While Vietnamese supermarket operators face low profits in its chain stores, foreign investors from Malaysia and Hong Kong are more than eager to tap into the big potential of the country’s supermarket sector.
Foreign investors are keen on establishing supermarkets in Vietnam for three main reasons, said experts. First, Vietnam’s annual retail and service revenue is growing now at an estimated US$20 billion, according to a recent survey. The survey also showed that up to 85% of southern urban dwellers liked to shop at supermarkets. A second important factor is the country’s stable and high economic growth.
Foreign investors are also encouraged by the success of the Metro Cash & Carry, Vietnam’s first foreign-invested supermarket. The German company currently runs two wholesale supermarkets in HCM City and another in Hanoi. Metro An Phu and Metro Binh Phu in HCM City’s District 2 and 6 are always crowded with shoppers on the weekends, said observers.
Metro, which has recently opened a store in the Mekong Delta city of Can Tho, plans to open four others in Hanoi, Hai Phong, HCM City and Da Nang in 2005.
The Malaysian retail group Parkson recently applied for a license to build a 2,000-square-metre commercial complex which will include a supermarket in HCM City, said an official in the city’s Department of Planning and Investment. Parkson currently operates 36 stores in China.
The Vietnamese market is also targeted by Hong Kong retailer Dairy Farm, which has 2,680 stores around Asia and boasts revenues of US$4.5 billion for 2003.
Meanwhile, local supermarket operators have lost interest in the sector due to the low profits and strong financial capacity of foreign competitors, said Nguyen Thi Anh Hong, director of the Maximart store chain. Hong is even looking to sell her stores.
“The profits are low and not worth the investment money and efforts. In other countries, a supermarket operator is estimated to earn a profit of 20 to 30% while the rate in Vietnam is only 10%,” said Hong.
“I can honestly say that no Vietnam supermarket operators can earn profits from their main business scope. Instead, their profits are mostly earned from leasing space in their supermarkets to other vendors,” said Hong, who has eight years of experience in the field.
Nguyen Ngoc Hoa, general director of the HCM City Cooperative Union, which manages the Coopmart chain store, said: “Our capital invested in store construction is double or three times higher than the sum spent on our daily business activities.” Hoa said he is afraid that it will be hard to recoup the investment capital spent on construction.
Both Hong and Hoa also expressed their worries in facing competitions from foreign companies. Even though, she said her supermarkets can compete with foreign-invested ones in terms of service and prices, the foreign companies are still financially stronger. “Foreign companies can endure losses for several years in order to gain market shares,” said Hong.
With local supermarkets concerned about competing with foreign investors, deputy prime minister Vu Khoan, at a meeting in July, requested trade officials find ways to address the issue.