SUBMISSION FOR THE INTERNATIONAL CONFERENCE:
“NEW MARKETING PARADIGMS IN EMERGING ECONOMIES”
January 13-14, 2005
INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD
BIG C IN VIETNAM,
Retail challenges at corporate and country level
Dr. BUI Thi Lan Huong,
CFVG, Hochiminh city, Vietnam
Prof. Jean-Paul LEMAIRE,
ESCP-EAP, European School of Management, Paris, London, Berlin, Madrid, Torino
Abstract :
This case story deals with retail distribution evolution in Vietnam, on a comparative basis,
with other neighbouring countries, like Indonesia, Malaysia and Thailand. This example
focuses on the choices to be made by a foreign retailer established there as a pioneer after the
Asian crisis. The issues are manifold, encompassing environmental change’s impact, both in a
sector’s and in a country’s perspective.
It tends to identify the converging as well as the diverging features of the retailing sector in
diverse emerging Asian countries which are positioned at diverse stages of maturity but in the
same geographic area. It, also, emphasizes on the sector’s dynamics and on the impact of the
regional crisis during the late 90s. At last, it opens the debate on anticipation for the involved
actors and groups of actors: corporations, customers as local authorities.
The theoretical background of this case lies in the relationship to establish between company
incentives to develop operations abroad (here, in retailing) and countries policies to attract,
more or less selectively, foreign investment in specific sectors. It leads to joint together
international sector analysis and internationalisation decision processing, both for companies
and for local authorities.
Key words: retailing, international sector’s analysis, international corporate development,
international corporate strategies, country attractiveness, FDI policies, Asiatic crisis.
1
INTRODUCTION:
Retailing represents certainly a key sector for an emerging country, especially in a context of
the accelerating “declustering” process, which has been taking place during the past decades,
accelerating, even, during the last one. Which means, for them, to envisage and to implement
a quick or progressive removal, not only of administrative and taxation barriers, but, also, of a
large set of other obstacles, ranking from infrastructure lacks to culture gaps.
This process concerns, first, a large span of regions, especially those which were largely living
in a state of complete or limited autarky, due to the cold war and/or to major post-colonial
external or internal conflicts, which is the case of Vietnam of course, for these two reasons,
but also, of China, Cambodia, and, to a lesser extent, in Asia, India. These specific conditions
apply, also, more or less, to Russia as to former Eastern European communist states. If all
evolve in the same direction, with the same target, an harmonious insertion into the
international trade and investment flows, they don’t stick to the same integration agenda, due
to their economic, social, cultural and political diversity.
WTO adhesion provides a good indicator of the respective countries progression in terms of
“declustering”: as an example, if China, a major actor, or Cambodia, a minor one, having,
both, applied to this organisation later than Vietnam, they have, both, become already
members, the latest remains at the door of this inescapable institution, which symbolises
belonging to the international commercial community and provides to each member country a
basic waver to expand trade and attract more FDI. Unfortunately for Vietnam, it has neither
the economic weight of China, the present propeller of the world growth, nor the harmless
image of Cambodia. It has, then, with its 80 million populations and its important textile and
agricultural exports, to pay the price of its integration, not only in terms of negotiations with
its major import and export partners, but, all the same, in terms of legal and structural
adjustments.
In such a perspective, associating short term (as adhesion had be initially forecasted for
January the 1st, 2005) as long term perspectives, retailing offers an adequate example in order
to illustrate them. All ingredients of “declustering” challenges are, in fact, gathered, in order
to confront the differentiated interests of a large set of stakeholders, all directly or indirectly
involved t in the process:
- at first, the foreign corporate entrants, which want to create or enlarge as to secure a
significant market share and a good profitability in a promising market,
- then, the local players, among which, the modern retailer which have already
conquered a dominating market share in urban areas, and the traditional ones, still
present in the cities and dominant in the country side,
- of course, the local authorities, which deliver licences to all types of actors and define
the policies and regulation applying to the retail activity,
- and, at last, the customers which demands tend to evolve permanently, balancing
between attractiveness for Western distribution models and attachment to cultural
buying habits and patterns.
2
Such a case may, also, permit, from a more methodological point of view,
- to analyse the more specific consequences of “declustering” for the large set of local
as foreign actors, above mentioned, encompassing local customers, modern as
traditional retailers and local authorities;
- to identify the major drivers of the retail sector’s evolution in an emerging country, as
its capacity to adjust to both, external and internal constraints, applying an
environment analysis approach;
- to include comparative elements allowing benchmarking between comparable
countries and various level of economic and social maturity, in order to stem from this
approach possible transferable lessons;
- to extend the analysis approach to the decision making stage, at the corporate level of
the foreign retailer chosen to illustrate the internationalisation problems raised in such
a context,
- but, also, possibly, to consider this decisions to take at an institutional level, as far as
local authorities may think to adjust their own policy for the sector, in relation with the
general “declustering” issues to which the country is confronted.
This case will, then, be organized from a brief presentation of company’s general features and
of its Vietnamese venture, which will lead to a short review of the Vietnamese political and
economic context, emphasizing on the facts which can be of some consequences for the
sector’s evolution and for its various stakeholders. Then, a focus on the Vietnamese sector
retail itself will give additional elements in order to give the necessary insights on its recent
evolution, the existing formats, the consumers’ expectations, the competition arena, the
strategies of major players.. some conclusive remarks, which will not be presented, just as this
introduction, in the pedagogical version of the case, will provide some additional
commentaries, in order to enlarge the questions raised for discussion1.
I. COMPANY’S VIETNAMESE ESTABLISHMENT:
Founded half a century ago in La Réunion, the foreign French Département, island, North of
Madagascar, and, incorporated, more recently, in Marseille, the “Groupe des Sociétés de
Bourbon” is a French group, operating in distribution, through “Vindémia” and in maritime
services through “Bourbon Maritimes”. Retailing activity plays the key role, with 50% of the
total turnover of the group: sector’s leader in La Réunion Island where it has developed
various formats; supermarkets, hypermarkets as well as cash-and-carry outlets.
Its cross border expansion relies on the internationalisation of the concept of mass distribution
in emerging markets, such as Madagascar, Mayotte, Mauritus, just like in Vietnam. In 2002,
Groupe Bourbon became the leading retailer in Mauritius. In Vietnam, Vindémia has been
operating in various activities, such as food (Bourbon Ben Luc), sugar refining (Bourbon Tay
Ninh, Bourbon Gia Lai) and maritime services (Bourbon Duharco).
1
In the original case presentation, a specific flavour of retailing problematic, perceived from the chosen foreign
banner ‘s –Big C- point of view, is given through an introductory story. As a complement, also, the annexes
dedicate to additional data on Vietnam as on Thaïland’s and Indonesia’s retailing sectors.
3
Sticking to its pioneering tradition, Vindémia has been the first foreign group to open, in
1998, a “French style” hypermarket under the “Cora” banner, in Vietnam, a country, then,
unfamiliar with this retailing concept. It still operates there, by now, but using the group
Casino’s banner “Big C”, already very popular in Thailand, one of the Vietnamese closest
neighbor; its positive image having reached the Vietnamese consumers..
The French group Bourbon, owner of the Cora hypermarket chain, was the first foreign entity
licensed to operate supermarkets in Vietnam in the context of economic recovery after the
Asian financial crisis. It is worth noted, although general living standards were still low, that
Vietnam would appear, then, as very promising to foreign investors in the modern retail
sector, dominated by traditional distributors. In fact, the acceleration of annual economic
growth rate during the 1990s, combined with the increase of average annual revenue of urban
population2 boosted quickly the growing private consumption.
Hypermarkets’ deployment
Cora Dong Nai hypermarket was established in these propitious conditions. Moreover, the
competition was not fierce at that time, as its main local competitors such as Co-op mart,
Citimart, and Maximark were, then, quite small, both in number and size. In 1998, Coop-mart
had only 3 stores operating in Ho Chi Minh City with selling areas covering, more or less,
1000 square meters per store. At that time, there were about 30 supermarkets and mini-marts
established in the country; the number growing up to 100 by the end of 2003. Meanwhile,
since its first installation, Bourbon has developed three additional stores, in Hochiminh city,
and, at the end of 2004, another one in Hanoi, the capital of Vietnam.
CORA Dong Nai
Opened in the late of 1998, this first “French style hypermarket” in Vietnam is located 30km East of
Hochiminh city, at the T-junction of National High way 1, near one of the most quickly expanding
industrial parks of Southern Vietnam, in a trading zone of 2 to 3 million of inhabitants. The “CORA Dong
Nai” project cost reached about USD 54 million. It has been incorporated as a 65%/35% Joint Venture
between Groupe Bourbon and Donimex, a state-owned import-export enterprise based in Dong Nai
province.
The shopping complex encompasses within 20 000 square meters, a 6000 square meters selling area,
completed by 30 smaller outlets and a set of large warehouses. CORA Dong Nai has also a huge parking
with 550 slots for cars and 2200 for motorbikes. It hires 391 employees. It hires 391 employees.
During its early opening period, it is reported that CORA Dong Nai had attracted just for a look thousands
of local shoppers who were used to visit smaller supermarkets (Maximark with 2667 square meters,
Coopmart with only 760 square meters). “The hypermarket receives from 3000 to 9 000 customers per
day. In the first three month of its opening -in a blaze of publicit-, up to 50 000 farmers and factory
workers surge through its doors each Sunday and 15 000 on other days [attracted] by anything from
washing machines to shoes” 3.
CORA An Lac
Two years later, with a similar approach, another hypermarket, “CORA An Lac”, required an investment
of 35 millions USD, through a new JV: 80% of the capital hold by Group Bourbon and 20% by Binh
Chanh Construction and Investment Shareholding Company (itself a Joint Venture between Espace
Bourbon An Lac, the owner of Cora An Lac and Cora Mien Dong). It started operations in Hochiminh
city‘s outskirts, in Binh Chanh district, by March 2000.
2
The average annual revenue of urban population has doubled in four years (1994-1998).
