Foreign Retailers Aggressively Grab Market Share

Vietnam has been witnessing an intense race among domestic and foreign enterprises in the retail market, where the average growth rate for the past six years was about ten percent. Besides local businesses such as Saigon Co-op, Vingroup, Hapro, many big retailers have been continuously expanding their market shares; notably among them are Lotte Mart, Aeon, Metro and Big C.
According to the Ministry of Industry and Trade, in the first four months of 2016, total turnover of retail goods and services was estimated at VND1,138.2 trillion, an increase of 8.8 percent year on year. In 2008, the country had merely 386 supermarkets, the number has now reached nearly 800 with 132 trade centres, not to mention hundreds of convenience stores of various brands. It was expected that total retail sales would grow to US$140 billion by 2020 with about 1,200-1,500 supermarkets, 180 trade centres, 157 shopping centres.

Foreign invasion

Commenting on domestic retail businesses, Mr Vu Vinh Phu, Chairman of the Hanoi Supermarket Association, said that as of the time speaking, Saigon Co-op and Vingroup were the only domestic names that could compete with foreign rivals, while other brands like Intimex, Fivimart and Hapro seemingly were fading from the eyes of consumers.
According to Dr Le Huy Khoi of Vietnam Institute for Trade, Ministry of Industry and Trade, the Ministry’s statistics show that retail sales of State-owned enterprises accounted for about 10 percent, local private enterprises accounted for 86 percent, foreign direct invested (FDI) enterprises took up approximately 4 percent. Notably, FDI enterprises had a modest 90 retailers throughout the country; however, sales of these retailers each are 3-4 times, or even 7-8 times that of a local supermarket due to large-scale.
Besides, FDI enterprises who have stronger growth momentum due to financial strength, well-known brands and effective strategies are gradually “swallowing” Vietnamese enterprises and brands through merger and acquisition (M&A). Deputy Minister of Industry and Trade Do Thang Hai highlighted the fact that many domestic retailers, after a time of prosperity thanks to government incentives, sold themselves to international retailers.
M&A deals are becoming more frequent in the retail market, most notably are the sale of two large distribution chains Big C and Metro to Thai businesses. When foreign businesses invade domestic retail market, not only do the domestic distributors lose market share, but also manufacturers encounter troubles. The recent story of Big C announcing to increase the cost for Vietnamese enterprises to have their goods displayed in the supermarket is a concrete proof.

The battle for market share

Mr Le Huy Khoi encouraged domestic enterprises to study market segments in which they have advantage over foreign enterprises for example specialized supermarkets such as The gioi di dong, FPT, Tran Anh, etc and focus on developing these strengths. Retailers also needed to research and build long-term strategies to make full use of traditional distribution networks (markets, small retailers) to reach customers in this market segment.
Another priority was to link production and supply. Focusing only on building good domestic production was not enough to succeed in the retail market and compete with foreign enterprises. Businesses needed to create regional links, links of production-distribution, distribution-distribution, wholesale- retail, etc. Meanwhile, local retailers needed to improve product quality, brand names and customers’ satisfaction with their products and services.
Mr Khoi also proposed the government to consider issuing incentives for Vietnamese retailers such as favourable locations, reasonable lease, taxes, capital and interest rates, more simplified policies and mechanisms.
In terms of land allocation, land lease for FDI enterprises, the state needs more specific binding. For example, enterprises operating profitably, must pay taxes at least three years before being able to be transferred and in this case, priorities must go to Vietnamese buyers, suggested Mr Khoi.

Huong Ly - vccinews.com