Challenges for Modern Trade in Vietnam
2016 will be a key year for modern trade development in Vietnam. Many new international chains are expected to look to establish themselves there. This is especially likely now that Vietnam, in line with World Trade Organization obligations, has made it easier for wholly foreign-invested business to open. The opportunities presented by the retail sector are likely to whet the appetite of the key international retail players and will increase competition.
Vietnam remains a traditional trade retailing country
Despite some huge investments within the modern trade arena, Vietnam remains a traditional trade retailing country. A recent study by Kantar Worldpanel Vietnam in four key cities (1) found that 82% of in home FMCG sales are through general trade stores (Provision Stores, Ma & Pa, Wet Markets, Specialty Stores), with modern trade representing the remaining 18%.
Modern trade has grown slower than some forecasted in recent years, with an increase of just 6% share since 2005. Traditional trade continues to be king in Vietnam with shoppers still preferring proximity.
Compared to other South-East Asian countries, Vietnam has the most traditional retail landscape. It is still half or a third smaller than other countries like the Philippines or Thailand. But this also represents a huge opportunity for future growth.
Promising trends for the modern retail
The foreign investment in the Vietnamese retail network is proving to be justified by positive signs of growth. The Vietnamese economy is on a positive trend as the GDP continues to grow by an average of 6% every year. The population is also growing every year and we witness continued urbanization, which will affect the retail landscape moving forward. Estimates show that by 2040 half of the population will be living in urban areas (33.1% in 2014). But the future will also see increasing number of shoppers in rural areas gaining easier access to modern trade retail. Data shows that currently over a quarter of rural households have shopped at least once in a modern trade outlet, and when they do, they tend to spend around 2-3 times what they usually spend in traditional trade.
Kantar Worldpanel predicts that the share of modern trade in Vietnam will increase, rising from 18% in 2015 to around 24% in 2020, and the channel will become a more important fixture on the country’s retail landscape. Some key developments to watch out for will be the rise of the mini-store format, which will be complimentary to the hypermarket and supermarket growth, as well as Online FMCG retail which continues to evolve.
Obstacles to overcome for larger format modern trade
Despite encouraging figures, modern trade, especially the larger formats, face some challenges in expanding and convincing Vietnamese shoppers to change their habits in the long term. Vietnamese shoppers like to go to their local stores because they have a good relationship with the owners, it is easy for them to walk round, or stop by with their motorbikes. Vietnam remains a motorbike country where 96% of the households own at least one motorbike. So despite the wide ranges of products available in modern trade, the trip size is limited as the capacity for transporting goods is low compared, for example, to the trunk of a car. Developing in store services such as delivery will be critical for increasing this basket size from an average of 15 items.
Other obstacles to overcome will be the perception of quality and price in hypermarkets and supermarkets. A recent study by Kantar Worldpanel in four key cities (1) shows that only 53% of Vietnamese shoppers think that hypermarkets and supermarkets offer higher quality of products, and this perception around quality declines year after year.
Today, the average shopper will visit a street shop 112 times in a year. While visits to hypermarkets and supermarkets remains much less frequent, with an average of 15 visits per year. The challenge for modern trade retailers will be to understand the key needs of urban shoppers so that they can win more of their shopping occasions from the traditional trade. What can differentiate the modern trade from traditional trade?
As long as prices and the portfolio of products do not bring any perceived added value or relevancy compared to the traditional stores, the switch to the modern trade will remain complicated.
(1): Urban 4 key cities includes Ho Chi Minh, Ha Noi, Da Nang and Can Tho.
2016 is expected to be a key year for Modern Trade development in Vietnam