Understanding market segments
In 2019, the Vietnamese retail market witnessed the most mergers and acquisitions (M&A) than any other business sector. Typical cases were the acquisition of the entire supermarket chain Auchan Retail of France by Saigon Coop in June 2019; the acquisition of four Z-Mart stores; four Shop & Go stores; nine Queenland Mart stores belonging to Vincommerce; and VinMart, VinMart+ and VinEco that were also acquired by Masan. Also in 2019, along with M&A deals, many foreign businesses also failed and were forced to withdraw from the Vietnamese retail market such as Metro, Auchan, Casino Group, and Parkson, or some that stayed only a short-time such as 7-Eleven and GS25.
These acquisitions are in sharp contrast to a positive scenario of the Vietnamese retail market in previous few years that showed a lot of potential, with many geographic regions marked for growth and suitability for diverse types of retail businesses. This also shows that the Vietnamese retail market is no longer as easy as it used to be. Evidently, the cause of the failure of foreign retailers to stay on in the Vietnamese market is a total lack of local market knowledge. An understanding of the cultural and regional diversities is what makes the Vietnamese retail market adopt to each market by region with its own indigenous characteristics and quintessential demands. In this the regional market is further subdivided into many other smaller markets and local sub regions and localities.
For example, the retail markets in the North and South have two distinct characteristics, while urban and rural areas also have diversity of preferences. Therefore, in order to achieve a wider coverage across provinces, retail businesses are required to have a certain understanding of regions and localities, as well as have a comprehensive development strategy to be able to serve all kinds of consumers. This is something that foreign retail businesses have been unable to do. For this reason, most foreign retailers entering the Vietnamese market face difficulties in developing a local strategy or in expanding their network, and hence incur huge losses.
Looking at the retail functioning system of domestic enterprises that are still going strong for decades, it is clear that these enterprises have a deep indepth knowledge of the workings and peculiarities of each market segment, and prefer not to invest in huge retail stores. For example, a number of retail businesses dive in to find localized services and products, including consumer preferences and shopping needs, to build a basic list of goods to supply. In addition, the element of experience in the shopping process of customers is also given more attention by retail businesses, in order to retain loyalty of consumers.
In a recent market research, JLL Vietnam, an enterprise specializing in market analysis, said that shopping centers in big cities like Hanoi and Ho Chi Minh City continue to grow, which is an important segment to keeping a steady growth for retail businesses. However, to effectively exploit the market, it requires retailers to constantly innovate and increase experiences for customers. In particular, the use of technology and data analysis to enhance customer identification, is being considered a decisive factor.
Shaping trends
According to Ms Dinh Thi My Loan, Chairman of the Association of Vietnamese Retailers (AVR), in 2020 Vietnamese retail businesses must make important changes in their business working style to continue to lure customers. Specifically, retail businesses must streamline and refine their working model in big cities, expand markets to rural areas, which currently are quite thin and not yet fully exploited. Convenience and experience will be the top priority for retail businesses, while traditional retail channels will still keep a steady growth momentum. The 2019 statistics showed that among the 19 largest categories of fast-moving consumer goods channels, the traditional channel still maintained a stable growth of 6-10%.
Data from most market research companies shows that the growth was fairly even across commodity groups, plus the growth of traditional channels in the small and medium-sized stores by itself is a solid basis to believe that 2020 will continue to be a good year for growth for the traditional channel. In particular, the highlight of this channel is the group of specialized stores and large department stores. In the new consumer trend, customers tend to search for specialized stores for specific types of products, which has stimulated many specialized models to spring up along with a diversified sales service.
Professionalism in specialized stores is an important factor in attracting and retaining a consumer. According to AVR, if we look at the entire retail market of modern channels in 2019, the number of shoppers have increased, but mainly due to too many new supermarkets that were established, and existing supermarkets that lost customers. There are two common reasons for existing supermarkets for losing their customers. They are shopping experience and shopping convenience. Shoppers often prefer new experiences, so if the supermarket is offering nothing new, customers will move elsewhere. If the other supermarkets meet their needs well, they won't return to their old supermarkets.
Therefore, 2020 will be a priority year for shopping experience at the point of sale. Surveys show that almost all customers follow the multi-channel model, such as hypermarkets, supermarkets, mini-marts and convenience stores. On an average, a consumer visits six to seven sales channels per year, which means that if a retailer doesn't have many models, it will have to share or lose customers to its competitors. This is a fact that compels retailers to perfect the existing multi-channel retail model to maximize market efficiency.
