Poor distribution hits retail growth

The retail sector has great potential for growth next year as consumer spending power increases but distribution systems remain underdeveloped, says Viet Nam Retail Association general secretary Dinh Thi My Loan.

Among other advantages for Viet Nam’s retail sector was a Government consistently willing to offer incentives to attract foreign investment and a young and increasingly prosperous population, Loan said.

Per-capita income had been gradually rising, and the ratio of consumption per capita was among the highest in Southeast Asia, accounting for 70 per cent of their monthly incomes, she added. Credit cards and electronic payment methods were also in increasingly wider use.

Retail sales were expected to increase 15-16 per cent next year, growing from US$55.5 billion in 2009 to $85 billion in 2012.

Poor distribution systems remained an enormous obstacle, said Loan. Consumers in Viet Nam tended to buy products from traditional markets and small household businesses or shops, rather than in large retail outlets served by modern distribution networks.

The nation’s two leading cities, Ha Noi and HCM City, had only one modern outlet for every 30,000 people, while there was room for one supermarket per 10,000 people and at least one major shopping centre for every 100,000 people.

Loan urged the Government to assist Vietnamese retailers in seeking good, affordable locations for expansion.

Domestic retailers were also facing fierce competition from foreign rivals with advantage in terms of finance and experience. For instance, Big C this year has opened five stores, bringing its total number of supermarkets in Viet Nam to 14 nationwide.

Big C external affairs director Duong Quynh Trang said the goal of the supermarket chain in the near future was to extend nationally.

Within two years since beginning operations in Viet Nam, South Korea’s Lotte Group already operates two large supermarkets here and is aggressively seeking land use rights to open 30 more stores through 2018.

Malaysia’s Parkson and Germany’s Metro were seeking new locations.

Nguyen Ngoc Hoa, CEO of Co.Op Mart in HCM City, noted that Viet Nam had an economic needs test (ENT) for a foreign retailer to open a second store in the country. Foreign supermarket chains seeking to expand were still required to apply for separate licences for each outlet.

Foreign investors nevertheless could enter into joint ventures or franchise to expand their local networks, putting great competitive pressure on local retailers, Hoa said.

Pham Hoang Ha of Phu Thai Group told Viet Nam News that a joint venture with a foreign partner was a good way to help domestic retailers learn useful lessons from them. Vietnamese retailers lacked financing, quality human resource and management skills, Ha said.

However, domestic enterprises still had advantages of operating on their home turf, with a deeper understanding of domestic consumer habits. — VNS

Tags: vietnam retail industry, Vietnam retail market