Finding opportunities in Vietnam’s changing retail landscape

7 Sep 2020

Minimarkets, specialist stores and e-commerce platforms are leading retail growth in Vietnam, providing new opportunities for brands to boost sales, according to Kantar Worldpanel.

The economies of emerging Asian countries are growing up to three times faster than developed countries, and Vietnam is a “truly great” success story for the region thanks to its strong growth, attractive business environment and burgeoning middle-class.

Finding opportunities in Vietnam’s changing retail landscape

This economic development is changing the retail landscape, which creates both challenges and opportunities, according to the annual Vietnam FMCG Insight Handbook published by market research firm Kantar Worldpanel.

“Fast-moving consumer good (FMCG) growth in Vietnam has softened over the past few years –incomes are increasing, as are consumers aspirations, so FMCG must also compete with all areas of a shopper’s wallet,” said David Anjoubault, general manager at Kantar Worldpanel Vietnam. “That means that growth opportunities are harder to find…but they are still there. Brands need to fully understand where shoppers are choosing to go shopping, and why.”

Traditional trade outlets remain dominant in Vietnam’s FMCG sector, with street shops accounting for 55% of spending followed by supermarkets (14%) and wet markets (9%). However, the desire for convenience is on the rise, and brands and retailers can leverage growth through three key emerging channels: minimarkets and convenience stores, specialty stores, and e-commerce, Kantar said.

Two-thirds (66%) of incremental value growth in the past twelve months has come from these three outlets even though they account for only 16% of the total value share for all channels, according to Kantar data.

E-commerce growth mimics Chinese pattern

Vietnam’s e-commerce sector was worth $5 billion in 2019 and is projected to reach $23 billion by 2025 at a 43% compound annual growth rate (CAGR).

According to Hang Nguyen, chief marketing officer at e-commerce platform provider Lazada Vietnam, this “phenomenal growth” has been driven by the speed of the country’s digitisation, its favourable legal framework, and investment in technology and infrastructure by major online players.

Current levels of online shopping penetration in urban Vietnam (made up of Ho Chi Minh City, Hanoi, Danang and Cantho in Kantar’s research) are almost at the same level as China seven years ago, the report authors noted.

However, Dung Nguyen, strategy director at retail design agency Red Design Group warned that modern trade retailers or multiformat retailers should be concerned with how to adapt technology into local contexts in order to improve business performance and optimize operational cost.

“There have been several cases recently in the Vietnam market that apply new technologies to better serve Vietnamese customers such as click & collect, scan & go, and self-checkout but they are all still at the beginning of testing phase so they will slowly be improving,” he said. “Again, the most important thing that retailers need to keep in mind is to build a localization strategy with a deep local understanding as every market is different.”

Hard discounters

Looking forward to the mid- to long-term, the rise of private label and discounter supermarkets in Asia could be the next big trend to shape the retail landscape, according to Stephane Roger, global solutions director of retail and shopper at Kantar.

“Discounters, in fact, are growing everywhere except Asia yet we can expect it will be the next region to develop. This is not easy at all and will be a big challenge to enter Asia. In a lot of Asian markets, the modern trade is still developing like in Vietnam where it accounts for just 20% of the market with such a strong traditional trade – however as we saw in Latin America, in particular Columbia with D1, it is possible to succeed.”

The presence of discounters in Asia is therefore nascent, with Aldi opening its first two stores in Shanghai in June last year, and the performance of the German hard discounter in China would be interesting to monitor, Roger said.

“They’ve shown they can adapt themselves to local context and excite shoppers with imported products. If successful, it’s highly likely they will be exploring other markets to enter and emulate,” he said.

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