“Vietnam consumer boom ignites advertising”, The Vietnam news
website:http://perso.wanadoo.fr/patrick.guenin/
3
4
Like CORA Dong Nai, CORA An Lac covers an area of 20 000 square meters shared
between the store itself (6000 square meters) and a 50 shops corridor. It hires 400
employees. It targets not only the shoppers from the South of Hochiminh city, but also
those from North Long An province’s and the Mekong delta. The hypermarket tend to
attract both people traveling in and out Hochiminh city. Gilles Blin, director general of
Espace Bourbon An Lac said, at the opening of his second store: “We expect the project
to be profitable from the third year, but it will depend on actual performance”.
CORA Mien Dong
In 2001, “CORA Mien Dong”, on To Hien Thanh Street, was opened in district 10, just in the heart of
Hochiminh city. Although it is not as large as the two others (3000 square meters), it attracts nearly the
same number of shoppers per day.
Big C Hanoi
By October 2003, Vindémia started the construction of its fourth superstore in Vietnam. This store, with a
surface of 14 500 square meters, due to open at the end of 2004, will be located near Hanoi, under the new
banner “Big C”. It will be run by Espace Bourbon Thang Long, a Joint Venture between Group Bourbon
and Thang Long tourism and trading company. The capital invested in this project is about 30 USD
million. It plans to create 700 local jobs. This is the 7 th project of Bourbon in Vietnam with a total capital
registered of USD million 250.
Selling concept presentation and layout
Cora operates under the motto “Vietnam popular discount” and goods are “all under one
roof” and it is the first major retailer aiming to mainly distribute Vietnamese products.
Previously, nearly half of the goods sold in other big supermarkets, in Hochiminh city, like
Maximark, Coopmart and Citimart were imported items. Henceforth 30,000 items4 are
available, of which 95% are provided by nearly 1,000 local producers. The store layout has
adopted the French hypermarket style, with large aisles, about 2 meters large. To shoppers’
mind, it combines convenience, store layout, aisle placement, width, parking facilities.
While Cora would like to be a hard discounter, it pays much attention to the French style in
the presentation of its stores. The assortment is both large and wide and has also contributed
to create the personality of the store. The staff is well-trained and the store management very
professional. The shelves are higher than those of Vietnamese supermarkets. The central aisle
is displayed with promotional items. The ads tend to promote “the “ espace” men, as for
women, children, with items used for men, including shoes, ties, underwear, clothing, …CD
with service. And you will leave the store by buying French baguettes.., a French style
presentation.
As a matter of fact, the store is very bright, with high ceilings and decorated walls. The
hypermarket respects strictly safety and security conditions. The fresh food section is typical
of French style modern retailers, offering bread, ham, and, especially, different kinds of
cheese.
Product and assortment
To lower prices and ensure goods quality, the company has established an integrated supply system,
selecting goods with its own very demanding evaluation procedures. Food quality must be in accordance
with the food safety and sanitation regulations: Big C cooperates with Health centers to have periodical
4
Compared with 24,000 references in Maximark, 10 000 references in Coopmart and Citimart in 1997.
5
and accidental tests, in order to check foods quality. Moreover, Big C develops its own production units of
butchery, bakery, fishery.. It bakes its own bread and cakes, and achieves the final processing of its own
fresh seafood, fruit and vegetables sourced directly from the growers. Amazingly, fresh French style
baguettes are the hottest sellers in the hypermarket. Besides, in order to better satisfy customers’ needs, it
imports various European and Asian goods. Goods sold at Cora are definitive purchases, not under
consignation, like in many other supermarkets. In Big C hypermarkets, customers can buy food, especially
fresh products and in-house bakery, fabrics, cosmetics, garments, footwear, school supplies and cultural
products
The company has developed relations with prestigious suppliers, including state-owned enterprises, MNC
and private businesses, in order to secure the quality of the products supplied.. In fact, the figures indicate
a higher proportion (95%) of Vietnamese products than in other supermarkets like Coopmart (85%),
Citimart (70%) and Maximark (over 75%)5. And the turnover coming from the local items accounts In
addition, Big C plans to promote Vietnamese products in European countries, in its retail international
network. For instance, in 2003, Big C chain exported around USD million 5.
Price and Promotion
Goods sold at Cora hypermarkets are of high quality and affordable. Discount sales programs are often
held. One of Big C‘s most ambitious targets is to offer prices that are equal or even lower than those of
traditional markets and small stores. Cora outlets were the first to cut retail prices through a general sales
campaign. And the owner expects to become a discounter with the pricing strategy as “low price every
day”. “I don’t understand how Cora can offer such amazing prices”, one mini-mart manager says.
“People go crazy for its special offers”6. As, at present, 95% of the goods at Big C hypermarkets are
locally sourced and 5% imported from Asian countries, it has contracts with 400 local producers to
provide products at factory prices and not through intermediates. “Cora is the cheapest because we
eliminate extra-costs” said Frank Moreau, Cora’s managing director7. As far as promotion is concerned,
“with a stock of 20 000 lines, Big C can offer about 100 heavily discounted products in a week, some as
low as 50% off”8. Big C also does run theme promotions, where they focus on birthdays, national days.
They tend to use handouts to advertise.
A recent study carried out by Saigon Co-op found, though, that Big C offered the highest prices. On the
contrary, promotion programs were the most popular to shoppers (Table 1).
Table 1: Satisfaction level of customers compared with Big C main competitors
Factor
Big C
Co-op Mart
Maximark
4.3
4.4
4.1
Quality
4.3
3.8
4.3
Assortment
3.1
3.7
3.5
Price
3.4
3.8
3.2
Service
3.3
3.2
3.2
Promotion
Source: Data of R&D department of Saigon Co-op, 2003, cited by CFVG-HCM students9
Note: The evaluation mark is from 0 to 5 as the level of satisfaction from minimal to maximal.
From CORA to BIG C
By October 2003, Group Bourbon also announced that all Vindémia‘s outlets in Vietnam
would be re branded under the “Big C” banner of Casino, which is due to take control of
Vindémia by 2007. Casino acquired a 33,33% stake in the company in 2001 and will be able
to exercise two options during 2004-2005 and 2007-2009 periods, in order to reach a 100%
Bich Nga, Vinh Phuong, “Hang Viet Nam vao Sieu thi” p. 7, SGTT 29/4 - 6/5/2004
Hanh Dung (1999), “Hyper reality”, Vietnam economic Times, January, 1999, pp. 20-21
7
ibid.
8
ibid.
9
Fresh food at Co-op mart supermarket chain, group assignment, reported by Le Ngo Luan, Ngo Thi Xuan Binh,
and Nguyen Ngoc Chau Bau, July, 2004.
5
6
6
control level; this participation into Vindémia leading to an end the franchise with Cora. The
reason to choose the banner Big C, according to Guy Lacombe, the director general of the Big
C chain in Vietnam has been that this banner is already very popular in Thailand10. «However,
according to economists, when Cora has already built up its brand name for several years,
the changing of Cora to Big C banner could undermine its competitiveness compared with its
main competitors like Co-op Mart, Maximark of Citimart…”11 Meanwhile, discussions with
several people working in the industry and shoppers have indicated that this cause no big
problems for Big C because, even under this new banner, these superstores are still perceived
as French style big modern retailing outlets in the shoppers mind, as for the time being, it is
the unique French brand name in the Vietnamese retail market.
Big C performance:
The total turnover for Big C hypermarket chain is estimated roughly 500 million VND per day. The
number of shoppers is around 2000 per day for each store. The average purchase goes up from 60 000
VND in 1998 to 80 000 VND in 2004. Its annual sales growth rate is 10%. Owners of Big C expected
profit after the third year. Gilles Blin, director of Cora Dong Nai, affirmed that Cora Dong Nai, after 4
years of operation, had reached the break-even point while the two others are not yet profitable12. In
general, operating profit in supermarkets in Vietnam use to fluctuate around 10% to 15%, and the net
profit is estimated around 3.5 to 4% and in average, profits are expected after 5 years.
Concerning Big C brand awareness building, it becomes the second strongest one after Co-op mart.
During the period 2002-2003, the store equitized index published by AC Nielson has indicated that Big C
had improved this index from 0,9 in 2002 to 2,1 in 2003 13 compared to a 2,2 to 2,9 progression, for of Coop mart, and to a 1,1 to 1,8, for Maximark
In 2004, in order to seize new opportunities to create supermarkets, Groupe Bourbon plans to open more
stores throughout the country in the coming years, in particular in Can Tho and North Vietnam: as to stick
to the increase of the number of supermarket shoppers pushed by the threat of food poisoning and bird flu,
combined with steady annual growing sales,. According to Guy Lacombe, about USD 12 million will be
invested in each superstore.
Increasing competion:
Despite its good performance and new expansion plan, Big C has to overcome many difficulties to survive
in the rapid changing context where local distributors like Co-op mart and other global new comers like
Metro Cash& Carry have pushed considerably the mass distribution market share. In fact, the biggest
threat to Big C is, mainly, from domestic competition. In fact, in a few years, the local state-owned chain
Co-op Mart appears to be the city’s most popular supermarket chain, with its low price strategy. Since
2002, Big C had competed toughly with the leader Co-op mart’s 11 major stores, located in high
concentrated population areas and its two others in Quy Nhon (in the Centre of Vietnam) and Can Tho
(the biggest city located in Mekong Delta), that hold actually half of the supermarket business market
share.
Meanwhile, Big C Dong Nai and Big C An Lac, in Hochiminh city’s outskirts, aim to attract both
customers living in and out the city, including travelers to the Center and the South. These two superstores
do not attract more shoppers than Big C Mien Dong, as the purchasing power of city-dwellers is higher
than in the outskirts. Until mass transportation is still poor, there is no convenience for shoppers based in
the city to have access to the outskirts. Moreover, in this fierce competition, not only Co-op mart, but also
other big local competitors, such as Maximark, Citimart and Mien Dong Supermarket, have started new
Big means “respectable size and enormous space” and C means “Customers”. Therefore, the store must be a
modern retail outlet with spacious facilities to meet customer needs. Big C started business in 1993 under the
registered name of Central Superstore and had 20 stores in 1998. In 1999, Big C Super Centre Ltd decided to
form a business alliance with the French group Casino, the owner of 500 supermarkets in the world. Now it
operates 37 Big C stores all over Thailand, represents 26% of the market share of hypermarkets in this country
after Makro and Tesco Lotus, with more than 11 500 employees, and the total turnover amounted to 42 342
million Baht.
