Foreign investment surges into Vietnamese retail



Sluggish economic recovery means first movers risk overreaching themselves.


Aglance at Vietnam’s macro figures suggests it is booming: its economy notched up 6 per cent annual GDP growth in the first quarter. Yet the country has yet to recover from the effects of the global financial crisis and many of its poor and lower middle class citizens are still struggling, reflected in sluggish sales of basic consumer goods.


Nevertheless, economic recovery is under way, with the urban middle classes among the first to benefit. A combination of entrepreneurialism, a booming manufacturing sector, overseas remittances and deep cuts in bank lending and deposit rates have all contributed to rising disposable incomes.


One result is a surge of foreign investment into Vietnamese retail. “Modern” retail — as opposed to traditional markets — attracts about 20 to 25 per cent of consumer spending, compared with 46 per cent in Thailand, 53 per cent in Malaysia and 64 per cent in China, according to the Vietnam Retailers Association.


Yet the country has one of Asia’s fastest urbanisation rates.


Berli Jucker of Thailand is positioning itself as a would-be retail giant. Last year, it paid $876m for Metro AG’s 19 hypermarkets, the second-biggest hypermarket chain after local group Co-op Mart. BJC also bought convenience store chain B’s Mart and plans to launch another 300 stores, outgunning market leader Shop&Go in the convenience sector.

Others expanding aggressively include Thai supermarket chain Big C; Japan’s Aeon Mall, Family Mart and Ministop; and South Korea’s Lotte Mart, which plans to expand to 60 stores. Other players from these and other Asean countries are entering the fray.


Existing foreign-invested retailers still account for barely 5 per cent of nationwide retail, but they are the fastest-growing. However, they face a local challenger in Vingroup, one of Vietnam’s largest conglomerates, which has launched its own aggressive foray into the sector.


Having recently purchased a rival conglomerate’s retail portfolio, Vingroup aims to open 100 supermarkets and 1,000 convenience stores under its VinMart brand in the next three to four years. A subsidiary, VinE-com, plans to launch an online shopping portal to challenge Rocket Internet’s Lazada.


Dovetailing with this is a foray into logistics, Vingroup recently acquired a 10 per cent stake in state textile company Vinatex, giving access to its distribution facilities, and is bidding for 80 per cent stakes in the ports of Haiphong and Saigon.


If all the plans come to fruition, 250 to 300 new supermarkets will open in Vietnam in the next three years, a 40 per cent increase in the existing stock (and a bigger increase for Hanoi and Ho Chi Minh City). About 1,500 convenience stores will open, three times the number operating today.

There should be room for many more. By comparison, Thailand has more than 10,000 convenience stores serving a population that is only three quarters the size of Vietnam’s.


Yet there are also risks. Rushing to grab first-mover market share could lead to oversupply, at least until the broader economy gets back on a firmer footing.

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