Vietnamese retail market experiences costly competition

The entry of new players into the Vietnamese retail market has forced some old ones out and experts said that only big players with understanding of local needs could survive.

Retailers expect that M&A helps them further grow.

Most foreign players continue to struggle in the Vietnamese already crowded and competitive retail market. French supermarket group Auchan Retail was the latest to have to pull out due to losses, following the similar move of Metro, Casino Group and Parkson. Meanwhile, Japanese chains Ministop and FamilyMart are far from executing their plans to have 800-1,000 stores.

According to economist Le Dang Doanh, the local retail market is filtering out small players as conglomerates pour big investment for further expansion. In the crowded and competitive market, only deep-pocketed players could survive.
Doanh forecast that even fiercer competition is expected in the future as bigger companies bring in wider assortment of products at lower prices.

In the fiercely competitive market, both foreign and local players have decided to make M&A deals with an aim to seek for better growth.

Notably, Vingroup made headlines earlier this month by announcing it would merge its retail arm, Vinmart, with food giant Masan to focus on industrials and technology. The deal’s value has not been disclosed, only that over 2,600 VinMart and VinMart+ outlets will be controlled by Masan, which is set to become the biggest retail player in the country.

Earlier in May, South Korean company GS Retail acquired all 49 outlets of local player Zakka Mart and turned them into GS25 outlets. The value of the deal remains unknown.

According to industry insiders, one notable trend in the Vietnamese retail M&A scene this year is the rise of domestic acquirers. In June, local retailer Saigon Co.op took over 18 stores and the entire online retail system of French retailer Auchan in Vietnam for an undisclosed sum. The transaction between the two is believed to have been a fire sale offering good value for Saigon Co.op and a quick exit of Auchan.

Commenting on the M&A trend in the year, Richard Burrage, managing partner of consumer market research company Cimigo said that local retailers have the edge in expanding their reach via M&A.

“They are closer to local consumers, far more agile, and less afraid of failure, quickly learning and moving forward,” he said.

Vietnamese players are dominating the retail market, with experts explaining it is due to their better understanding of local needs. Besides VinMart, grocery chain Bach Hoa Xanh has 953 outlets and Saigon Co.op has 878.

Positive outlook continues

The rising income of consumers is one of the reasons for the booming of the Vietnamese retail market. Market research company Euromonitor said by 2030 Vietnam would be the third largest urban market in Southeast Asia in terms of consumer numbers and fifth largest in terms of spending.

Rapid urbanization is another reason. Vietnam’s urbanization rate rose from 23.7% in 1999 to 38.4% last year, with the economic growth rate in urban areas being 2.5 times that of rural areas, according to the Ministry of Construction.

Analysts from financial information services provider Fitch Group predicted Vietnam’s private consumption growth to be robust, expanding by 7.5% year-on-year in real terms in 2019, accelerating from 7.0% year-on-year in 2018.

Looking ahead, the analysts expect private consumption growth to cool slightly to 6.8% year-on-year in 2020, but remain strong. Improvements in the labor market outlook will be the key force driving private consumption growth, while lower levels of inflation will also boost spending.

“We highlight Vietnam as one of the most promising consumer markets in Asia, along with Indonesia, the Philippines, India and China,” Fitch said.