11
He thong sieu thi Cora doi ten thanh Big C, 28/10/2003, Kim Tinh, Theo Saigon Times, website :
http://vnexpress.net
12
Marché prometteur, le Vietnam attire les grandes surfaces européennes, Eric Albert, la Tribune, 24 avril, 2001
13
AC Nielson (2003), “Shoppers’ trend survey of AC Nielson”, cited by CFVG students.
10
7
sales initiatives, and improved their store management, by focusing more on extending selling areas, on
improving store layout and product display, developing fresh food and prepared food sections and
providing more added-value services as well. As a consequence, gross profit in supermarket business has
gone down under 10% in 2002. On the other hand, the average shopping basket in Big C stores seems to
grow slowly despite the price decrease.
This shows clearly that it becomes extremely hard for Big C to increase sales and, hence, to
make profit as projected its owners in previous years. In addition, it has to compete not only
with other supermarket businesses, but also with many traditional retail formats that are
upgrading their infrastructure and tend to be very efficient and flexible in terms of customers’
credit.
II. THE RAPID EVOLUTION OF VIETNAM
Country background
Vietnam is located in the South East Asian region. Hanoi is the capital of the country, based
in the North. Hochiminh city, located in the South of Vietnam, is the biggest urban and
commercial centre of the country. Vietnam is the second most populous country after
Indonesia in the south-east Asia. Its population counts more than 80 million with 60% under
the age of 30. Urban population represents only 25% of the total population.
Year 1986 is the turning point for the Vietnamese economy, as Vietnam began launching the
Doi Moi reform policies, introducing market-oriented economic principles into its socialist
system. Since this date, economic growth rate has been raising quickly, about 9% per year,
from 1993 until the Asian economic crisis of 1997. It is worth noting that during this period,
Vietnam has experienced quite a modest inflation. As its key determinants, economic growth
has been driven by the high domestic consumption, steady investments and a strong export
performance within a stable political and social environment. Vietnam has not only made
significant progress in achieving rapid economic expansion, but also through poverty
reduction in the recent years and has performed well on social issues. Statistical data indicate
that about 20 million people have been lifted out of poverty in less than a decade. The broad
improvement in living standards was explained mainly by job creation in the private sector
and the increase of transactions with the agriculture sector. Despite its rapid economic
expansion and its success in reducing poverty, general living standards remain modest
compared with its more advanced ASEAN members. Per capita GDP is estimated around 400
USD significantly less than in Indonesia and in Thailand.
Openness to international trade and foreign investment
Trade regime has been liberalized gradually, while its trade openness has increased sharply.
During the 1990s, most export quotas have been removed and exports taxes have been
reduced to a generally low level. In addition, export activities by the private sector (both
domestic and foreign) have been increasingly encouraged, thus breaking the monopoly of a
small number of state-owned enterprises. Change in trade policies have led to a rapid export
and import growth rate. Total exports and imports of goods, both, increased on an average of
20% per year during the period 1990-2002, substantially faster than GDP. If, in the 1970s and
1980s, exports covered only one-third of imports and trade deficit reached 10% of GDP, the
country’s international trade has largely improved: exports were covering two-third of imports
8
during the 1990s. Trade deficit, averagely around USD one billion, is explained by high
demand from industry for capital goods and intermediate goods such as fertiliser, iron and
steel, textile fibers. Import policies focus on protecting strategic sectors like construction
steel, cement, sugar, paper, glass and petroleum.
Since the Doi moi, Vietnam has become more and more opened. At the beginning of the
transition period, during the late 80’s, exports counted only USD 854 millions, a figure far
from those of other Asian developing countries like Bangladesh (USD 1.29 billion) or Sri
Lanka (USD 1,48 billion). Its export efforts have been remarkable, as its export progression
index (30% in 1999) caught up that of Thailand and Indonesia in 1990. It has overcome many
other Asian in transition economies, like China, Laos, and Cambodia.
As far as the merchant structure of international trade is concerned, Vietnam appears typically
at the takeoff stage, characterized by exportation of primary products (crude oil, rice, rubber,
coffee, tea, pepper,…) and importations of equipments and intermediate goods. However, it
has become increasingly diversified. Like other more advanced ASEAN countries, its exports
structure has swiftly evolved from primary to manufactured goods. Within ten years (from
1992 to 2002), crude oil, rice and other primary products dropped from 80% to 45% of the
total exports. In contrast, the percentage of manufactured goods rose from 6% to 32% during
the same period. Particularly, top exported manufactured items including textiles, garments,
electronics and handicrafts occupied one third of total exports in value in 2003.
Along with the gradually modified structure of exports, there has been a significant
geographic diversification of Vietnam’s export markets as well. Asian countries like Japan,
Singapore, Korea and China are, form now on, the major trading partners of Vietnam. The EU
and the US have become also crucial for Vietnam’s exports of manufactured products such as
textiles, apparels and footwear.
The rapid growth of Vietnam during the 1990s has attracted –as it has been facilitated- by FDI
inflows. FDI accounts for about 15% of GDP. Strong inflows of FDI drove the economy in
the mid-1990s. Especially, Vietnam has attracted USD 8.5 billion of FDI in 1996. But they
have dropped drastically after the Asian economic crisis occurred in 199714. Up to December
2003, Vietnam has attracted and licensed more than 4324 FDI projects with a total registered
capital of over VND billion 40. The total capital operated is about VND billion 24. FDI
concentrates mainly in industry and construction, representing 66.3% of the projects and
64.5% of the invested capital and over 70% of the new labour force required, while services,
only 20% of the projects and 30% of the invested capital. North East Asian countries like
Japan, Korea, Taiwan and Hong Kong are the major investors in Vietnam. The most attracting
areas are Hochiminh city, Hanoi, Dong Nai, Binh Duong and Ba ria-Vung tau, which are all,
except Hanoï, located in the South of Vietnam.
International economic integration
Increasing integration into the international economy has been an important component of
Vietnam’s economic reform. At this aim, Vietnam adopted active diplomatic policy, allowing
not only the insertion in its region but also the re-establishment of relations with the rest of the
world. Vietnam joined ASEAN in 1995, APEC in 1998 and heads to its target of WTO
14
Table 5, Appendix 1.
9
accession by 2005. Commercial relations with European Union have been retied since 1990
and diplomatic relations with the US were normalized in August 1995. Since joining ASEAN,
Vietnam’s exports to ASEAN countries have grown by an average 25% per year. In July
2003, Vietnam started to implement the tariff reduction scheme under the Common Effective
Preferential Tariff for the AFTA by reducing import tariffs of 774 product items from 30-50%
to fewer than 20%. Under the CEPT, during the period 2003-2006, Vietnam has committed to
cut tariffs by, at least, 73.6% for 10 160 product items, to the level of 0-5% by 2006.
According to the 9th Congress in November, 1996, new laws on trade have been approved,
such as rules on the competition, laws encouraging the creation of new channels of
distribution and on the modernisation of Vietnamese trade. Recently, the Ministry of Trade
has confirmed its incentives to modern distributors to open stores targeting middle-income
class. However, in the distribution sector, the law prohibits a foreign firm to implement its
own distribution network for imported goods. Despite the protection of local operators of the
retail sector, under its bilateral, regional and international agreements, Vietnam has committed
to open up its service sector. Under the Vietnam - US bilateral agreement for wholesale
service, Vietnam will have to allow JV with 49% foreign equity by 2004. And recently,
negotiation with Japan will mention cooperation in the retailing sector as well. In the near
future, more new global retailers will set up operation in Vietnam, such as Parkson and Dairy
Farm.
Moreover, the project of development of commerce in HCM city until 2005 encourages to
build 45 new medium size shopping centres (10,000 to 15,000 square meters per centre), to
enlarge 100 supermarkets in big cities, as 5 hypermarkets and a number of mini-superstores
(1,000-3,000 square metres) in residential areas, to re-plan “wet markets”, wiping out 96 so as
to keep only 250.
III. EVOLUTION OF THE MODERN RETAIL SECTOR
During the 1990, after the Doi moi policy had been launched, the retail sector witnessed a
profound evolution in Vietnam. Through industrialization and modernization policy,
combined with rapid urbanization and general living standard rise that leads to the rising
household consumption, the total retail sales is growing quickly from year to year 15. The
retailing industry in Vietnam is highly fragmented, with a great number of middlemen and
distributors, divided into traditional and modern distribution channels, with domination of
traditional markets and grocery stores representing 83% of the total market value. In Vietnam,
particularly in Hochiminh city, modern retails formats appeared as soon as the early 1990s,
but developed rapidly in recent years. In the past five years, along with other South-East
Asian countries, Vietnam has witnessed the expansion of the retail sector. In 2002, total
wholesale and retail sales (included restaurants and hotels) contributed to 13.3% of GDP in
Vietnam compared with 17.1% in Thailand and 16.2 in Indonesia16. The average annual retail
sales growth is 10%, compared to 16.4% of those of Indonesia. Nowadays, the modern
distribution sector represents 17% of the entire annual retail sector (it represented only 5% of
the retail market value in 1999) while it reaches 26% in Indonesia and 43% in Thailand17. The
15
See Appendix 1
Website: Euromonitor.com
17
AC Nielson (2004), « Asia Pacific, Retail and shopper Trends 2004 »
16
10
growth rate of modern retail formats in Vietnam is around 15% to 20% per year. In spite of
fierce competition in this sector between traditional and modern channels and, also, between
local and foreign modern retailers, there is a sharp increase in new investments from both
local and foreign operators.
