This is evidence that Vietnam’s retail market is again attracting foreign investors, as it was outside of the Top 30 in 2002, then 6th in 2009, 14th in 2010, and 23rd in 2011, according to A.T. Kearney.
The reason why Vietnam is in the Top 6 is that its investment laws are open and promote its attraction among foreign retailers.
The government has permitted foreign retailers to own 100 per cent of capital in the country’s retail sector and has adopted priority policies to attract them.
This is reflected in a 12.5 per cent increase in foreign investment in 2016. The recent free trade agreement [FTA] signed with the EU is expected to push investment even higher.
Retail sales have also increased significantly in recent times, reaching $118 billion in 2016, up 10.2 per cent against 2015.
“It’s a suitable time for Vietnam to boost up its economy, which is shifting towards private enterprise and high-value export items, and this is expected to increase incomes and consumption in the long term," said Mr. Soon Ghee Chua, AT Kearney’s Southeast Asia chief.
He also believes that government incentives, urban and middle-class population growth, a young population, and GDP growth expected at 6.6 per cent this year gives foreigners plenty of reason to be optimistic about Vietnam.
E-commerce also contributes significantly to retail revenue in the country, which is expected to increase 22 per cent this year, and online discounts and promotions are boosting sales. AT Kearney notes, however, that businesses will have to be careful and have a long-term strategy to sustain this growth.
Foreign retailers are expanding their business systems in the domestic market. According to A.T. Kearney, convenience stores and mini-marts are the fastest growing segments. Circle K and FamilyMart entered the market in 2009 and are expanding rapidly. FamilyMart expects to have more than 800 stores by 2020 and 7-Eleven will open its first store in Vietnam this month under a franchise agreement with Seven System Vietnam, and aims to open 1,000 stores over the next ten years.
According to forecasts to 2020, modern retail channels will increase up to 45 per cent, the country will have about 1,200-1,300 supermarkets, the number of trade centers will also increase to over 300, and convenience stores will number in the thousands.
The GRDI was first published in 2002, ranking 30 developing countries on their attractiveness for retail investment.
It analyzes 25 factors related to macroeconomics and retail, to help retailers identify global strategies and identify emerging market investment opportunities. The study not only indicates the most attractive markets today but also potential markets in the future.
HCM City [VNA] – Vietnam has continuously been listed among the world’s top 30 attractive emerging retail markets since 2008, according to the ranking in the Global Retail Development Index of the US’s AT Kearney Company.
The information was heard at a workshop discussing challenges facing the domestic retail sector in international integration in Ho Chi Minh City on June 28.
From 2011-2015, Vietnam saw a continuous growth in retail turnover, worth 2.47 trillion VND [111 trillion USD], accounting for 76.2 percent of the total retail and consumption value.
However, many market research companies and experts forecast the retail market of Vietnam see great prospects for high growth in the future, driven by a population of 91.7 million with high consumption demands.
President of the Vietnam Retailers Association Dinh Thi My Loan underlined the challenges facing domestic retailers in international integration.
Echoing Loan’s opinion about the increasing competition in the market, Nguyen Thi Thu Trang, Director of the Centre for WTO and Integration of the Vietnam Chamber of Commerce and Industry [VCCI], called for incentives to ensure the sector’s sustainable development.
For the first five months this year, Vietnam's total retail sales and services revenue reached 1,430 trillion VND [63.4 billion USD], a year-on-year increase of 9.1 percent.
Meanwhile, the purchasing power of goods retailers witnessed high growth of 9.5 percent in the period, amounting to 1,920 trillion VND [48.5 billion USD], accounting for two-thirds of the total retail sales and services revenue.-VNA
Emerging economies in Asia are growing at a rapid pace compared to developed economies and Vietnam is among the rapidly growing economies in Southeast Asia. Vietnam’s growing retail market is an indicator of the country’s economic transformation and offers lucrative growth opportunities for local as well as global companies. Market research and consultancy firm Mordor Intelligence projects Vietnam’s retail market to register a CAGR of over 10% during the period 2021 and 2026.
