Retailers change ambitious expansion plans amidst stiff competition
Despite high potentials of Vietnam`s retail sector, some large retailers have to scale down their initially ambitious plan on expanding convenience store chains in the market due to fierce competition and limited retail premises.
Family Mart, a big Japanese retailer, once said that it would open 1,000 shops by 2020 in Vietnam. However, it then had to stop the investment plan because of losses. Some stores in its chain in Ho Chi Minh City closed because of unprofitable business and high rents.
7-Eleven opened only 18 stores in Vietnam after one year of operation.
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To open one convenience store in Ho Chi Minh City, Family Mart has to spend some VND2.2 billion (nearly US$100,000). However, the low revenue cannot cover the high expenses.
7-Eleven, when arriving in Vietnam, announced a plan to open 1,000 convenience stores by 2027, which means that it needs to open 100 stores each year. However, after one year of operation, it has opened 18 stores.
The Gioi Di Dong, the largest mobile phone distribution chain in Vietnam, launched Bach Hoa Xanh - a home appliance distribution chain - three years ago with an ambitious plan. However, it has cut the number of shops it plans to open in 2018 from 1,000 to 500.
A pioneer in opening convenience stores, G7 (Trung Nguyen) brought Ministop, the Japanese convenience store chain, to Vietnam in 2011 under the franchise mode. Its initial ambition was opening 500 shops within five years, but only 17 exist. Poor business performance prompted Ministop to say goodbye to Trung Nguyen and find new partners.
Economist Dinh The Hien commented that convenience stores now have too many rivals in the retail and non-retail sectors.
The biggest advantage of supermarkets is that it has a wide range of products, thus offering many choices to customers. Meanwhile, groceries are small but it is convenient as it is located in residential quarters and the prices are reasonable.
Hien said Vietnamese will need more time to change their consumption habits and get accustomed to convenience stores.
Long-term investment
According to experts, retailers cannot expect to take back investment capital in convenience stores soon as the competition is fierce.
A senior executive of Family Mart said it requires long term capital to develop convenience stores. In China, investors make a profit after 17 years, while retailers in Thailand and South Korea have to wait eight years.
Trade expert Vu Vinh Phu said even the giants in the retail industry may have problems. 7-Eleven, for example, had to shut down 136 shops in the Indonesian market because of poor business performance.
"The market share doesn't depend on the number of shops opened. Product diversification, convenience and competitive prices are the three competitive edges," Phu said.
However, Phu still believes that convenience stores remain a very promising market segment, though many investors have complained about losses.
"Big retailers will reap fruits in the future if they can survive difficulties and accept losses for the first several years," Phu said, explaining that smaller households of four members each are on the rise in Vietnam and they like buying essential goods at convenience stores.
According to American global management consulting firm AT Kearney, Vietnam was listed among the 30 most attractive retail markets and had returned to the sixth position in GRDI (global retail development index) in 2017.
Convenience stores and small supermarkets are the fastest growing segment in Vietnam's retail market, AT Kearney said. The country currently has some 2,000 convenient stores.
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