Distribution Market Heats Up
By Quoc Hung
Competition in Vietnam’s distribution market is getting fiercer, with the appearance of giant foreign retailers and the opening of many new shopping centers, supermarkets and convenience stores throughout the country
Despite the global economic recession and the local economic woes over the past two years, the business of distribution in Vietnam has fared quite well. With a population of over 86 million, most of whom young people, and the potential of an emerging economy, Vietnam is seen as an attractive place for the distribution business. Analysts say the market still has much room for growth, especially for the development of modern shopping chains which currently make up only 20% of the distribution system. Therefore, the domestic distribution market has seen the entrance of new international retailers, which analysts say would trigger fiercer competition in the coming time.
Asia’s leading retailer Giant, a subsidiary of Dairy Farm Corp. with more than 5,000 stores across the region, finally entered the local distribution market with the opening of its first supermarket at the Crescent Mall in HCMC’s Phu My Hung new urban area last week. The supermarket supplies a variety of food and non-food items.
Local retailers see Giant, a leading retailer of foods and groceries in Southeast Asia, as a strong rival. Its low price strategy, which is similar to the tactic applied by leading local and foreign retailers such as Co.opMart and Big C, would trigger fiercer competition in the coming time.
Another giant newcomer is Japan’s leading retail store chain Aeon with more than 180 subsidiaries. According to the HCMC Department of Planning and Investment, Aeon has just received a license to operate in Vietnam. Under the license, Aeon will develop and operate a modern shopping chain comprising supermarkets, shopping centers, department stores, specialty stores and shops under its own brands. The first project is the Aeon Shopping Center-Tan Phu Celadon in the Celadon City in Tan Phu District with investment capital of US$100 million. Aeon also plans to operate in the southern province of Binh Duong. To prepare for starting business in 2013, the company has cooperated with universities in HCMC in human resources training.
Meanwhile, South Korean big retailer E-Mart has joined forces with Binh Duong-based U&I Corp. to develop a retail chain in Vietnam. E-Mart Vietnam has initial capital of US$80 million, with E-Mart holding an 80% stake. The capital will be raised to some US$1 billion to develop 52 supermarkets and stores in big cities across the country.
Besides big supermarkets and shopping centers, foreign retailers also want to penetrate further the distribution market with the development of convenience store chains. Over the past two years, the appearance of convenience stores under brands, such as Circle K (the U.S.), MiniStop and Family Mart (Japan), has changed the face of the traditional store system in Vietnam. With their strong brands and experience, these world-renowned convenience store operators have entered Vietnam through cooperation with and franchise for big local partners. Analysts say this strategy would help them develop rapidly in Vietnam.
MiniStop has joined forces with Vietnam’s Trung Nguyen Group to develop the G7-Ministop convenience store chain. The joint venture opened their first store in HCMC last December and has plans to open 500 stores over the next five years.
Family Mart has cooperated with Phu Thai Group to open 16 stores in HCMC. The two partners expect to expand the number of stores to 50 this year.
Meanwhile, Circle K has set up many stores in downtown HCMC.
The appearance of big international retailers has forced existing local and foreign distributors to expand their operations to compete. In the last months of 2011, the busiest shopping season in Vietnam, new supermarkets and shopping centers were opened in many places. Metro Cash & Carry inaugurated two new distribution centers. Saigon Co.op, the owner of the Co.opMart chain, put into operation five new supermarkets. Big C opened two new supermarkets and Parkson had one new shopping center.
These players all have their own strategies for expansion. Over the past two years, Casino, owner of the Big C supermarket chain, has opened many new supermarkets, raising the total to 17. The French company plans to open five supermarkets and shopping centers each year over the next three years. To prepare for the expansion, the company has cooperated with Hoa Sen University in human resources training.
Over the past two years, Metro Cash & Carry Vietnam opened eight distribution centers. The German company plans to increase the number to 21 this year and 30-35 over the next three to five years. Randy Guttery, managing director of Metro Cash & Carry Vietnam, said they would continue expansion to gain better access to consumers nationwide.
Malaysian shopping center operator Parkson has cooperated with local property developers such as CT Group and TD Group to expand its chain. It has also joined forces with VinaCapital to lease and operate a shopping center under construction in the central city of Danang. Parkson currently operates eight shopping centers in Vietnam.
South Korea’s Lotte Mart, which has set up two shopping centers in HCMC, plans to develop 30 centers across the country.
The strong expansion of foreign distributors has exerted a big competition pressure on local retailers.
Vinatex Mart, a garment trading company of Vietnam National Textile and Garment Corporation (Vinatex), has opened more than 60 garment supermarkets and stores nationwide. The company plans to increase the number to 200 by 2015.
Co.opMart also aims to increase the number of supermarkets from the current 55 to 100 by 2015.
In the electronics distribution business, local retailers also accelerate expansion. Saigon Shopping Center, owner of the Nguyen Kim electronics supermarket chain, currently has 10 supermarkets. The company plans to open 15 more this year and to increase the number of 50 nationwide by 2015.
Mobile World, a big electronics and ICT products retailer, has opened nine electronics supermarkets. The company plans to develop 40-50 electronics supermarkets nationwide this year. It also wants to increase the number of mobile phone supermarkets from the current 210 to 250 this year. Other big ICT products companies like Vien Thong A, FPT, Viettel and VNPT also have plans for expansion this year.
According to industry insiders, the distribution market in 2012 may witness the introduction of new trends as the economic difficulties are affecting consumer habits. They are paying more attention to foods while non-food items attract less interest. Many consumers in HCMC have turned to traditional markets for less expensive products. However, the modern shopping channel, which has posted annual growth of 4-5% and accounts for only 20% of the total retail revenue in Vietnam, still has much room for growth.