Foreign-invested convenience stores seen to threaten domestic ones
Foreign-invested convenience stores seen to threaten domestic ones
A number of foreign investors, seeing bright opportunities springing from the free trade agreements expected to be signed in the near future, have jumped into the Vietnamese retail market to develop convenience stores.
A Nielsen report indicates that, of the 500 convenience stores operational in HCM City, 60 percent are foreign invested. Most of the stores are located at advantageous positions in the city. Each store covers an area of at least 60 square meters, typically rent out the retail premises at a rate of thousands of dollars per month.
The big guys have come
Circle K on Nguyen Du Street in District 1 is a favorite destination for HCM City dwellers. The food there is served at very reasonable prices, just VND11,000-13,000 per serving.
Competitive prices and an advantageous location both have helped Circle K develop rapidly. The company boasts more than 50 shops nationwide after a five year presence in Vietnam, with 70 percent of total turnover coming from the shops in HCM City. The chain plans to have 550 convenience stores by 2018.
The Japanese FamilyMart, which left Vietnam some years ago, unexpectedly made a reappearance last year with 20 shops opening. Explaining this, a senior executive of Gia Dinh Vietnam Convenience Store Company Ltd, said there is no reason to desert a market with Vietnam’s potential.
Van Duc Muoi, General Director of Vissan, a food supplier, noted that HCM City is witnessing a growing shift from traditional markets to supermarkets and convenience stores, which is the norm for urban areas. He also said that the city of 10 million deserves these investments.
Observers once thought that convenience stores, with their lower required investment rates, would be the market segment specifically reserved for domestic investors. It turns out, however, that the market segment has proved very attractive to foreign investors, many with powerful financial capabilities.
Muoi noted that foreign investors enjoy great advantages over domestic ones. They not only have good corporate governance skill and hefty financial resources, but also experience in developing markets.
Vietnamese, by contrast, have only two advantages: a good understanding of local consumers’ tastes, and a national consciousness prompting “Vietnamese to buy Vietnamese goods”.
“The two advantages are just enough to help domestic retailers stabilize the market for a short time. But they will be dislodged from the home market if they cannot improve themselves,” he said.
The “avoiding direct confrontation” policy
Vu Kim Hanh, a consultant, urges that Vietnamese retailers avoid direct confrontation with their foreign counterparts. When it comes to management skills and access to capital, they are clearly outgunned.
Instead of battling with foreign operations on the same playing field, Vietnamese should focus on developing niche markets, while applying business models suitable to Vietnamese consumer culture.
That said, the solution would only be effective for the immediate future, according to Hanh. In the long term, domestic-invested stores must reach out to residential quarters, industrial zones and export processing zones. If done properly, store networks would achieve large enough scales to help investors cut production costs and remain competitive.
vietnamnet
