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Ever upwards

Released at: 07:47, 24/12/2017

Ever upwards

Photo: Viet Tuan

There appears to be no end to the rise of convenience stores in Vietnam’s retail market.

by Hong Nhung

South Korean conglomerate the GS Group, through its subsidiary GS Retail, has recently partnered with Vietnam’s Son Kim Group to open the first GS25 convenience store, in Ho Chi Minh City in January, with Vietnam being its initial step into overseas markets. This follows a wave of Korean culture finding popularity in Vietnam over recent years and rapid growth in its retail market. GS25’s entry also makes it the first South Korean convenience store brand to jump into the increasingly fierce competition seen in the domestic retail environment, which represents a “boom time” for chains.

Successive arrivals

Convenience stores have taken off around Vietnam this year, with aggressive expansions by some foreign brands resulting in them now holding a combined market share of 70 per cent, according to the Ministry of Industry and Trade. Prior to GS25, Vietnam’s retail market was swayed by the lively arrival of the world’s largest convenience store chain 7-Eleven, which launched its first outlet in Ho Chi Minh City in mid-June. Through a master franchise agreement with Seven System Vietnam, the chain aims to expand its network to 100 stores in major cities within the next three years and 1,000 nationwide over the following decade. 

By establishing a joint venture, where the Son Kim Group holds 70 per cent and GS Retail 30 per cent, they will together be in charge of GS25 franchises in Vietnam. The joint venture targets opening more than 2,500 stores in the next ten years. The partnership follows the one between Son Kim and GS Home Shopping, another subsidiary of the GS Group, which began in 2012.

GS25 is renowned as one South Korea’s largest convenience store chains, accounting for around 30 per cent of the country’s retail market. It’s not difficult to see that GS25’s arrival in Vietnam comes on the back of greater South Korean investment, with the country emerging as Vietnam’s largest foreign investor, in addition to the rising number of South Koreans living and working in the country and its culture having an increasing influence on young Vietnamese. 

Convenience stores are the newest among the different types of retail channels, bolstered by fast-moving and trendy products, according to Mr. Yun Ju-Young, COO of GS25 Vietnam. “GS25 uses the concept ‘Your Way to Korea’ as its main strategy in bringing a Korean atmosphere to Vietnam,” Ms. Nguyen Hong Trang, CEO of GS25 Vietnam, told VET. “We offer freshly-cooked Korean food prepared by our in-store staff as well as provide our range of private-brand (PB) products that can only be purchased at our stores.”

Cream of the crop

In addition to the two newcomers, Vietnam has also witnessed robust expansion by local and foreign convenience store brands such as Japan’s FamilyMart and Ministop, the US’s Circle K, Singapore’s Shop&Go, and Vietnam’s Vinmart+ and Satra Foods. The attractiveness of Vietnam’s retail market is expected to continue well into the future and is tipped to be the fastest-growing convenience store market in Asia by 2021, according to the latest data from international grocery research organization IGD, followed by the Philippines and Indonesia.
Asia’s grocery market is the largest in the world, with a predicted 6.3 per cent compound annual growth rate (CAGR) to 2021. Its size is forecast to reach $4.8 trillion by that time, equivalent to Europe and North America’s combined. In the convenience channel, IGD is predicting a high double-digit CAGR over the next four years in Vietnam, of 37.4 per cent, the Philippines 24.2 per cent, and Indonesia 15.8 per cent, based on the performance of the leading convenience store operators in each market.

On the particularly strong growth tipped for Vietnam, Mr. Nick Miles, Head of IGD Asia-Pacific, said “convenience stores in Vietnam have become popular destinations for young consumers to shop and hang out, as the stores provide them with an air-conditioned environment, well-organized shelves and seating areas, and high-quality products. It is also easier to obtain licenses for stores under 500 sq m, which is why retailers have been expanding to gain market share.”

