Vietnam is an attractive market for the retail industry due to its young population, high urban population rate, and strong consumer spending. The retail landscape in Vietnam has been changing rapidly and dramatically in recent years and despite the pandemic situation in 2020, Vietnam remains one of the most attractive retail markets in the world.
Overview of the retail market in 2020
Vietnam is one of the fastest-growing retail markets in Southeast Asia, currently worth 108 billion USD in annual revenues and estimated to grow at a rate of 7.3% per year in the next 5 years (McKinsey, 2019). The market receives capital investment from both domestic and foreign sources.
Over the past few years, Vietnam retail market has been consolidated due to the acquisition strategy of top local players aimed at expanding market share: Mobile World acquired pharmacy chain Phuc An Khang, and Vingroup acquired supermarket chain Fivimart, convenience-store chain Shop & Go, and electronics and appliance specialist retailer chain Vien Thong A (McKinsey, 2019). Additionally, in recent years, international retailers such as Zara, H&M, Massimo Dutti, Pull & Bear, 7-Eleven, GS25, and Uniqlo have entered the market, which intensifies the competition.
Let’s take a closer look at the market through major retail channels.
Traditional retail markets
This channel refers to wet markets and grocery stores: fresh ingredients are the core of local cuisine, therefore, many Vietnamese consumers prefer this channel for convenience and competitive prices. Although the traditional retail sector has the largest market share, it has seen modest growth as the number of stores has remained stable over the past years. The reason for this is the increasing presence of modern retail stores as well as changes in consumer behaviors.
Modern retail markets
The modern retail market has experienced significant growth in recent years, and this channel is expected to contribute almost half of the total retail value by 2020 (McKinsey). Currently, modern retailers are mainly located in big cities such as Hanoi and Ho Chi Minh City. However, the penetration of modern retailers is expected to continue as both foreign and domestic companies are planning to expand their reach in Vietnam. During the Covid-19 pandemic since the beginning of 2020, modern trade channels have dominated the market.
Supermarkets are the first choice of retail shopping places for Vietnamese consumers. They carry a wide range of products, in which groceries, food, and beverages make up the majority of items. Imported goods are becoming more popular to meet the higher demand for foreign products and the growing number of foreigners and tourists in Vietnam. Compared with 2019, the number of supermarkets has decreased by 12% due to the closure of some Vinmart supermarkets owned by Vingroup, who just announced their restructuring plan in 2019.
In contrast to supermarkets, convenience stores and mini supermarkets are growing rapidly, from 2495 in 2019 to 5228 stores in 2020, increasing 60% (Q&me, 2020). The Korean convenience store chain GG25 has also started its franchisees in Vietnam since January 2019 and aims to open 2,500 nationwide after 10 years.
In 2020, the number of shopping malls in Vietnam has increased by 11% compared with the previous year. The domestic player Vingroup has changed their model from department stores to shopping malls to meet consumers’ demand for a destination where they can not only shop but also enjoy many entertaining activities such as cinema and food court. Located mainly in big cities, their shopping malls have several famous global brands.
Fashion apparel chains and the rise of e-commerce
The fashion retail sector is affected by the pandemic as the number of apparel chains has decreased this year.
The internet-economy market size of Vietnam is expected to grow from $9 billion in 2018 to $33 billion in 2025, the second-fastest growth in Southeast Asia (McKinsey). Covid-19 has heavily impacted the way people consume, forcing retailers to move online. The use of social networking sites (Facebook, Zalo, Instagram), and e-commerce platforms (Shopee, Lazada, Sendo) are on the rise. These platforms can create demands, connect customers and retailers, and boost sales. According to the statistics of Shopee, a popular online shopping platform in South East Asia, the product categories that are often purchased by consumers through this online channel include fashion and apparel, cosmetics, food, tech items. High valued items such as home appliances, electronics, or fresh food require physical visits to the stores.
Loyalty programs by major retail chains
As the competition in the retail market is high, brands are taking different methods to engage and retain their customers. One of the most effective tools to manage the customer database and increase customer loyalty with the brand is a loyalty program. This method is being applied by many players in Vietnam retail market.
Being the first choice for shopping, the supermarket channel has almost every Vietnamese consumer registering for a loyalty card while the other channels including convenience stores, shopping malls, electronic centers have the number of registers occupying less than 30% of people who made a purchase. According to a study conducted by Q&me, a Vietnam market research organization, the top motivations to register for a loyalty card are shopping frequency, points program, and a discount scheme for membership.
Q&me study also revealed that Vietnamese consumers have a high interest in the loyalty program, whereby 9/10 shoppers are interested in membership benefits. The more popular a shopping place is, the more loyalty cards have been registered. Big C supermarket’s loyalty card has been chosen as the most favorite among all the retail brands. A loyalty card would make 3/4 of the shoppers shop more frequently at a certain place since the consumers feel a sense of engagement with those places where they have loyalty cards for.
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