Untapped opportunity in Vietnam's modern retail market

The Vietnamese retail market has huge potential, but local investors are wasting the opportunity by failing to develop modern retail, a senior industry trade official has warned.

The industry is dominated by traditional distribution channels and plagued by tiny investments, and is a sitting target for foreign investors, said Nguyen Loc An, deputy head of the Ministry of Industry and Trade, Domestic Market Development.

According to the Ministry’s statistics, the retail industry accounted for 13-15% of GDP growth and provides over 6.3 million jobs.

With the national population of more than 90 million, a third of it living in urban areas and having an average income of US$2,000 per year, the potential for modern retail is huge.

Besides, the infrastructure has improved and expanded, creating favourable conditions for easy distribution of goods.

But traditional delivery channels dominate. At the end of last year there were 8,546 traditional markets of various kinds and around 1 million mom-and-pop businesses.

In comparison, there were only 724 supermarket outlets, 132 malls, and a few hundred convenience stores in the country.

The market share of modern retail is estimated at less than 25%, much lower than in neighbouring countries like Indonesia (43%), Thailand (46%), Malaysia (53%), and China (64%).

“Most of our traders are small- or medium-sized, with 55% of retail enterprises having a capital of under VND100 million (US$5,000),” a member of the Viet Nam Retailers Association revealed.

There are several foreign investors in the modern retail sector – like Big C (France), Lotte, Lock&Lock (South Korea), and AEON (Japan) – who have speeded up development.

“The modern retail model will develop strongly in various forms,” said An, in a report by Vietnam News.

Saigon Co.op and Ocean Retail have opened many new stores and plan to expand throughout the country.

An said “The traditional will also improve. Traditional retail has upgraded quality under competitive pressure.”

Rural consumers will grow in importance as they make up 70% of the population and now have the capacity to buy more electronic products, mobile phones, motorbikes and furniture.

According to the Viet Nam E-commerce Association (VECOM), online and non-shop retail is growing in the country. Around 36% of the population uses the Internet and 57% of that often shops online. Vietnam ranks 16^th in online shopping globally and online retail is expected to grow to US$8 billion by 2017.

In what is a new trend brought about by the economic downturn and high inflation, products made by retailers – distributors themselves or together with manufacturers are becoming more and more popular since their prices can be 10-30% lower.

Analysts expect this trend to sustain and forge ahead in the years ahead when the economy recovers.