Traditional formats of distribution
The retail network in Vietnam has developed along with the history of development of cities
and provinces. Like other Asian countries that are well-known for their outdoor markets, both
as a place to shop and a way of life, Vietnamese traditional retail formats include wet markets,
moving markets on streets or floating markets (on the Mekong delta) existing in every
districts or local communities. They reflect characteristics of Vietnamese life style with all of
their advantages and shortcomings: daily shopping at proximity, small amount of purchasing,
preference (and sometimes requirement) for fresh products consumption, habits of bargaining,
absence of stock, limited range of prices, restricted lines of items, small display surface, lack
of safety and cold storage, pollution, and hygienic problems as well. Payment mode, direct
contact, and credits easily granted to loyal customers, popular regional specialties that varied
from one region to another.., habits inherited from the past and the rural dominance created a
formula that seemed to be the best adapted to Vietnamese life style.
In figures, there are more than 400 markets operating nationwide. Along with this traditional
format, we can find numerous informal markets developed by vendors who move from one
district to another to sell fruits, vegetable and low quality items. In addition, there are a great
number of street stores usually called “mom and pop stores”, at every corner and at every
street, serving all types of customers, without segmenting or targeting them. In terms of
number of traditional stores, Vietnam is ranked 7th in Asia, in 2003, with 24,241 stores in
Hanoi and Hochiminh city, compared with 273,314 in Indonesia, 252,873 stores in the
Philippines and 1,745,589 in Thailand, the closest neighbour country with a population
similar to Vietnam18. If this number is bigger in the other more developed Asian countries,
this traditional format tends to decrease there from year to year. In the reverse trend, their
number has increased in Vietnam. For instance, during the 2002-2003 period, in the two
biggest cities in Vietnam, Hochiminmh city and Hanoi, 240 new traditional stores were
opened, while 9,695 in Thailand disappeared.
The traditional distribution sector network is operated not only by retailers but also by
wholesalers. In Hochiminh city, it is estimated that 346 traditional markets like Ben Thanh,
Tan Dinh, An Dong, Soai Kinh Lam, Kim Bien and Binh Tay. Ben Thanh market is the most
prominent, carrying many fresh products and other consumer goods. This market receives
around 15 000 visitors per day. Some markets are more specialized with Chanh Hung market
focused on sea products and Soai Kinh Lam, on fabrics. In Hanoi, there are around 125
traditional markets, of which some are very popular, like Cho Hom, famous for its fresh
products, Hang Da, Cua Nam, and Dong Xuan. Dong Xuan is the biggest wholesale market
that supplies the North of Vietnam. In addition to these fixed locations, temporary street
markets are estimated 2,000 in number, adding another 6,000 small “mom and pop” stores.
The vast majority of the traditional markets lack cold storage. Despite the actual importance
of this traditional format, numerous old wet markets meet serious pollution problems as well
18
AC Nielson (2004), « Asia Pacific, Retail and shopper Trends 2004 »
11
as lack of hygiene. Industrialization and modernization of the country in conjunction with the
enlargement of cities have enabled the government to plan the reorganization (or renovation)
of those which have been deteriorated and to wipe out many informal street moving markets
causing traffic jams. As a consequence, the government has announced a plan to reduce the
number of wet markets so as to build more department stores and shopping centers,
combining specialty stores, supermarkets, hypermarkets with entertainment places
(restaurants, games, etc.) that must be compatible with urban development plan. Nowadays,
Diadmond Plaza, Savico-Kinh Do and Saigontourist established in Hochiminh city or Trang
Tien Plaza in Hanoi become the most popular shopping complexes for Vietnamese people.
Even though, traditional retail formats still dominate the distribution market with several
advantages in terms of location and flexibility of payment, there is room for modern formats
to develop gradually as the Vietnamese buying habit tends to change swiftly, especially in
major cities, in favor of convenience and comfort provided by these new formats with the new
concept of “one stop shopping”. With its first implementation in the early 1990s, the foreign
big distribution has become a growing threat for local traditional markets.
Modern retail formats newly developed in Vietnam
While in industrialized countries, modern distribution has reached the maturity stage, they still
stand on an early phase in developing countries like Vietnam. The newly introduced retail
formats have sensitized the Vietnamese consumers to a new type of purchasing, in a nice,
pleasant, air-conditioned place, self serve, clean, safe, professional good display, with fixed
price. These outlets, very diverse, from mini-supermarkets at the early stage of development
of modern retail formats to supermarkets, convenience stores with limited assortment, and
currently superstores or hypermarkets, providing an “one stop shopping”, combining food and
general merchandise. They encompass also “cash & carry” stores, that are essentially
wholesale stores that require a membership card for access. Supermarkets and hypermarkets
carry fresh, processed, prepared food items, including baked products, as general
merchandise. In this changing context, with the possibility of investing through FDI in
commerce and trade (although FDI in the commerce sector had not been initially encouraged),
Vietnam had witnessed the expansion of all of these modern retail formats.
In Hochiminh city and Hanoi, the two biggest cities in Vietnam, a few mini supermarkets,
opened in the early 1990s, have evolved to more than 140 supermarkets and hypermarkets
with a selling area covering from hundreds to thousands of square meters. Modern retailing
outlets began to appear only in the 1990s in Hochiminh city area. They have evolved in two
steps : mini supermarkets, as the first generation, such as Unimart, Donamart, Megamart, in
the 1990s, and supermarkets and hypermarkets, as the second generation, like Coopmart,
Citimart, Maximark, in Hochiminh city, Fivimart, Seyiu, Intimex, in Hanoi. Step by step, the
supermarkets have penetrated into provinces, especially the Mekong delta, Vinh long, Can
Tho, Dong Thap, Binh Duong19. Initially, the modern stores targeted the high-income class
customers, Viet kieu and foreigners, use to sell primarily imported goods, with fixed prices,
that are often viewed as about 10% higher than those offered by traditional outlets. The
proportion of Vietnamese food sales proposed through modern formats where, then, less than
19
For instance, CO-OP MART operated its first store in the Centre at the end of 2003, at Quy Nhon and
VINATEX has opened its supermarket chain in Vinh Long, Can Tho, Dong Thap, Binh Duong.
12
2.5%. Later on, the setting up of the two foreign banners Cora (renamed Big C) and Metro
Cash Carry have dramatically speeded up the modern distribution diffusion in Vietnam. In
1998, Cora Dong Nai became the biggest hypermarket in Vietnam. The opening of Metro
Cash & Carry Vietnam in Hochiminh city and, recently, in Hanoi has introduced Vietnamese
people to modern and professional wholesale distribution. However, these new formats are
concentrated particularly in big cities with a significant purchasing power. They represent
two-third of the national total number in Hochiminh city and Hanoi in Vietnam and in
Bangkok in Thailand.
Along with these supermarkets and superstores, there are other formats, like specialized
supermarkets, convenience stores which are in direct competition with the formers. An Nam
and Masan, the two convenience stores chains operated in Hochiminh city, opened 24h/24h, 7
days a week. Located in many central districts, near offices and residential areas for
foreigners, they targeted more refined customers’ segments with a limited assortment. This
newly introduced format was not a success in Vietnam, in terms of profitability, on the one
hand, and not as well-positioned in comparison to traditional street stores or boutiques, in the
other. As a matter of fact, the Masan mart cahin, with 25 stores operating in Hochiminh city,
was closed in 2003. Meanwhile, convenience stores have developed rapidly and raised their
market share over traditional stores in Thailand and in Indonesia for the past five years. For
instance, in Thailand, there are more than 3 000 convenience stores under the franchise of 7Eleven (1,520 stores), Family Mart (100), AM/PM (130), and hundreds of these stores are
deployed in Indonesia, such as AM/PM, 7-Eleven, Circle K,... In contrast, there is no
franchise from foreign companies and convenience stores present in Vietnam.
If convenience stores in Hochiminh city had not been successful, supermarkets specialized in
cosmetics (Chua Boc, Medicare), shoes, furniture (Nha Xinh), computers (Blue Sky Ham
Long), electronics (Nguyen Kim), apparel (Vinatex), wine, fresh fruit, vegetable, and real
estate (ACB bank) have become more and more popular in big cities.
The competitive environment of the modern retail sector in Vietnam
Despite the dominance of traditional markets and outlets, there is still room for the expansion
of supermarkets. There is a fierce competition between local and foreign players. They all
expand operations not only in big cities, but also in the rest of the country. Almost all of
existing modern retailers plan to open more new stores: Big C in Hanoi, Metro C&C in Can
Tho, Seiyu in Hochiminh city, Intimex and Coop-mart nationwide. They seek to open more
modern and larger stores. In the early stages, the average surface area of a supermarket store
was around 500 square meters. Later on, the store size increased to 1,000 to 2,000 square
meters, and now, the newly opened superstores have a selling space of 4,000 square meters.
Besides enlarging the physical size of the stores, supermarkets owners have been forced to
reorganize the layout and promote permanent innovation in order to attract more shoppers.
They tend to focus more on building their brands. In 2004, Co-op mart has spent 1.5% to 2%
of total sales on promotion and marketing activities for the Co-op mart banner. Price is the
main criteria of competition. Besides, adding entertainment to the modern retail formats has
been one of the most popular strategies through the recent years. Entertainment is not limited
to music, fashion shows; it includes, also, other services, such as coffee shops, beauty salons,
and restaurants, anything that makes shoppers have a good time.
13
However, in this sector, there are strong entry barriers to entry for newcomers. As far as local
retailers are concerned, huge investments are needed: roughly VND 30-40 billion for a
supermarket and parking space20, but the return on investment is slow, 5 years, and the
profitability is low (the net profit under 5%). For foreign retailers, there will be opportunities
to enter the Vietnamese market in the coming years as until Vietnam joins AFTA, local
distributors have been protected.
In the modern retail sector, in Hochiminh city, Coop-mart chain has become the leader since
2001, holding 55% of the market share, followed by Maximark (19%), Big C (15%) and
Citimart (5%)21.
Co-opmart
The local state-owned chain Co-opmart appears to be the city’s most popular supermarket chain, operating
through 13 outlets, located in central areas, in Ho Chi Minh city, developing a low price strategy. It targets
are employees and middle-income people. They draws big crowds of 50 000 shoppers a day.
