Vietnam retail industry is considered to be continued attracting domestic and foreign investors.Vietnam’s retail industry is expected to see fiercer competition as more domestic and foreign players seek to increase their foothold in the nearly-100-million market.
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Vietnam is also assessed by Nielsen as a potential retail market. BMI estimated that by 2017, Vietnam's market value of goods consumption was about US$120 billion, annual growth rate was nearly 10% in the period of 2012 - 2017. The country’s economy is one of the fastest developing commodity markets among the emerging economies of Asia – Pacific. According to PwC’s research, the growth will be maintained at two digits from now till 2022.
Retail M&As and the rise of Vietnamese businesses
Vietcombank Securities Companies (VCBS)'s latest report identified retail as an attraction for domestic and foreign investors.
According to the report, from January 2015, retail businesses with 100% foreign capital were permitted to establish in Vietnam. At the same time, under the ASEAN Free Trade Area, tariffs on imported goods will be abolished for enterprises of the 10 ASEAN countries, accordingly, 100% of tariff lines will virtually be removed by 2018, making Vietnam an attractive market for retailing.
VCBS reported that the wave of M&A transactions in the retail industry has been rising since the beginning of 2016 and speeding up in recent years to become an attractive investment channel. If in 2005 there were only 18 M&A deals with a total value of US$ 61 million, in 2017 the value increased to US$10.2 billion.
Among the outstanding retail M&A deals in this period, Central Group acquired a chain of 33 supermarkets and hypermarkets owned by BigC for US$1.14 billion in April 2016.
In January 2016, TTC Holdings bought out Metro Cash & Carry Vietnam from German Metro Group and then merged with BigC Thailand. It is estimated that Metro dominates about 22% of Vietnam's retail market but has posted losses of about US$12.5 million since its operation.
Not only have foreign businesses joined the market, but also M&A in the retail industry has witnessed the rise of domestic players.
In 2017, for example, Mobile World acquired Tran Anh Co., an electronics supermarket chain, for VND824 billion (US$36 million).
M&As even thrived in 2018. BGR Group became a strategic investor of Hanoi Trading Corporation (Hapro) when buying a 65% stake in the latter.
In early October 2018, VinCommerce, a member of Vingroup – the largest privately-run conglomerate in the country - confirmed the acquisition of 100% shares of Fivimart, after Japan’s Aeon Group divested from the later. The system of 25 Fivimart supermarkets was renamed VinMart when the deal was completed.
After the merger, VinCommerce holds the prevalent share of the retail market in Vietnam with more than 100 VinMart supermarkets and 1,400 VinMart+ convenient stores nationwide.
Vingroup also took over Vien Thong A in early November 2018. They hold 100% of voting rights and 64.46% interest rate of Vien Thong A.
Adding Vien Thong A to the existing VinPro system will reinforce the position of Vingroup in the phone and electronics retail business. Vien Thong A currently has 190 stores with annual revenue of nearly VND5 trillion (US$213.6 million).
Positive outlook in 2019
With strong investment in acquiring retail businesses, this market is forecast to be more and more competitive, and the game seems to be only for big players.
VCBS also pointed out some advantages of this market.
First, higher average income supports the retail industry. It is predicted about 40% of the Vietnamese population will become middle class before 2021. Total household expenditure is expected to grow at an average rate of 11.4 % per year in the period of 2017 - 2021, according to Euromonitor.
Urbanization increased rapidly, from 20% in 1998 to 37.5% in 2017 and an estimated 37.4% in 2021, also creates more room for the market to grow. BMI expects rural areas to transform into new rural and urban areas. Currently, rural areas, which account for about 65% of the country’s total population, are considered a large consumption market.
Second, consumption credit growth supports the development of the industry. At the end of June 2018, consumption credit accounted for 18% of total outstanding credit, higher than 11.4% in 2016.
Banks, wholesalers and retailers are partnering to offer 0% interest credit promotion to stimulate consumption.
The model of mini-supermarkets has also seen better prospects in the future. Some brands like Bach Hoa Xanh, Satra Food, or Vinmart+, all set the goal of competing directly with traditional markets.
In addition, the model associated with traditional grocery stores also brings differentiation. Typically, Saigon Co.op has implemented a strategy of associating with grocery stores by franchising the Co-op Smile brand to small grocery stores in order to take advantage of their positions and available customers. At the same time, the retailer will update the management skills and operation of these stores as the standards of mini supermarkets to overcome the limitations of traditional stores.
