[Vnbiz] EIU: Vietnam Retail: Unequal Fight for Distribution

[Craig Stevenson]

Vietnam retail: Unequal fight for domestic distributors
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 September 27th 2006

   FROM DIALOG NEWSEDGE

[Thai Press Reports]

Leading Vietnamese distributors such as Saigon Coop-Mart and Phu Thai have
planned to join hands in building a modern distribution network with a total
investment of VND6,000 billion. The project will hire foreign consultants to
compete with foreign groups which are expected to flock to Vietnam after the
country joins the World Trade Organisation (WTO).

Domestic distributors will get into an unequal fight when Vietnam joins the
World Trade Organisation (WTO) and retail markets are open. Under the
roadmap, once Vietnam enters the WTO, major foreign distribution groups will
be allowed to establish joint ventures with domestic enterprises to invest
in wholesale and retail business operations. Two years later, they will be
entitled to set up wholly-foreign enterprises in Vietnam.

The possibility of Vietnam becoming a full WTO member by the end of this
year is drawing near. By that time, domestic enterprises will remain weak in
business experience, management capacity and financial resources while they
will have to compete with the world leading distributors such as Walmart,
Carrefour, Seven-Eleven whose annual earnings hit hundreds of billions of
US$, much higher than Vietnam's GDP.

According to A.T Kearney Consultancy Company, Vietnam is considered the
world's third attractive area for giant retail dealers and foreign investors
which have invested in the country or are seeking ways to penetrate the
Vietnamese market.

The world leading distributors such as Walmart (the US) and Carrefour
(France) have worked out plans to expand markets into Vietnam in the coming
time.

In addition, a series of large investment projects are applying for
operation licenses in Vietnam, including a US$15 million project invested by
the Lotte group of the Republic of Korea, the Tesco project run by the
world's sixth large retailer of the UK and a project invested by Dairy Farm
group of Singapore.

Parkson group of Malaysia has officially opened the first supermarket in Ho
Chi Minh City as part of the 10 trading centres the group plans to invest in
Vietnam. Large wholesalers such as Big C and Metro are continuing to open
more centres and supermarkets in Vietnam's major cities.

In the domestic market, modern distribution networks through supermarkets
account for only 16 percent while traditional distribution channels such as
markets, grocery stores and wholesale and retail shops make up around 84
percent.

According to the Ministry of Trade, modern distribution channels through
supermarkets are ? now seen in 30 out of 64 provinces and cities across the
country. However, these channels of distribution operate at low capacity due
to poor management and technical facilities. Meanwhile, forms of business
fail to meet international standards.

Saigon Coop Mart, the biggest distributor with 16 affiliated supermarkets is
establishing chains. Traditional channels of distribution with a total of ?
300,000 grocery stores and 200,000 markets show that the country's goods
distribution systems are in disorder and do not comply with any certain
standards.

People say if Walmart opens a supermarket, within a diameter of three
kilometers, no retail stores can compete. How will traditional Vietnamese
channels of distribution such as markets, stores, wholesale and retail shops
develop if foreign retail groups penetrate the domestic market? According to
a recent survey, the annual growth rate of modern distribution networks in
Vietnam hit 4 percent. It is expected that in the next 10 years the
distribution networks will account for over 50 percent of the market to
reach the present levels in China and Thailand.

Risk of losing market to foreign distributors Domestic distribution networks
will fall into the hands of foreign groups in the next two years if
Vietnamese businesses fail to dominate the market. Therefore, Vietnamese
businesses should focus on building and linking supermarkets and trade
centres across the country with strong financial resources.

Leading Vietnamese distributors such as Saigon Coop-Mart and Phu Thai have
realised the risk and planned to join hands in building a modern
distribution network with a total investment of VND6,000 billion.

Pham Dinh Doan, general director of Phu Thai group, said the project will
hire foreign consultants to compete with foreign groups.

Mr Doan added that foreign groups often receive strong financial support
from their own country and in Vietnam, they hold nice locations to open
supermarkets. For instance, Big C and Metro are located on the gateway to
Hanoi.

In many countries, foreign groups are allowed to open a limited number of
supermarkets or trade centres. But it is not the case in Vietnam. Metro, for
example, has eight wholesale centres across the country. If the group join
with other businesses to develop some more centres, it is certain that no
Vietnamese businesses can compete.

Strategically speaking, anyone who? holds sway over? distribution networks
will control production. A foreign distributor to Vietnam, Walmart for
instance, will bring about hundreds of producers to the country. As a
result, not only distribution networks will be lost, but also domestic
production will encounter difficulties and Vietnamese businesses will depend
on foreign distributors. High commission, slow liquidity and tougher choice
of goods are imminent measures that foreign distributors are applying to
Vietnamese businesses. - VOV

Copyright (c) 2006 Thai Press Reports

Copyright (c) 2006 The Dialog Corporation
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