|Domestic retailers gain advantages in the retail market as a number of well-known foreign retail brands have retreated from the sector recently
With a population of close to 100 million, Vietnam is considered to be a promising market for firms, yet despite this, the retail market is not a simple sector to crack.
In late June, Saigon Co.op took over the entire business operation of 15 Auchan Vietnam branches in addition to their 200 staff. This acquisition also means that more than 200 customers who are members of Auchan are to be transferred to Saigon Co-op’s customer program.
Domestic retailers expand their operations
According to the agreement signed with Auchan, Saigon Co.op will continue to maintain the Auchan brand until the end of February 2020. Following this month, Auchan stores nationwide will re-open under the brand of Saigon-Co.op, Co-opmart, Co.opExtra, and Finelife.
Nguyen Anh Duc, vice general director of Saigon Co.op, said the takeover of Auchan has affirmed his company’s strong development in the field of modern trade. The trust in the takeover and other co-operative opportunities have illustrated Saigon Co.op’s norms of development in the sector.
One of the factors in making Auchan decide to leave the Vietnamese market is that their efficiency in their operations have failed to live up to expectations.
2014 saw Germany’s Metro Cash&Carry sell all of its outlets and properties, including 19 supermarkets nationwide and five warehouses to Thai group TTC after reporting continuous losses for several years.
Similarly in 2016, French group Casino announced that it had sold its Big C supermarket network to Thailand’s Central Group in a $1.14 billion deal in order to make up for its losses across several markets.
Auchan started to form a presence in the domestic market in 2015 with the retailer unveiling plans to invest US$500 million to develop supermarkets, and grand supermarkets nationwide.
One of the most notable aspects of the M&A deals taking place in the retail market is that domestic companies are often the ones who are making the acquisitions.
In fact, domestic businesses enjoy advantages over foreign retailers as they are able to understand consumers' tastes in addition to the psychological and cultural characteristics of their customers.
These factors have aided Vietnamese firms when it comes to arranging goods and compiling a list of products at reasonable prices.
Despite enjoying these advances, retail activities often require a more thoughtful strategy and friendliness displayed to consumers. As a result, enterprises that can meet this criteria are able to secure a firm foothold within the retail market.
How can firms win the trust of consumers?
According to a study conducted by experts and retail businesses, Vietnamese consumers take most notice of the price of goods and give priority to low-cost products. However, cheap prices and promotional offers are often not enough to persuade consumers to purchase products.
When revenues and profits cannot be ensured, domestic retailers tend to sell to others in a bid to restructure their investments. For foreign retailers, it is common for them to withdraw capital from unprioritised markets in order to focus on their core markets.
Although Vietnam represents a potentially lucrative market, levels of consumption are not even across the country’s regions. Even in the same locality, the purchasing power of customers differs between areas close to the centre and those in the outskirts.
Therefore, if businesses are unable to anticipate where this purchasing power will be most prominent, then they will encounter difficulties when attempting to expand their market share.
Instead of tapping into a large market in rural areas, there is a trend among retailers to focus on major cities, thus creating fierce competition. Despite facing challenges in their management activities, Saigon Co-op is targeting rural areas with the purpose of selling their products and enjoy larger market shares.
Currently, the modern retail sector makes up only 30 per cent of the market share and puts a specific focus on major cities. In rural areas, retail activities largely focus on traditional channels such as markets and stores.
This is in contrast to urban areas where local businesses face competition from online retail platforms which have enjoyed rapid growth in metropolitan areas.
According to statistics, revenue from the nation’s online retail sector reached US$ 8 billion last year with an eight to 10-fold increase in the growth rate in comparison to traditional retail channels.
In order to stay competitive, retailers are continuously launching new business methods in an attempt to provide customers with a new experience.
Due to the development of the retail market in the recent times, both retailers and production businesses have made great strides in their sale activities.
For example, Saigon Co.op dispatched mobile vehicles carrying thousands of essential foods to serve workers in industrial parks located in rural areas on special occasions such as the traditional Lunar New Year festival.
Other producers such as NISSAN and Nutifood are also actively seeking ways to bring their products to consumers in remote and rural areas.