regulations and high investment costs. Without commitment in long-term investment, they will not be able to fully meet requirements imposed by distributors.
Furthermore, finance is also a major hardship for Vietnamese producers. Currently, foreign retailers settle payment to producers after they sell their products, with a waiting interval of 3-4 weeks, or even more than three months. This is the reason why many domestic companies cannot afford to join foreign-led systems, even when meeting their requirements.
Ms. Le Thi Mai Linh, Executive Vice President of Foreign Relations and Communications at Central Group Vietnam, said to distribute a lot of Vietnamese goods into the BigC supermarket system around the world, they must meet standard requirements and be sold well in supermarkets in Vietnam first. In fact, many Vietnamese goods are not up to international standards or qualified for foreign-led distribution systems.
Luong Tuan
Vietnamese