“Goods on sale have a high quality but the prices are really not much different from those
at traditional markets. The chain has helped producers of high quality Vietnamese goods to
promote their products. Since 2003, it has developed online sales. One of the community
services provided by Co-op mart is the organization of trip store to sell goods at low prices
to poor people, factory workers, hospitals and remote areas. This activity is in line with its
motto: Co-op mart, a friend to every family”. 22
It holds actually the leading position, accounting around half of the supermarket share. In 1996, when the
first Co-op mart has opened, its turnover was only VND 24 billion, with only 20% to 30% of Vietnamese
products. In 2003, with a chain of 13 supermarkets, it reaches nearly VND 1, 05 trillion with 80%-90% of
Vietnamese products. Its annual growth rate is about 25%. According to Ms Nguyen Thi Nghia, general
director of Saigon Co-op, the chain tends to expand its activities to other big provinces, especially in the
Mekong delta, aiming to open 20 supermarkets, by 2005, inorder to dominate the retail sector in Vietnam.
While Co-op mart has good results in selling processed food for local consumption, its export results
mainly from handicraft and ceramics have accounted for USD 2 million only23.
Maximark
This privately-owned local chain of 4 supermarkets was developed during the 1990s. the most recently
opened store at Cong Hoa is based on 19 000 square meters, in which 3,000 square meter hypermarket,
with amusement center, game arcade, department store. The store carries about 15,000 references.
Citimart
The privately-owned local chain has 4 stores across the country. It offered exclusives imported products.
Metro Cash & Carry
On March 2002, the German trading company Metro Cash & Carry Vietnam (with 100% foreign capital),
the global modern wholesaler, opened its first store in Vietnam at Binh Phu, district 6. Metro Binh Phu is
built on an area of three hectares, with more than 14,000 food items at international standards. The
investment cost accounts for 20 million euro. It has a staff of 420. On December of the same year, its
second store, located in An Phu - An Khanh, district 2, on an area of 36,000 square meters was opened.
One year later, its third one was established with an area of 40,000 square meters in Hanoi. The company
plans to open five more in big cities, like Danang, Can Tho, Hai Phong and Nha Trang, with an
investment of USD million 170. The Metro stores target distributors, companies, hotels, restaurants,
hospitals and retailers as well. Customers should have cards to be allowed to do transaction at these stores.
The company will create 2500 jobs in Vietnam. The trading system aims to supply member customer with
quality products, food with hygiene standards, but at the lowest price. Like Big C, Metro tends to become
Dao Loan (2004), “Supermarkets on a roll”, p. 14, Saigon Times, March 6, 2004.
Data of R&D Department of Saigon Co-op in 2003, cited by CFVG students
22
Supermarkets on a roll (10/03/2004)
23
Bich Nga (2004), “ Tim co hoi xuat khau qua cac sieu thi”,
20
21
14
a direct distribution network for Vietnamese products. Right away in 2002, Metro Vietnam exported
around 50 million of goods to Europe, mainly shoes, leather goods, textiles and ceramics 24.
Concerning its international development strategy, Vietnam is the second Asian country that
Metro has entered, after China, which counts already 15 stores. After Vietnam, it plans to
penetrate Japanese and Indian markets. Concerning Vietnamese modern retail market, James
Scott, general director of Metro C&C, evaluated that the development of supermarkets in
Vietnam is lower than that of Thailand (5% in 1995, 10% in 2005 and 30% in 2010 in
Vietnam against 20%, 602% and 70% during the same period).
In sum, it is not surprising that Hochiminh city has given access to modern stores much earlier
than Hanoi, and the development of supermarkets is growing faster in Hochiminh city than in
Hanoi, as it plays the leading role, not only in the distribution but also in the attraction of
merchandises exported from other provinces in Vietnam. In comparison with Hochiminh city,
the supermarket system operating in Hanoi has revealed itself several shortcomings resulting
from the lack of professionalism of modern distribution.
Evolution of the Vietnamese consumer behaviour towards modern retail formats
The speeding up of economic growth, combined with the increase of purchasing power of a
part of the total population, especially urban population, and the demographic evolution,
affects the progression of household private consumption, as do the industrialization and
modernisation increasing pace, the growth of female activity rate, the rapid development of
the cities, the mass information development, which have changed tremendously the life style,
and, therefore, the consumption and consumer behaviour. Geographically, Hochiminh city
and Hanoi, the two biggest cities have a higher annual growth rates, compared with those of
other parts of the country. At a result, in Hochiminh city, the average annual growth rate of
supermarket purchase of households is 40%. More interesting, even, is that a powerful
potential consumption is anticipated in other big cities, like My Tho, Long Xuyen, and Phan
Thiet, as far as up to half of main household shoppers from these cities have already
purchased in supermarkets, even though there are no supermarkets existing in these
locations25.
Besides, the youth element gives a flavour of supermarket shopper’s future buying habit, as
more than half of the population is under the age of 30 and represents a powerful consumer
force. Vietnamese consumers are described as young, curious and more and more demanding
in their buying decisions. They pay much attention to brand-name, price, design and
marketing strategy of distributors. As far as communication strategy is concerned, they seem
very responsive to advertising and promotional activities 26. Concerning shoppers’ attitude to
try new things in supermarkets and hypermarkets, Vietnamese supermarket shoppers, along
with Malaysian shoppers love to try new things much more than any other Asian customers 27.
24
Hai Yen (2003), « Covering the country », Vietnam Economic Times, September 2003, pp. 21-21
Anh Minh (2004), « Tang toc, tang chat luong » ???????
26
Sai Gon Tiep Thi, 2003.
27
AC Nielson (2004), « Asia Pacific, Retail and shopper Trends 2004 »
Percentage of supermarkets and hypermarkets shoppers who love to try new thing in Asia: Malaysia (37%),
Vietnam (36%), Japan (24%), Thailand, Indonesia (21%), Philippines (16%), Korea and China (12%), Taiwan
and Sri Lanka (11%).
25
15
And they have modified their buying habits in supermarkets by adopting this changing
behaviour.
Like most people in Asia, Vietnamese customers mainly shop at the wet market, rather than in
supermarket. As of June 2003, modern stores attracted 10% only of the total expenditures for
food and non food purchases for all retail formats in the four big cities in Vietnam, Hanoi,
Hochiminh city, Danang and Can Tho. In contrast, wet markets represented 15% while the
traditional street stores still reach 60% of total spending.
These are women who decide the purchase. This reflects a family-oriented life style with the
important role of women in Vietnamese consumption pattern, in comparison with South-East
Asian household shoppers. Recent results of AC Nielson illustrated clearly this decision
patterns, as 97% of shoppers and 95% of key influencer are Vietnamese women, against 84%
and 65% in Thailand and 91% and 47% in Indonesia28. The shopping hours are between 8AM
to 9AM. The duration is about one hour and the amount purchased is around 50 000 VND.
They come to wet markets every day to procure fresh food. They love to shop in traditional
markets mainly because they prefer fresh items, large assortment, bargaining, price, and
proximity.
However, the buying behaviour towards traditional markets versus modern retail formats had
significantly changed. In big cities, like Hochiminh city and Hanoi, the shopping at
supermarkets is more and more frequent. A survey of Taylor Nelson Sofres on the shopping
frequency by channels, on a month to month basis, has indicated that almost all shoppers visit
their local street-front store on a monthly basi. Interestingly, almost half of Vietnamese
households still visit the wet markets with the same frequency, while a record 40% of all
shoppers visit Metro, Superbowl and other modern outlets in urban centres.
According to the studies conducted by CFVG29 students, the amount of purchase is growing
from 30,000 VND per shopper in the 1990s to 100,000 VND to 200,000 VND nowadays. The
shopping frequency in supermarkets is twice per month. Their reasons to visit is quite similar:
for entertainment (30%) as for shopping (70%). The hygiene conditions, the guaranty of
quality and the source of products, the broad assortment, the novelty, and the price are the key
incentives for purchasing in supermarkets. Freshness and quality are of growing importance,
while the basic needs of ease of parking and low prices have become relatively less important.
The majority of the consumers see price and quality as important factors to shop. In 2004,
around 60% supermarkets shoppers are fond of quality, 44% of price, 41%, of infrastructure
and 23%, of promotion30. The same behaviour can be found among Indonesian people, who
seem also extremely price sensitive. Compared to the previous years, when shoppers come to
supermarkets mainly for visiting, relaxing and discovering prices, the numbers of shoppers
and the shopping frequency have increased significantly. There is a common growing
preference of Vietnamese and Indonesian consumers for shopping in modern outlets rather
than at traditional markets due to more comfortable trading places, more broad assortment,
attracting good display, guaranteed quality and source of products, especially food safety,
cleanliness, and pleasant shopping atmosphere. Their favourite stores are Nhat Nam,
Maximark and Co-opmart in Hochiminh city and Fivimart, Makro in Hanoi.
28
AC Nielson (2004), « Asia Pacific, Retail and shopper Trends 2004 »
Centre Franco-Vietnamien de formation à la Gestion, established in Hochiminh city and in Hanoï, offering
both MBA programs.
30
Nguyen Loan (2004), “Hang Vietnam ban chay qua sieu thi”, http://www.dddn.com.vn
29
16
Nowadays, Vietnamese consumers spend more on food and beverage than ever before. In fact,
in June 2002, the average urban household was spending VND 223,000 per month at street
shops, against VND 322,000 in June 2003. Wet market consumption rose from VND 116,000
to VND 148 000, while modern outlets spending increased from VND 98,000 to 108,000
during the same period (June 2002-June 2003). Food consumption made up two thirds of all
FMCG and 70% of all street-front store purchases on food against 52% of modern outlets.
Concerning types of products bought at supermarkets in Hochiminh city, a survey conducted
by SGTT31 in April 2004 found that 50.8% of shoppers have bought processed food, 50%
bought cosmetics, detergents and 30% bought beverage while only 24.2% bought fresh food.
