‘It’s not time to make a profit yet. It’s time to grab more market share.’
Nguyen Thu Ha has abandoned traditional markets on her afternoon shopping trips in favor of a more convenient option.
Uncomfortable with the crowds and dubious origins of the food, the 35-year-old from Hanoi now prefers to spend her money in the convenience stores that are mushrooming across the city.
“The quality in convenience stores is guaranteed, unlike grocery shops and traditional markets,” she said. “That’s why I go to them now.”
Like Ha, many shoppers are turning to convenience stores, encouraging foreign retailers to expand their presence in the market.
The number of convenience stores had increased to over 1,500 as of June 2016, according to market research firm Nielsen Vietnam. Famous foreign brands now occupy 70 percent of the market.
In June, Seven & i Holdings, which operates Japan’s biggest convenience store chain 7-Eleven, opened its first outlet in Ho Chi Minh City.
Kyodo News quoted a company representative as saying that it plans to open 100 stores in Vietnam within three years and expand the number to 1,000 in the next decade.
American chain Circle K has around 250 stores, mostly in the country’s two biggest cities, Ho Chi Minh and Hanoi.
FamilyMart, Japan’s second largest convenience store chain, has a combined 130 stores in Ho Chi Minh City, the nearby resort town of Vung Tau and Binh Duong Province.
Southeast Asian chains Shop&Go and B’s mart are running another 300 stores.
South Korea’s GS Retail also plans to enter the market in the near future with the first outlet bearing its GS25 convenience store brand in Ho Chi Minh City.
GS25, which will be the first Korean convenience store chain operator to enter the Vietnamese market, is expected to open 2,500 outlets in the next 10 years.
“We have received requests from many countries, including China and other Southeast Asian countries, to export our brand,” said a GS Retail spokesman. “After months of research, we concluded that Vietnam had the largest potential for growth.”
A.T. Kearney’s Global Retail Development Index this month named Vietnam the sixth most attractive retail market in the world. The country made headlines worldwide when it topped the list in 2008.
International market research organization IGD forecasts double-digit compound annual growth rate over the next four years in Vietnam, reaching 37.4 percent in 2021.
“Convenience stores in Vietnam have become popular destinations for young consumers to shop and hang out, as the stores provide them with an air-conditioned environment, well-organized shelves and seating areas, high quality products and, in some stores, free Wi-Fi,” said Nick Miles, head of Asia-Pacific at IGD. “It is also easier to get licenses for stores under 500sq.m, which is why retailers have been expanding to gain market share.”
Vu Vinh Phu, former chairman of the Hanoi Association of Supermarkets, said convenience stores have expanded with the growing middle class, who are increasingly willing to pay a little more for the convenience of mini-marts that are open for longer hours and can be found in more locations.
Economists say Vietnam has great potential for convenience store expansion, considering the number of existing stores now is still small compared to the population.
There is one convenience store for every 2,100 residents in South Korea, 2,300 in Japan, and 24,900 in China. The ratio in Vietnam is one per 54,400 residents, according to a recent report by international property research firm Savills.
Vietnam’s trade ministry has projected the country’s retail market will hit $179 billion by 2020, a jump of 52 percent from last year.
Uneasy to earn
Despite bright prospects for convenience stores in Vietnam, their development has not always been smooth, as in the case of FamilyMart. Japan’s second largest convenience store chain plans to stay focused on its domestic market after reporting losses in several Southeast Asian countries, including Vietnam.
Koji Takayanagi, the company’s president, said the firm is reviewing its loss-making businesses in Indonesia, Thailand and Vietnam. “If we can get them to rally we will, but we cannot continue to pour in resources,” he was quoted by Reuters as saying.
Another example is the case of a joint venture between Ministop, an affiliate of Japan’s second largest retailer AEON, and G7, an arm of local coffee producer Trung Nguyen. The joint venture aimed to develop 500 convenience stores across the country within five years from 2011. However, the partnership ended in 2015 when Trung Nguyen withdrew from the deal after only 17 stores had been opened. The venture reportedly failed to reach the target because of difficulties in finding premises in Hanoi and Ho Chi Minh City.
Ministop now has only 80 convenience stores in Ho Chi Minh City and Binh Duong Province.
As well as the difficulties they face finding retail space, convenience stores must also compete with other retail channels, which are also expanding rapidly, especially online shopping, said head of the Association of Vietnam Retailers, Dinh Thi My Loan.
Explaining why retailers are continuing to expand in the convenience store market, despite losses, an industry insider said their current goals is to stretch their influence in the market. Retailers often suffer losses in the first four to seven years, he said. “It’s not time to make a profit yet. It’s time to grab more market share.”