Vietnam’s changing retail environment

The Vietnamese retail market has seen significant changes the last couple of years. Neighbourhoods in Ho Chi Minh City and Hanoi have been transformed as Vietnamese shoppers demand more from their retailers and retail experience. However, even when compared to other major Asia economies, the retail market remains in its infancy with a great potential for growth. Despite the current economic downturn, the retail market remains attractive. “Double digit growth is attractive in any market”, notes Eckart Dutz, Managing Director of Cartridge World.  “I don’t see the current global economic downturn as a major barrier for sustained growth”, he says. “The retail sector will continue to grow just like any other market as the Vietnamese consumer searches for a more specialized shopping experience”, he continues. Beth Owen, General Manager of Indochina Research, mentions a recent retail interview her company conducted in Vietnam. “There is still a lot of optimism and many retailers expect an upturn within the next six months.”

Phi Van Nguyen, Managing Director of the Future Sense Group who brought international brands such as Gloria Jeans Coffee and Yogen Fruz to Vietnam predicts that as the retail market continues to grow we will see more international brands coming to the market.  She notes that a number of Asian franchises have entered the market. However she mentions for some big international brands it will take time to enter the market as they struggle with regulatory issues. Dutz also notes that there is a trend towards modern trade and convenience shopping. He however questions where retailers have yet found the right model for Vietnamese convenience shopping.  “It is important that convenience marts get the assortment right and make people want to go there. Currently it is not that attractive for Vietnamese consumers”, Dutz explains. “For most Vietnamese consumers, convenience shopping already exists, it is just a traditional model.”

Trung Thu Luong, National Sales Manager for La Vie mineral water, notes that even though modern trade is growing for package goods companies, traditional trades will remain a dominant force. Beth Owen supports this view. “We are still seeing growth in traditional trade and the retail market remains highly fragmented”, she says. Owen mentions that there is still a perception in Vietnam that modern trade is the shopping place for the upper classes, with higher prices than traditional trade. She notes that some aspects of traditional trade have changed little and that consumers continue to shop at wet markets. “The structure of the city is not friendly to modern trade and research shows that people are not willing to travel far for products and services”, said Owen. “However, with time and planning, all of this can be overcome, just like any other markets in Asia”, she continues.

Focus on Tier One

In a number of growing emerging markets a lot has been made of the growth potential of tier two and three cities. However, compared to China and India, the focus for Vietnamese retailers remain tier one cities. Phi Van Nguyen notes that living standards outside of Ho Chi Minh City and Hanoi are still low. “Even in tier two cities the market is just not big enough for more than one big retail complex”, she explains. However, she mentions that her company has developed a clear growth plan for the six major cities in the country.

David France, Managing Director, Distribution Division of Highlands Coffee mentions that the focus for most retailers remains the two biggest cities. Highlands Coffee has an expanding retail base in the country and a growing package goods distribution arm to retailers. “Ho Chi Minh City and Hanoi continues to grow and the two cities hold significant growth potential for companies”, France notes.  He mentions that the same level of development is just not visible outside of the two major cities and that some cities are stagnant because of the ongoing global crisis. Trung Thu Luong brings another perspective, noting that package goods companies with the right product category and price points are increasingly looking outside of the two major cities. “To sustain growth we have to go outside of the big cities.” However, most interviewed agreed that for most companies, the major urban areas will remain the playground.

Information is key

A growing retail sector will increasingly rely on information technology to make decisions. Companies also need a more sophisticated way of doing business. Few suppliers and distributors in Vietnam have information available at the retail level.  Phi mentions that local companies are still far behind when it comes to information technology. “Many companies don’t see the benefits of information technology and some companies are still standing in the dark.” Dutz alludes to the fact that with relatively cheap labour, many companies are reluctant to invest in information technology. “For some businesses it is difficult to make the case for technology.” However he notes that information management is critical for success. “Without the information required, some companies just push things in the shop and then see what happens”, said Dutz. Owen notes that the retail market is starting to demand more and some high end retailers are putting pressure on companies to improve technology.

France notes that if distribution companies want to succeed at the retail level, they require technology to assist them in this task.  “Above 25 sales people it becomes very difficult to manage employees and companies lose control of their sales people”, said France. “Many companies only cover about 60% of their retail base.”Even with the current economic climate, the Vietnam retail market will remain an exciting prospect for many investors. Retail space will continue to be challenge in the near future and it will take some time for consumers to change their behavior. Some might argue that the speed of change has been slower than projected. However, retail change does not happen over night. “It will take time for people to migrate from traditional trade, time to learn, like it and make it a habit”, said Phi.