Despite the low actual consumption of fresh food in these outlets, the consumer tends to
change especially in Hochiminh city, due to a growing food safety and hygiene concern32. If
processed food has room in modern outlets, personal care items, in particular cosmetics and
beauty products are bought mainly in traditional markets. This buying habit differs a lot from
those of Asian consumers, who preferred to buy personal care items in modern stores
(cosmetic and drugstores, supermarkets and hypermarkets). This purchasing decision is
explained mainly by the low income level of Vietnamese consumers. Street shops and
traditional markets attracted around 72% of all cosmetic buyers in 200333.
While brands, products and tastes are still national and most fresh food is purchased outside
supermarkets, growing food poisoning from year to year in conjunction with bird flu outbreak
in the Asian region has drawn more Vietnamese shoppers to supermarkets. Moreover,
convenience, location and selection of products in each channel are driving consumer habits
in Vietnam34.
Like Indonesian people, in spite of the growth in the modern retail sector, the majority of
Vietnamese continue to shop at traditional store conveniently located to their homes, familiar
to the majority of consumers (as indicated, still about 72% of purchase are made in traditional
markets). Even though, urban consumers welcome these new retail formats, but they are not
ready to change abruptly their habits that are largely associated with the Vietnamese
economic, social and cultural context. Which is the case, especially, of elderly people who
like direct communication and negotiation in traditional markets. Besides, the consumption
habit in fresh food has made obstacles to the development of these items in supermarkets.
A decade of rapid economic growth has changed Vietnamese consumer culture. Vietnamese
shoppers, nowadays, consider supermarkets as a place combining purchase and leisure. Even
though, the traditional markets still dominate the retail sector, with a growing concern for
quality and hygiene conditions which makes room for supermarkets. And this change in
consumer behavior of urban household might affect the elaboration of foreign and local
distributors’ strategy in a fierce competition in this sector.
31
SGTT: Saigon Marketing
In Hochiminh city, there were 11 cases with 1158 people poisoned in 2003 against 5 cases with 577 people in
1997. And this city accounts for 25% of the total cases in Vietnam.
33
Taylor Nelson Sofres Vietnam (2003), “Personal touch more popular”, p. 44, Vietnam Economic Times, June
2004.
34
Taylor Nelson Sofres Vietnam (2003), “Eat, drink and be merry”, p. 38, Vietnam Economic Times, January,
2004.
32
17
Economic impact of the modern retail formats
1. Slow rate of penetration of supermarkets
Despite the growing popularity of modern retail formats, the traditional market still plays a
key role in the Vietnamese retail sector, like in several other Asian countries, like Indonesia,
Thailand, Cambodia, and Laos. Nevertheless, the pace of expansion of modern self-service
outlets in big cities of the region, is more significant: in major urban areas; like Bangkok and
Jakarta, for instance, where it represents, respectively, 69% and 46%, the modern trade
continues to grow. At the country level, the modern distribution in Vietnam still covers a
minor part of the local sales turnover, compared with the level of East Asian or South-East
Asian regions. It reaches only 17% (in Hanoi and Hochiminh city) of the total retail sales,
against 70% in Hong Kong, 86 % in Singapore, 71% in Korea, 49% in Malaysia, 40% in
Philippines, 43% in Thailand, and 26% in Indonesia in 200335.
In figures, Vietnam has up to 100 supermarkets nationwide for a total population of 80 million
of inhabitants; a number that could not be comparable to its neighboring comparable countries
-with more than 2600 in Thailand and 940 in Indonesia-. Moreover, the presence of foreign
retailers remained modest with only three banners such as Big C, Metro and Seiyu while a
large set of the world distribution leaders are operating in Asia, such as Makro, Tesco,
Carrefour, Continent, Casino, Wal-mart, Isetan, Sogo, Parkson,…In Indonesia and in
Thailand, for instance, more than 10 foreign retailers have set up operations over the past five
years such as Tesco Lotus, Big C, Tops, Carrefour, Continent, Makro, Alfa, Indo Grosir and
Goro. The expansion of modern retail formats, especially in Indonesia, is explained by the
positive attitude towards foreign investors, adopted as early as 1998: those have been granted
by the Indonesian government, through a new regulation giving them the same rights as local
investors in retail business. As a result, in comparison with other Asian countries, the
penetration of supermarkets in Vietnam is rather slow.
2. Introduction and building up of Vietnamese products
After a decade of creation and development of supermarkets in Vietnam, the percentage of
imported items sold in supermarkets, at its first stage, was close to 100%, decreasing from
year to year, to 30%-40%, in 1997-1998, and to 10%-20%, in 2004. Interestingly, modern
retail formats, initially considered by Vietnamese shoppers as targeting high income segments
and expatriates, have become new channels for retailing companies to launch and promote
Vietnamese products domestically and abroad. Besides, supermarkets contribute to stabilize
prices.
3. Opening up the retail sector and its consequences
However, new comers, such as Dairy Farm and Parkson will open their first stores in the near
future, along with the opening up of the retail sector in Vietnam. The country is following its
neighboring countries, which have opened up the retail sector with a time table reflecting their
level of economic development: foreign investors were allowed to entry business in Thailand
in the early 1990s; in Indonesia in 1998. Since then, modern retail foreign players have not
35
AC Nielson (2004), « Asia Pacific, Retail and shopper Trends 2004 »
18
only developed their business, but also have been competing aggressively with both local
players and traditional ones.
Actually, with the expansion of foreign big retailers on a national scale, some lessons should
be learned from other Asian countries, like Indonesia and Thailand: after a decade of
continuous development of the modern distribution sector in these countries, local players
have been left behind by global retailers with strong capital and experiences in the high
competitive environment in their own country and worldwide. In fact, the rapid growth of the
economy, especially previous to the Asian financial crisis, led to the supermarket boom.
-
Food retailing in Thaïland, fo rinstaance, was dominated, at that time, by the two local
groups, CRC (Central Retail Corporation) and CP (Charoen Pokphand Group). They
are now held by foreign owned companies36. The recovering of the retail sector, after
the financial crisis, occurred simultaneously to its explosive development. Foreign
competitors, soundly financed, competed aggressively for new market shares and got
rid of traditional small players, offering very low prices, 2% to 10% below those
proposed by traditional distribution channels, through a tight control of costs. Then,
the presence of foreign major distributors, like Carrefour, Casino, Tesco, and Makro,
provoked a drop of 80% of traditional wholesalers’ turnover. Local small traditional
retailers suffered also from the convenience stores established near-by.
-
The same situation could be observed in Indonesia: since 1998, Carrefour, Continent,
Makro Asia, Dairy Farm have shared the market among them, while other big global
retailers, like Tesco and Giant, tried to penetrate the market. Hero and 300 other local
retailers (of which the biggest are Matahari, Ramayana, Pasaraya, and Sarinah)had
also to cope with a serious profit shortage. Consequently, foreign retailers have largely
contributed to the wiping out of many traditional retailers, especially those located
within five miles from those, with a drop of their sales, up to 80%.
In order to protect traditional and local retailers, Thailand restricted the market access to
foreign retailers, holding already 80% of the country’s modern retail market. As in Malaysia
where the government has stopped delivering licences to foreign operators in big cities. It
only allows them to open outlets in less developed and rural areas.
CONCLUSION
The retailing industry in Vietnam is still highly fragmented, with a domination of traditional
channels. Within 10 years, the modern distribution has been progressing slowly in the
country, speeding up during the past two years. However, as far as modern retail sector is
concerned, there remains a big gap between big cities and provinces. The biggest operators,
already established in Hochiminh city and Hanoï, are planning to extend their operations to
the other provinces. Compared with Thailand or Indonesia, the number of supermarkets is still
small and, with the growing consumption demand, the potential Vietnamese retail market is
huge. Will it be, then, an opportunity for foreign modern retailers to enter this market (or to
stay there, if they are already present, like big C), along with the country’s commitment of
opening up this sector to foreign players in the near future?
36
Appendix 3.
19
Answering such question requires, then, to analyze the Vietnamese distribution sector’s
environment, to measure
- how progressively the authorities release restrictions to entry, not only to satisfy
international requirements, but, also, in order to attract new foreign actors.
- and, to what extent they keep a grip on a sector whose potential is more and more
appreciated by major players from abroad.
This leads to anticipate the possible future evolution of the Vietnamese distribution sector, its
pace of growth in relation with the country’s GDP progression, using as a benchmark
Indonesian and Thaï examples. Such approach covers the identification of sector’s existing
and coming challenges, i.e.:
- the impact of all type of external pressures -either political regulatory, economic and
social, as technological37- ,
- to convey in terms of adaptation requirements of the offer, geographic (national) and
activities (formats range) deployment and, above all, competition’s nature and
intensity changes.
From such analysis stem some conclusions which may clarify the decision making process,
both for foreign and local corporate actors as for the local authorities. These will have to
consider their respective resources and handicaps; which will lead them to define or to
reconsider their respective policies:
- as for the authorities, which will have to conciliate all the country’s international
commitments and their respective constraints, in order to define and select the most
appropriate policy orientation and the consecutive measures to be implemented ;
- as for the corporate players, local -like Co-op mart-, and foreign -like big C-, taking
into account their respective strengths and weaknesses, their level of control of KFS,
and the consecutive strategic orientations offered to each one, with their respective
pros and cons and, once the most appropriate selected, the implementation process to
adopt.
Another output to expect from this approach could be to identify,
- in Vietnam, comparable (service) activity sectors, which could take advantage of the
retail activities experiences, and benchmark for the account of their public/private,
local/foreign stake holders, as of their consumers/users,
- in other selected emerging countries, comparable to these of the South East Asia
region, lessons and good practices to be shared, all the same, by local authorities as by
local and foreign actors.
37
Lemaire, J.P., Measuring the International Environment Impact on Corporate Marketing and Strategy: the
P.R.E.S.T. model, 16th annual IMP conference Univeritiy of Bath, Sept. 2000.