Forecast convenience store growth in asia, 2017-2021

Source: IGD, 2017

Number of outlets, by brand

Source: VET research, 2017

The number of convenience stores and mini-marts in Vietnam now stands at nearly 1,600, with an annual growth rate of around 200 per cent, according to a recent report from Nielsen Vietnam, in which the number of traditional grocery stores has fallen from 62 per cent to 52 per cent of total stores. To put the potential into perspective, there was approximately one convenience store per 69,000 Vietnamese citizens as at the end of 2016, compared to one per 21,000 in China and one per 1,800 in both Taiwan and South Korea.

Moreover, Vietnam’s retail market has recently reached sixth place after being among the Top 30 most attractive retail markets in the world since 2008, in the latest Global Retail Development Index (GRDI) released by US consulting firm A.T. Kearney. Convenience stores and mini-marts are increasing in popularity in Vietnam, it found, and are now the fastest-growing segment of the retail industry. Sixty-five per cent of Vietnamese shoppers now choose hyper or supermarkets, and 22 per cent are frequent customers at convenience stores and mini-marts.

FamilyMart now has 161 convenience stores nationwide and is expected to have 220 by the end of 2018. “The number of customers coming to each store is also growing, at more than 120 per cent every year, in parallel with revenue,” Mr. Hirohisa Yamanouchi, General Manager of the Merchandise and Marketing Department at FamilyMart Vietnam, told VET. Its compatriot, Ministop, now has around 100 stores. Vinmart+, which began opening stores in 2014, has topped 1,500.

The growth in convenience stores and minimarts over recent years has been particularly impressive because both local and foreign retailers are racing to expand their networks as much as possible for further brand identification. “There have been a vast number of retailers entering this energetic market and providing a wide range of services and distribution channels,” said Ms. Trang from GS25. “Convenience stores are now considered the best distribution channel, satisfying the increasingly diverse demands of Vietnamese consumers by offering optimal convenience and good services.” “Strong personal consumption power is very helpful for the convenience store business and its expansion capacity in Vietnam is greater than in any other Asian market,” Mr. Kaji Nobuyuki, Merchandise Director at Ministop Vietnam, told VET.

Fighting for locations

Location is now regarded as the most pressing problem for all retail models, especially in the context of increasing competitiveness among massive convenience store chains. “This lucrative market pie will be scrambled by many big brands in the local retail market compared to other markets in the region,” said Mr. Yamanouchi. “The development of retail stores will lead to retailers competing for leases.” 

Location is key for all retailers. “The problem of higher rents is an issue facing other retail chains, which will gradually affect store development,” said Mr. Nobuyuki. “Even under such circumstances, I think that other than having a prime location, it is important to provide a good store for customers. It is necessary to thoroughly understand the leased space, so that the development of the store network is optimized effectively, opening the best stores with the higher revenue.” 

According to Mr. Pham Thai Binh, Head of Retail Department at Savills Vietnam, locations for convenience store chains and their high standards often lead to unsuitable rentals for retailers, which is seen as a thorny issue. “The convenience store business, where profit is not high, depends on the quantity of locations available, to multiply total revenue, so network expansion is a core strategy that all major retailers aim at,” he said.

Savills’ latest research shows that retail rentals have risen endlessly, to $98-99 per sq m per month on average in good locations. The highest rentals, in CBDs, may reach $250 per sq m. The basic area for a convenience store ranges from 80 to 150 sq m. According to one convenience store chain owner, the company took months to open its first because it was hunting down good locations.

Furthermore, in order to earn profits, according to industry insiders, convenience store chains must be sufficiently extensive, in the range of 150-200 outlets. Mr. Akihiko Maeda, General Director of Ministop Vietnam, calculated that it usually takes five or six years to recover the initial outlay in a convenience store, and each chain must have at least 300 outlets to guarantee stable profits.

The search for enough space to cover investment, management, and operating costs requires businesses be financially strong and have good management. With their experience in other markets, foreign retailers believe convenience stores will continue to grow in Vietnam in the years ahead, gradually replacing traditional grocery stores.

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