Vietnam’s brewing mini-mart battle is a sign of the economy’s boom
By Nguyen Kieu Giang & Mai Ngoc Chau / BLOOMBERG
FOR decades, Vietnamese have shopped, snacked and hung out at the country’s traditional markets: Colourful, chaotic mazes of open air stalls where vendors hawk everything from fruits and vegetables, to sandwiches and sodas to the odd clucking chicken. Seven-Eleven is pushing a different model.
The Japanese-owned chain in August opened its first outlet in the country, an air-conditioned, WiFi-equipped oasis in downtown Ho Chi Minh City. Since then, it’s rolled out about two locations per month, with plans for 100 within the next three years. GS Retail Co, the giant South Korean mini-mart operator, opened its beachhead in January. Meanwhile, local chains have announced new plans to flood the country with thousands of their own stores.
The brewing battle among purveyors of climate- controlled convenience is a measure of how far Vietnam has come since it opened to more trade and investment a decade-and-a-half ago.
Factory openings by multinationals like Samsung Electronics Co have made Vietnam a manufacturing powerhouse and helped lift average annual incomes to US$2,385 (RM9,635) from about US$400 back in 2000. In the first half of 2018 the economy grew 7.1%, its fastest pace in a decade.
“I see a domino effect,” said Willy Kruh, a convenience- store watcher who heads KPMG Canada’s global consumer consultancy. “As other retailers see the success of the foreign players that have come in, it’s only going to bring in more retail, more brands, more big players.”
Lured by one of the world’s youngest consumer markets — more than half of Vietnam’s 93 million people are under 35 — foreign investors are pouring money into the country. The Ho Chi Minh Stock Index rose to a record in April, although it’s since given up some gains.
“Growth has been phenomenal,” said Chua Hak Bin, a regional economist at Maybank Kim Eng Research in Singapore, who said he’d recently come back from a marketing trip in Europe, where clients peppered him with questions about Vietnam. “It’s definitely a rock star.”
The last few months have seen a string of record public equity offerings. In November, there was the US$709 million raised by shopping mall operator Vincom Retail JSC. That record stood until April, when Techcombank brought in US$922 million. A month after that, it was luxury property developer Vinhomes JSC raking in US$1.4 billion.
“You now have a young, emerging middle class looking to consume — and as they do, it’ll invite more and more investment,” said Jeffrey Perlman, head of South-East Asia at Warburg Pincus, the US-based private equity firm which owns stakes in both Vincom Retail and Techcombank.
College student Vo Thi Hoai Ngan fits the target marketing profile. On a recent weekday afternoon in Ho Chi Minh City, she bypassed street vendors selling sugarcane and coconut drinks to buy bottled water at an air-conditioned minimart operated by Circle K Stores Inc.
“My classmates and I prefer to come here for a quick meal,” she said. “It offers free WiFi, chairs and tables.”
Circle K, a chain owned by Canada’s Alimentation Couche-Tard Inc, led the way for foreign convenience stores 10 years ago, when it opened its first outlet in Ho Chi Minh City, Vietnam’s commercial capital. Tokyo-based FamilyMart UNY Holdings Co followed in 2009.
But growth didn’t really take off until 2014 when the economy shrugged off its own mini debt-crisis and got inflation under control. That year, McDonald’s Corp and Domino’s Pizza Inc opened their first restaurants in the country.
Now, a full-scale convenience-store flood is coming. The country’s biggest operator of gas stations, Vietnam National Petroleum Group, plans to add mini-marts at fillings stations across the country and property developer Vingroup JSC says it will add 4,000 mini-grocery stores by 2020.
Throughout Asia, where dense cities often make big-box retailing impractical, convenience stores are expanding faster than every other type of business selling food and sundries, according to IGD, a grocery market researcher.
In Indonesia, which is a few steps ahead of Vietnam on the development curve, Alfamart and Indomaret have been opening 1,000 mini-marts and convenience stores every year.
“Vietnam is at the start of that journey today,” said Nick Miles, IDG’s head of Asia-Pacific research. “It’s kind of at that point in per-capita income where modern trade starts to accelerate.”
No economist has actually done a formal study of the convenience store as a marker of development. But researchers have shown that consumption evolves in a predictable way as societies get richer. With annual incomes below US$2,000, people buy things like bicycles and basic necessities. Between US$2,000 and US$6,000, where the average Vietnamese person is now, it’s scooters, refrigerators and beer. (Cars, laptops and cosmetics come next.)
Tu Vu, head of 7-Eleven’s Vietnam unit, is betting that new shopping trends will include frequent visits to his convenience stores. So far, Seven System Vietnam JSC has 19 franchise outlets in the country, all in Ho Chi Minh City. Vu says he’ll need hundreds of stores to become profitable, an expansion that will take several years.
“We are experiencing a transition from mom and-pop stores to modern trade,” Vu said. “This is what Japan went through 40 years ago. People are working more and there are no grandmothers home to cook.”