20
APPENDIX 1: DATA COMPLEMENTS ON VIETNAM
Table 1: Economic Indicators
Year
1985 1990
1995
1998
59.87 66.02
72.00
75.46
Population
(million)
19.5
20.7
23.1
Urban population
(% of the total
population)
5,1
9.5
5.8
Growth of GDP,
annual change, %
214
332
Per capita GDP,
converted
to
USD,
1USD=15000VND
(constant) *
544+
9360
Exports,
FOB 699 2404
(USD million)
8155
11500
Imports,
CIF 1857 2752
(USD million)
-1159 -348
-2706
-2140
Trade balance
(USD million)
6482.80 11015.00 13268.00
Exchange
rate
(VND per USD)
7.8
Consumer price
index,
annual
change (%)
12.7
9.2
Inflation rate (%)
Source: World Bank, 2004
*: http://www.vvg-vietnam,com/economics
1999
76.60
2000
77.64
2001
78.68
2002
79.73
23.6
24.3
24.8
4.8
6.8
6.9
7.0
362
387
400
420
11541
14483
15027
16706
11742
15637
16162
19733
-201
-1154
-1135
-3027
13943.20 14167.70 14725.20 15279.50
4.2
-1.6
-0.4
0.7
-0,5
-0.3
2.9
Table 2: Structure of output (% of GDP at current price)
Year
1985
40.2
Agriculture
27.4
Industry
32.5
Service
Source: World Bank, 2004
1990
38.7
22.7
38.6
1995
27.
28.8
44.1
1998
25.8
32.5
41.7
1999
25.4
34.5
40.1
2000
24.
36.7
38.7
2001
23.2
38.1
38.6
2002
23.0
38.5
38.5
Table 3: Vietnam’s main exported items in 2003
Exported items
1. Crude oil
2. Garments-textiles
3. Footwear
4. Aqua products
5. Rice
Value (USD million)
3,777
3,630
2,225
2,217
719
21
6. Electronics
7. Wood
8. Coffee
9. Rubber
10. Handicrafts
TOTAL EXPORT VALUE
Source: http://itpc.hochiminhcity.gov.vn
686
563
473
383
367
19,900
Table 4: Evolution of the Vietnamese private consumption (VND billions at current price)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source : Website of the World Bank, 2003
Private Consumption
111820.7547
114307.8324
122174.4505
124491.2281
133299,0000
144010.2564
159205.1887
165991.1504
173388.2114
176932.7354
182373.9988
Table 5: Evolution of living standard (in percentage)
Year
Total
Low level Temporarily Average
(*)38
stable
level
1998
100
10,6
1999
100
9,6
2000
100
8,7
2001
100
7,9
Source : Statistical Year Book of HCMC, 2001
27,9
27,5
27
26,5
32,6
37,4
37,8
38,2
Above
average
level
19
19,3
20,2
21
High level
6,3
6,2
6,3
6,4
Table 6: Retail sales in Vietnam (VND billion at current prices)
Year
1990
1991
1992
1993
1994
1995
1996
1997
Retail sales
19031,2
33403,6
51214,5
67273,3
93490,0
121160,0
145974,0
161899,7
38
Note: dépense mensuel moyenne en 2001 /habitant (milliers VND), misérable <294, temporairement stable : 295-465, moyen 466-801, au
dessus de la moyenne 802-1939, haut >1939.
22
1998
1999
2000
2001
Source : Statistical Year Book, 2002
185598,1
200923,7
220410,6
245315,0
Table 7: FDI capital in Vietnam (USD million), 1998-2003
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: General Dept. of Statistics
FDI inflows (USD million)
371.8
582,5
839,0
1322.3
2166,0
2900.0
3765.6
6530.8
8497.3
4649.1
3897.0
1568.0
2012.4
2191.9
1703.07
1653.68
Table 8: Vietnam’s top ten investors in 1998-2003
Country
Projects
1. Singapore
288
2. Taiwan
1086
3. Japan
418
4. South Korea
662
5. Hong Kong
288
6. France
134
7. B.V. Islands
187
8. Netherlands
51
9. Thailand
119
10. UK
51
Source: http://itpc.hochiminhcity.gov.vn
Registered capital
(USD million)
7370.11
5997.73
4480.43
4161.33
2974.58
2114.15
2090.43
1768.27
1408.30
1180.33
23
APPENDIX 2: RETAILING IN INDONESIA39
Table 1: Economic Indicators
Year
1985
1990
1995
1998
1999
200
2001
193,66 179.38 194,75 201.58 203,91 206.26 208.65
Population
(million)
30.9
35.9
39.4
Urban population
(% of the total
population)
9.0
8.2
-13.1
0.8
4.9
3.4
Growth of GDP, 2.5
annual change, %
Per capita GNP, 572107 1121932 2265146 4473928 4982442 5685692 6668294
at current market
price (Rupiah)
1843
2249
10014
7855
8422
10261
Exchange
rate 1111
(Rupiah per USD)
9.5
58,5
20.5
3.7
11.5
Consumer price 4,7
index,
annual
change (%)
25675
45418
48848
48865
62124
56321
Exports (Million 18587
USD)
10260
21837
40629
27337
24003
33515
30962
Imports
(Million USD)
3838
4789
21511
24662
28609
25359
Trade
balance 8327
(Million USD)
Source: World Bank, 2004
53% of the population is under less than 25 years old, 39.4 of the population is urban.
2002
211.06
3.7
7259639
9311
11.9
57006
31304
25702
Table 2: Modern retail institutions in Indonesia
Type
Supermarkets
HERO
Number of outlets in 2003
Location
97
Jakarta, Java, Balmi, Lombok,
Sumatera,
Kalimantan,
Sulawesi, Papua Barat
Jakarta, Bogor, Tangerang,
Banten, Bekani, Bandung,
Surabaya,
Palembang,
Yogyakarta
Jakarta,
Jawa,
Bali,
Umetera, Sulawesi, Batam
Jakarta, Java, Bali, Medan,
LION SUPERINDO
37
GELAEL
11
ALFA
32
39
This section is a compilation of information diffused from several sources : www. Dree;org, www.,
www.cic.co.id/products/01_hypermarket.htm “Post-crisis prospects of hypermarkets & supermarket business in
Jabotek”, www.expat.or.or.id/info/supermarkets.html “Supermarkets in Jakarta, Indonesia”, GAIN report 2003
“Indonesia, retail food sector report 2003”, www.euromonitor.com/retail_trade_international_-_Indonesia
“Retail trade International, Indonesia”.
24
MATAHARI
79
RAMAYANA
70
YOGYA
Hypermarkets
CARREFOUR
CLUBSTORE
GIANT
Lampung, Makassar
Jakarta, Java, Bali, Sumatera,
Kalimantan,
Sulawesi,
Ambon
Jakarta, Java, Bali, Batam,
Sumatera,
Kalimantan,
Nusatenggara Timur
Jakarta, West Java
39
Wholesalers
MAKRO
INDO GROSIR
11
3
6
Jakarta, Bandung
Jakarta, Medan
Jakarta, Tangerang, Bekasi,
Cimanggis,
Bandung,
Surabaya
13
Jakarta, Surabaya, Medan,
Bandung, Bali, Semarang,
Solo, Makassar
Jakarta,
Bandung,
Yogyakarta, Surabaya
Java, Bali
Jakarta
6
ALFA GROSIR
CLUB GROSIR
Minimarkets
ALFA
INDOMARET
MARKAZ WASERDA
STAR MART (HERO)
GOS’MART
LOCAL MINIMARKETS
Convenience stores
AM/PM
CIRCLE K
8
2
7- ELEVEN
Source: GAIN 2003
6
570
Jakarta, Java
Jakarta, Java
Java
Jakarta, Bogor, Bali
Jakarta
All over Indonesia
800
17
39
9
A lot
27
63
Jakarta
Jakarta,
Bogor,
Bandung, Yogyakarta
Bandung
Bali,
Table 3: Sales generated by type of retailers
USD million
2000
2,800
Total retail sales
Generated by local 2,059
retailers
Generated
by 741
foreign retailers
Source: Castle Asia, cited by Gain report
prepared by F.Y. Rankuti)
2001
2002
3,502
2,575
3,852
2,833
927
927
2005
(predicted)
8,400
11/12/2003 (Indonesia, Retail food sector, report 2003,
25
Table 4: Contribution percentage to Indonesian retail sales (%).
Outlet type
Supermarket/hypermarket
Minimarket
TOTAL
Source/ AC Nielson
1999 - 2000
16,7
3,5
20,2
2000 - 2001
20,5
4,6
25,1
2001 - 2002
20,2
4,9
25,1
2002 - 2003
21,1
5,1
26,2
An Overview of the distribution sector in Indonesia
The population of Indonesia is around 212 million. 53% of the population is less than 25 years
old, 39.4% of the population is urban. Upper and middle income groups -those most likely to
purchase imported products- represent 5 to10%, respectively, of the population. In 1997, the
Asian crisis severely impacted the retail industry in Indonesia, with the weakening Rupiah
leading to a sharp increase of prices. The distribution sector, then, suffered the 1998 riots that
destroyed many retails outlets in many regions, including retail chain and Chinese-owned
outlets. Later on, a more stabilised economic and political climate had permitted the industry
to recover, especially in the early 2000s. Total retail sales reached Rupiah 320 trillion, with a
sales growth of 16.4%40 The number of supermarkets has increased about 20% during the last
five years41. Modern stores contribute nearly to 30% of the retail sector in 2003. The success
of hypermarkets in Indonesia relies largely on “one stop shopping” modern retail format and
on low prices, while the success of mini-marts lies in air-conditioning and on close proximity.
Despite the growth in the modern retail sector, the majority of Indonesian continue to shop in
traditional store conveniently located close by their homes or places of work, which are
familiar to a majority of consumers (as indicated, still about 72% of purchase are made in
traditional markets). .
Concerning the modern trade, it has been diffusing and growing in Indonesia, form Jakarta:
- As soon as the early 70s, consumers contemplated the beginning of supermarket
development when Hero opened its first stores. By the end of the 70s, Kem Chicks
and Gelael had also opened small stores in Jakarta. Duty Free stores supplied hard-tofind imported food items and alcoholic beverages for expatriates.
- In the late 80s, new supermarkets opened. Supermarkets in close proximity to the
traditional markets were not allowed to sell fruits, vegetables, and meat.