Many regional and global retail multinationals are eying a piece of Vietnam’s retail market to take advantage of the promising sector. For instance, Thailand’s Central Retail wants to expand its footprint in Vietnam by more than double. The retail arm of Central Group plans to invest 30 bn baht [$790 m] to increase its presence in Vietnam’s retail market from 340 stores to 710 stores by 2026.
Foreign investments in Vietnam’s retail market
Central Retail plans to cover 55 of Vietnam’s 63 provinces by 2026 and increase its sales to 100 bn baht during the period. Since the launch of the first Central Retail store in Vietnam in 2012, the Thai company’s operations have increased steadily. Vietnam’s retail market is Central Group’s outside of Thailand.
The latest data from the Vietnamese Ministry of Industry and Trade shows that there are more than 800 supermarkets, 150 shopping centres and 9,000 traditional markets in the country.
Aside from Central Retail, Japan’s Aeon is also seeking a piece of Vietnam’s retail market. The Japanese company’s plans include launching 100 supermarkets in Vietnam by 2025. Sumitomo Corp. plans to expand its operation of Japanese-style supermarket chain FujiMart in Vietnam. Currently, FujiMart has three supermarkets in Hanoi.
Lotte, the South Korean retail giant, wants to launch more Lotte Marts in Vietnam. The Lotte Group exited the Chinese market in March 2019 and now considers Vietnam to be its third key market after South Korea and Japan.
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What is driving Vietnam’s retail market?
While many economies were severely hit by the Covid-19 crisis and are yet to recover from the economic slump due to the pandemic, effective management of the pandemic helped Vietnam to recover faster. Vietnam achieved an average growth rate of about 7% between 2012-2019, but the country’s GDP growth slumped to 2.9% in 2020 and to 2.6% in 2021, owing to the impact of the Covid-19 pandemic. Nevertheless, Vietnam was among the few economies globally to be able to avoid an economic contraction in 2020. Vietnam’s economy gained momentum in the first half of 2022 with the lifting of restrictions. The country’s GDP increased 7.7% year-on-year in the second quarter of 2022, due to a surge in manufacturing. Moreover, the services sector has rebounded, and the reopening of borders in April 2022 provided a boost to tourism and retail sales recovered.
Technavio, a global market research firm, said Vietnam’s retail market is expected to grow by $82.70 bn during 2022-2026, progressing at a CAGR of 10.13% during the period. Similarly, information from the General Department of Tourism on August 1 said that in the first seven months of 2022, Vietnam welcomed 954,000 international visitors, an increase of nearly nine times over the corresponding period last year.
The World Bank expects Vietnam’s economy to expand by 7.7% in 2022, with exports and industrial production growing by 15.7% and 19.1%, respectively. At the same time, private consumption is expected to grow by 7.2%.
Vietnam’s consumer spending
As per the General Statistics Office of Vietnam, consumer spending in the Southeast Asian country increased to 4,736 tn dong [~$198 bn] in 2021 from 4,270 tn dong a year ago. Analysts at Trading Economics expect consumer spending to reach 5,067 tn dong by the end of 2022. In the long-term, consumer spending in Vietnam is projected to be around 5,321 tn dong in 2023 and 5,645 tn dong in 2024. The private consumption rate of Vietnam at 68% of GDP is the second highest in the ASEAN region.
A report by Fitch Solutions projects solid growth in consumer spending in Vietnam in 2022 and forecasts real household spending to grow by 5.7% year on year. The increase in consumer spending over 2022 will occur with a wider recovery in the Vietnamese economy. Meanwhile, Fitch’s forecast for real household spending of 2,805 tn dong [$121.3bn] over 2022 will be 8.3% higher than the 2,591 tn dong in the pre-Covid-19 era in 2019.