Vietnam retail: Auchan’s chance
Jul 13, 2013
French grocery giant Auchan has become the latest international retailer to announce investment in Vietnam.
After several years of eyeing Vietnam, Philippe Longuet, group managing director of Auchan, has confirmed that the company is to invest US$500m there over the next decade. The French retailer has been a strong proponent of international expansion, establishing a particularly strong presence in Russia and China. But it is now stepping into Vietnam just as the market there gets more competitive.
Auchan is not the only retailer to have spotted Vietnam’s potential. Although the country has dropped out of the influential annual AT Kearney list of 30 most promising emerging markets, retail sales there are still expected to record strong growth, according to EIU data. Annual growth in retail sales in volume terms is expected to average 7.6% in 2013-17, driven by a strong economy and rising incomes. Growth will slow as the market matures, but the current domination of wet markets suggests there is still major scope for growth by modern retailers.
Vietnam already has an estimated 717 modern retail outlets, including those run by domestic companies such as Saigon Co-op, and international retailers such as Big C from French group Casino, Metro Cash & Carry (Germany), Family Mart (Japan) and Circle K (US). Yet the percentage of retail stores in the country remains below 20%, much lower than other countries in the region such as Indonesia, Thailand, Malaysia and China.
That is changing, however. In 2012, Vietnam’s government announced a programme to speed up the development of modern retail. The Ministry of Industry and Trade wants the country to have at least 1,200 supermarkets by 2020, as well as 157 shopping centres and 180 trade centres. In all, the ministry wants the proportion of retail sales via modern channels to reach 30% by 2014 and 45% by 2020.
Foreign investment could help with this development, and last year saw an influx of Japanese companies, including Aeon and Takashimaya. Aeon is currently building two hypermarkets, one in the Celado Shopping Mall in Ho Chi Minh City and another in Binh Duong province. A third centre in Hanoi is slated for 2015, with long-term plans to roll out around ten in total. The group has also worked with Trung Nguyen Group to set up 13 Ministop convenience stores in the capital. Takashimaya, a Japanese department store retailer, will open a 15,000 sq m store in the Saigon Centre in 2015.
Existing investors, including Metro, Big C and South Korea’s Lotte, are also planning to expand their operations in the country. Since late 2008, Lotte has opened four shopping centres in Vietnam and intends to open at least 30 more in the next ten years. Metro, which already has 17 stores in Vietnam, has in the past plans to open another 30-35 stores in the next five years. It seems to be sticking by those targets, despite its recent announcement that it was pulling out of several international markets – including Japan – in order to focus on its domestic sales and to grow its multi-channel offer.
Metro is, however, facing increasing pressure within Vietnam as competition grows – even before Auchan’s entry. On May 17th, the country’s market leader, Co.opmart, launched its joint venture with NTUC FairPrice of Singapore. Their first store, the Co.op Xtra Plus in Ho Chi Minh City, is aimed squarely at the Metro Cash & Carry model. Fiercer competition and a history of growing sales but little profitability – it has only made a profit in Vietnam once – may well test Metro’s resolve to remain in the country.
That would leave the field open to regional retail groups. Earlier this year, E-mart, a subsidiary of Korean retailer Shinsegae, partnered with U&I Group in southern Binh Duong province to set up an US$80m joint retail venture. The group plans to have 17 supermarkets in Vietnam by 2017. Maximart, which has been operating in Vietnam for 17 years, is also working with retail giant Dairy Farm of Hong Kong, which also has a Giant store in Ho Chi Minh City.
As for Auchan, its pledge to enter Vietnam is not only about developing a new store base but also about introducing more Vietnamese products to the group’s international store network, according to the company. With plans to expand its presence in India and its existing strongholds in Taiwan and China (where it has more hypermarkets than it does in France), Auchan’s axis appears to be shifting east. Vietnam may be the first but not the last of the South East Asian markets in its sights.
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