- In the 90s, wholesalers as Makro and the Club started their operations.
- By early 00s, Carrefour had established in Jakarta with 5 locations.
If in 1990, the capital had hardly modern outlets, in 1995, about millions of square meters
have been build for modern stores. The supermarkets mainly appeared in major cities of
Indonesia. During the early 2000s, the development of retail infrastructure had made
significant progress, especially in big cities. The building of shopping centres provided an
additional 31 500 square meters sales areas to the existing 1.2 million square meters. In
Jakarta, there were 313 outlets of supermarkets and mini-markets before the crisis (185
supermarkets and 128 mini-markets) and about 940 supermarkets nationwide. The two major
retailers in Indonesia being Matahari and Hero, their target customers are mostly the middle
to upper level Indonesian citizens.
40
41
Retail trade International, website: http//www.euromonitor.com/retail_trade_International_Indonesia
Source: Euromonitor
26
Some foreign investors had started early to open hypermarkets. Two hypermarkets are already
operational, Carrefour and Continent, both under French control. Foreign companies investing
in retail have been granted, in 1999, rights from the government, through the new regulation
no 99 of 1998 and a Government Decree of 1999, similar to those of local investors in the
business. According to decree n°99, the retail and whole sale sectors are open to large, and
medium scale investment as long as the investor enters into an equity “partnership” with a
small scale Indonesian enterprise. As a result, since, Joint Ventures with foreign operators
were a rising trend, as Indonesian retailers sought technical and managerial expertise from
abroad. Most notable are Hero’s strategic alliance with Diary Farm International Holdings
from Hongkong. At least, 11 foreign retailers have set up operations in Indonesia over the past
five years.42
Although the traditional sector still dominates the retail business, Indonesia‘s retail industry
continues to evolve from the traditional market largely local structures to a network of modern
hypermarkets and supermarkets.
According to a GAIN report, in 2003, consumer purchasing habits changed remarkably after
the Asian financial crisis and continue to evolve. Current Indonesian consumer purchasing
patterns can be generalised as follows:
1. Purchasing more staple products, rather than luxury items, and minimizing impulse
buying.
2. Extreme price consciousness in purchasing and less store and brand loyalty.
3. Shopping more frequently for food and buying smaller quantities per shopping trip.
4. Shifting purchases of some staple items to traditional outlets and shopping more
frequently at discount venues in the modern sector.
5. Buying local products rather than imported goods when satisfactory local substitutes
are available.
6. Consuming more fresh food.
7. Increasing preference for shopping in supermarkets/modern stores rather than in wet
markets, due to more comfortable shopping space, more complete range of goods,
guaranteed quality of products (food safety and cleanliness), competitive prices, good
service, and easier accessibility.
It is worth noted that these generalisations apply less to higher income consumers, like
expatriates and high-income Indonesian. Those continue to look for branded and imported
products.
Competition among modern retail formats became more tense than with traditional outlets, in
particular in urban areas, as number of intermediate formats tends to develop between
supermarkets and hypermarkets,, offering a larger assortment. In addition, traditional stores,
also, had to compete with modern stores. Wet markets and independent grocers continue to
dominate rural areas, as competition with modern retail outlets in these areas do not exist.
Indonesia’s Hero supermarket reports 35% drop in net profit (Nov 28,02),
http://www.siamfuture.com/asiannews
42
27
APPENDIX 3: RETAILING IN THAILAND43
Table 1: Economic Indicators
Year
1985
51.58
Population
(million)
Urban population
(% of the total
population)
Growth of GDP, 4,6
annual change, %
Per capita GNP, 20483
at current market
price (Baht)
Exchange
rate 27,16
(Baht per USD)
Exports (Million 193366
USD)
251169
Imports
(Million USD)
Trade
balance - 57803
(Million USD)
Source: World Bank, 2004
1990
55.84
1995
59,40
1998
61,20
1999
61,81
2000
62,41
2001
62,91
22
20
2002
63,43
11,2
9,2
-10,2
4,4
4,6
1,9
5,2
39104
70474
75594
75026
78783
81435
85614
25,59
24,92
41,56
37,81
40,11
44,43
42,96
589813
1406311 2247454 2215178 2773826 2893178 2955715
844448
1763587 1774076 1907392 2494141 2756655 2778042
-254635 -357276 473378
307786
279685
136523
177673
Table 2: Percentage of different types of retail formats in Thailand (% of the turnover of the
sector in 2001)
Modern trading outlets
40%
Traditional channels
60%
The modern trade sector was estimated to go up to 50% in 2003.
Source: Dree.org, “La distribution en Thaïlande”, 15/8/2002
Table 3: Turnover of modern retailers in 2000
Type of formats
Turnover (Baht billion)
Hypers
70
Supers, convenience stores, specialty stores
43
Department stores
87
Source: Dree.org, “La distribution en Thaïlande”, 15/8/2002
43
This section is a compilation of information diffused from several sources : www. Dree;org, www..atnriac.ca/asean,
28
Table 4: Market share of modern retail institutions in 2000 (%)
Type of formats
Market share (%)
Department stores
32
Supermarkets
8
Convenience stores
12
Hypermarkets
45
Specialty stores
3
Source: Dree.org, “La distribution en Thaïlande”, 15/8/2002
Table 5: Market share of hypermarkets (2001)
Hypermarkets
Market share (%)
TESCO LOTUS
33
CARREFOUR
11
BIG C
29
MAKRO
30
Source: Dree.org, “La distribution en Thaïlande”, 15/8/2002
Table 6: Modern retail institutions in Thailand in 2001
Types of stores
Number of stores
Hypermarkets
MAKRO
20
BIG C
37
TESCO LOTUS
37
CARREFOUR
16
Supermarkets
TOP’S
43
FOOD LION
22
SIAM JUSCO
14
FOODLAND
8
VILLA MARKET
7
SUNNY’S
8
Convenience stores
7 ELEVEN
1740
FAMILY MART
500
AM/PM
174
TIGER MART
300
STAR MART
300
Department stores
LOCAL: Central, The Mall, Robinson, Zen,
Imperial, Teng Hua Seng
FOREIGN: Isetan, Sogo, Tokyo
Source: Dree.org, “La distribution en Thaïlande”, 15/8/2002, The food retailing sector in Thailand,
market information, SEA, august 2000
29
Table 7: Number of major retail operators
Company
2001
2002
2003
Tesco Lotus
34
42
48
Big C
29
33
37
Carrefour
15
17
18
Makro
20
21
22
Tops
41
49
55
Food Lion
28
38
48
Central
12
13
14
Boots
67
67
56
Watsons
55
61
Na*
7-Eleven
1800
2050
2300
Family -Mart
150
250
Na*
Source: The food retailing sector in Thailand, market information, SEA, august 2000
Note: Na*: not available
An Overview of the distribution sector in Thailand
The distribution sector in Thailand is divided into two sets of formats: traditional and modern.
The turnover of the retail sector is Baht billion 500 (of which, traditional, bath billion 300
and, modern, Baht billion 200) in 2001. Growth rate of hypermarkets in this country is due to
reach 20% per year. The traditional distribution system in Thailand is composed of wet or
outdoor markets and “mom and pop” stores. However, the rapid growth of the economy,
particularly during the decade previous to the financial crisis, led to dramatic changes in the
structure of the retailing sector. Modern stores developed to serve a growing middle class
asking for more sophisticated food stores had a greater variety of products.
In Thailand, there are five types of retail outlets: hypermarkets, supermarkets, convenience
stores, traditional markets, and specialty stores. There are, also, more or less, 300,000 small
“mom and pop” stores in Thailand selling rice and dry grocery products and some 600,000
wet market vendors selling mainly fruit and vegetable, meat and fish. 60% of the food retail
trade in the Bangkok area is channelled now through supermarkets, superstores, or
convenience stores. The percentage of food distribution through the wet markets is, however,
much higher in the provinces. As the Thai economy continues to develop, there is a
significant shift in consumer buying habits from the traditional markets to the new
supermarkets and superstores that offer “every day low price” .
The Asian crisis, in 1997, has accelerated the quick development of hypermarkets and
discounters. This evolution is explained by the decrease of the purchasing power. Heavily in
debt local companies enterprises had to sell their stake to foreign partners. Supermarkets and
superstores are concentrated in the Bangkok area. With only 20% of the population, Bangkok
accounts for about two-half of these formats in the country. Carrefour has opened its first
hypermarket in Thailand in 1996. In order to meet local shoppers it used street-front stores,
dedicating 70% of the space to vegetable, fruits, fish, …Makro, another European banner had
become, in Thailand, the leader of the “cash and carry” sub-sector. Convenience stores(40 to
100 square meters) opened 24/24, have developed rapidly in Thailand, targeting all customers.
This new format gradually raises its market share over traditional stores.
30
Food retail in Thailand has traditionally been dominated by 2 large corporate groups, the
Central Retail Corporation (CRC) and the Charoen Pokphand Group (CP). Before the
financial crisis, Central had 38 TOPS supermarkets, 20 BIG C superstores, and 7
CARREFOUR superstores, As a result of the crisis, Central sold its JV shares in TOPS
supermarkets to Royal Ahol (Netherland) which now owns 100% of TOPS. Its shares in
CARREFOUR stores in Thailand were sold to CARREFOUR which now owns 100% of the
operation. Lastly, it sold 68% share of its Big C superstore chain to the Casino group.
Meanwhile, the CP group, the biggest private sector company in Thailand, before the crisis,
owned 14 Lotus superstores, was partnering with Makro of Holland, through 17 Makro stores.
It, also, owned 8 Sunny’s supermarkets, and the franchise rights for 7-Eleven convenience
stores in Thailand. Later on, after the crisis, CP sold most of its holding share in SIAM Makro
to the European partner company, its 75% share of the Lotus Superstore chain to Tesco of the
UK, and the Sunny’s supermarket chain to Delhaize Lion of Belgium.
As a result, the fall-out of the financial crisis in the retail sector is that now all major retailers
in Thailand are owned by foreign companies. And foreign retailers plan to expand their
activities and compete aggressively for new market share.
31