Most multinational grocery retailers who have ventured overseas have failed, according to leading industry analysts, who cite US based Wal-Mart’s failures in Germany, Japan and the Republic of Korea as prime examples.
However, even for those that have succeeded— it most often took decades for them to realize a satisfactory rate of return on their investment.
As evidence of this lack of globalization of grocery retail, they say, one need only look at the world’s biggest markets – the US, Germany, Japan, the UK, and France – and note that there is no major retailer present in all of them.
For those multinationals that have been successful expanding into foreign grocery markets, they have displayed two common characteristics.
The first is the foray into the new market was on a grand scale aimed at capturing high sales growth. Exceptionally high sales growth is a necessary prerequisite to compensate for the lower industry profit margins.
The second is that they brought new and novel products to the market.
The large scale entry of multinational retailers such as Metro, Big C, Aeon and Lotte into the Vietnam market and the originality they are bringing in their merchandise selection has thrown the market into utter disarray.
“Already a handful of foreign companies collectively control more than half of the grocery market and are on a trajectory for continued expedited growth,” said local businessman Pham Ngoc Thanh recently at a conference in Hanoi.
Mr Thanh, who is the director of the Phuc Lam Development and Trading Consulting Joint Stock Co that manufactures Phu Quoc fish sauce, said his major concern is in regards to the huge discount these retailers command.
One of the retailers recently proposed he slash his prices by 15% in order to get his products on their shelves— a price he says he simply can’t afford to accept.
“The fundamental problem,” said Mr Thanh, “is that all of the established local players in the market carry his brand of fish sauce.”
The newcomers, therefore, quite naturally don’t really want nor need his fish sauce on their store shelves putting his company in a real battle for shelf space.
Mr Thanh, acknowledges that it is only logical since obviously the multinationals can’t compete with the established local stores by selling the same identical fish sauce they do, unless of course, they receive huge discounts from suppliers like him.
Vu Vinh Phu, chairman of the Hanoi Supermarket Association, at the conference agreed.
“It’s obvious that foreign retailers like Lotte and Aeon aren’t interested in stocking their shelves with the same products that consumers can find anywhere”, he said at the conference.
There’s really no upside to that proposition, he stressed.
“The entire market has been turned upside down, left standing on its head and it’s forcing Vietnamese suppliers to rethink their comprehensive business strategy going forward,” said Mr Phu.
Local brands are going to have to innovate, come up with new and unique products and negotiate exclusive contracts with the newcomers if they want to compete and get more than token retail space in their stores.
Just sitting back and producing the same old product year in and year out isn’t going to cut it anymore, Mr Phu underscored.
“Local brands are not the only ones that need to take a breath of fresh air and revaluate,” said Dinh Thi My Loan, president of the Vietnam Retailers Association.
“Local grocers are also going to have to reassess their retail business strategy.”
They now more than ever need to improve the quality of service, customer care and most importantly bring the same newness and novelty to the selection of merchandise they put on their retail shelves that the multinationals do.