Traditional retail accounts for 74% market share
According to the Ministry of Planning and Investment of Vietnam, in the first quarter of 2021, the total amount of newly registered FDI captial in the wholesale, retail and engine repair sectors was 22.13 million USD. In Hanoi, which is the capital city, newly registered capital in the field of wholesale and retail and engine repair was 19.69 million USD with 32 projects, accounting for 40% of the total capital in Hanoi.
Vietnam is among the fastest growing economies in Southeast Asia so there are a lot of opportunities in its retail market. In the first quarter of 2021, Vietnam’s GDP grew by 4.5%, demonstrating positive economic activities in the context of the global pandemic. FDI capital in the first quarter increased by 18.5%, while disbursed FDI increased by 6.5% over the same period last year. In addition, a steady increase in population and rapid increase in consumer spending also make the retail market in Vietnam attractive to foreign investors.
Foreign investors are also facing certain challenges when investing in the Vietnamese retail market where traditional retail still plays a dominant role. According to Nielsen statistics, traditional retail, including grocery stores and traditional markets, still accounts for 74% of the market share, and is growing by 1% per year. Meanwhile, modern retail accounts for 26% of the market share, with an increase of 12% per year. Moreover, although Vietnam’s retail market has welcomed many foreign investors, major market holders are still domestic ones such as Vingroup, Masan and MWG. Due to the inability to compete, some foreign retailers had to leave the market. Meanwhile, domestic enterprises have successfully seized M&A opportunities to increase their scale as well as expand their market share.
However, Vietnam still retains advantages in terms of investment environment such as political stability and good capital management policies, all of which help attract foreign investment. Although real estate investment is temporarily facing legal obstacles, the Prime Minister is promoting the equitization of state-owned enterprises and creating more opportunities for foreign investors to participate in land fund auctions.
Significant potential in retail sector
Retailers are often seen as businesses that bring convenience and value for money. Therefore, strict management of resources and maintaining profit margins will help retail businesses achieve more success in the Vietnamese market. Factors that can help businesses make the most of opportunities in the retail market include: relationships and scale, compelling value commitments, a solid business model, branding, understanding the retail market, constant innovation and development of the multi-channel platform.
Vietnam currently has promising macroeconomic indicators such as rapid GDP growth, increasing consumer spending and rapid urbanization. Thanks to its macroeconomic background and attractive business environment, Vietnam is seen as an investment destination for foreign investors. Along with GDP growth, urbanization in Vietnam is expected to continue rapidly. The number of middle class in Vietnam is also increasing. According to World Bank research, the middle class in Vietnam currently accounts for 13% of the total population and will reach 26% by 2026. This growth will create an optimistic change in total domestic consumer spending. Moreover, the fact that GDP per capita is close to 3,000 USD also shows significant potential for the retail industry in Vietnam.
Another advantage that should be mentioned is that bilateral and multilateral trade agreements between Vietnam and its partners will support the recovery and growth of the retail market.
Vietnam is one of the fastest growing digital economies in the region, which has spurred global companies to invest more in the domestic e-commerce market. According to data from the Ministry of Industry and Trade, 53% of the population participates in online shopping. According to the National E-commerce Development Master Plan for the period 2021-2025, by 2025, about 55% of the population are expected to participate in online shopping, with the average value of online purchases of goods and services reaching 600USD/person/year.
Sales of B2C e-commerce have increased by 25%, reaching 35 billion USD, accounting for 10% of the total retail sales of consumer goods and services nationwide. It is forecasted that 55% of Hanoi’s total population will shop online on e-commerce platforms, with revenue growth reaching 20%/year by 2025.
Alice Hoang Thao – VietnamCredit