According to Minister of Industry and Trade Nguyen Cam Tu, Vietnam is an attractive market for foreign distributors. But leading global distributors still consider Vietnam to be a more potential market than it is at present in the future since the country has a low GDP per capita (still below US$1,000) and a small-scale market (around US$20 billion in value). So far, only MetroCash&Carry, one of the world’s 10 leading retail groups, has decided to invest in Vietnam. Other giants, such as Wal-Mart, Tesco, Target and Costco, have not yet made any plans to penetrate this market.
Mr Tu says that only when Vietnam’s GDP per capita increases to a certain level, will retail groups decide to pour their investment into the country. Many people fear that when Vietnam opens its doors, well-stocked major supermarkets will replace old-fashioned small stores, making it difficult for retail traders to earn a living. But as the economy develops, the market scale will become bigger, providing more business opportunities for domestic and foreign distributors.
However, not all powerful groups can easily achieve success in their investment strategies in a foreign country. Foreign distributors find that shopping habits and culture are the biggest obstacles and they will fail to get a foothold unless they meet these challenges.
If a joint venture model is accepted by foreign businesses, it will be a great chance for domestic distributors to gain management skills and modern distribution technology from their foreign partners to stand firm in the domestic market.
Mr Tu says the modern distribution channel currently makes up just a little more than 10 percent of the retail market, demonstrating that Vietnamese consumers do not pay much attention to this model and that the domestic retail market is still in its infancy.
However, once major groups enter the country with professional business and promotion strategies, the modern retail market will take centre stage and Vietnamese consumers will gradually become familiar with shopping at high-street trade centres and supermarkets.
Meanwhile, domestic retailers say without support from the State, they will find it difficult to compete against foreign rivals. Many complain that they cannot find a good location to start up their business, as the best are reserved for foreign investors by local authorities.
Many others say that they are unable to compete against foreign groups because they operate more spontaneously and on a smaller scale. In addition, very few localities have drawn up specific zoning plans and offered incentive policies to develop their retail market sector.
“Whether or not foreign retailers establish domination over the domestic market will largely depend on the structure of the retail industry, consumers’ shopping habits and the awareness of State management agencies,” says Mr Tu.
Ready to roll to best advantage
Realising this big challenge, the Hanoi Trade Corporation (Hapro Mart) is carrying out its expansion strategy by developing its market chains in residential areas in the capital city and other provinces.
In 2008, the corporation has opened an additional 20 supermarkets and 200 shops in nearby provinces. It will strive to become one of Vietnam’s leading consumer goods distributors by 2010 with chains of Hapro-Marts built in most cities and provinces from the central province of Thua Thien-Hue to locations up north.
Other businesses also understand that they have no choice but to cooperate with each other in order to gain a firm foothold in the domestic market. In late 2007, 130 businesses agreed to establish the Association of Vietnamese Retailers (AVR) to protect their legitimate rights. Notably, four leading corporations, Satra, Hapro, Saigon Co.op and Phu Thai, teamed up to establish the Vietnam distribution market investment and development joint stock company (VDA) with a charter capital of VND6 trillion in the hope of getting the lion’s share of the market.
Meanwhile, Dinh Thi My Loan, vice president of the AVR, says domestic businesses have their own advantages.
More than anyone else, domestic retailers are well aware of their consumers’ shopping habits and culture and they should make the most of this to cater to the customers’ tastes, says Ms Loan, adding that Vietnamese retailers will still have the chance to achieve success.
According to her, a real retail industry will be formed in Vietnam only when more investment is poured into infrastructure construction, human resources development and policy reform.
In order to corner the market, experts say Vietnamese retailers should diversify products, offer competitive prices, improve service quality and train human resources in a professional manner.
Deputy Minister Tu says that his ministry has submitted to the Government a master plan to develop and manage the retail market in the coming year despite any global fluctuations.