Foreign retailers leave Vietnam, but still eyeing the market

VietNamNet Bridge – Wellcome has officially left Vietnam after paying back the retail premises to Dong Hung Company, the owner of Citimart chain. However, Vietnam remains a very attractive market to foreign retailers.

Three Wellcome supermarkets were developed over the last five years in Vietnam, a very modest figure if compared with the hundreds Wellcome marts located in Hong Kong and Asian countries.

The withdrawal of the retailer, in the eyes of analysts, showed that it cannot overcome the 5-year threshold to reach to the even breaking moment. The analysts have pointed out some problems of the retailer’s chain.

The Wellcome supermarket covers an area of 300 square meters in district 1, HCM City. Meanwhile, Co-op Mart, which is now considered the biggest retailer I the south, covering an area of over 600 square meters, is located near. This means that Wellcome has to compete with the Vietnamese giant.

The products available at Wellcome do not have outstanding characteristics to make it more attractive than Co-op Mart. Meanwhile, Co-op Mart has been following its strategy to develop its private brands.

Over the last five years, Wellcome has developed three supermarkets in Vietnam, while Co-op Mart opened 10 supermarkets a year.

With Wellcome giving up, Dairy Farm does not intend to leave Vietnam. In September 2011, Asian Trade and Investment Company, the trade representative of Dairy Farm in Vietnam, put the first Guardian shop in its chain, specializing in retailing healthcare and beauty care products in HCM City.

The shop has the initial investment capital of 2 billion dong, while the minimum area of Guardian shop is 80 square meters.

To date, 10 Guardian shops have been developed in HCM City, while two more are expected to open in the last months of the year to implement the development strategy on opening one more shop a month.

With the sale prices fitting a wide range of customers, the Guardian chain developer hopes that it would be able to break even after two years of operations, like in Singapore, Malaysia and Indonesia, according to Micheal Lim, a Singaporean investor in HCM City.

Following the strategy on diversifying business, in late 2011, Dairy Farm decided to contribute capital into a joint venture to open the first Giant hypermarket-- covering an area of 3500 square meters on the ground floor of Crescent Mall in district 7, HCM City.

Dairy Farm’s Managing Director Mecheal Kok said that the Giant chain would be expanded in Vietnam at a scale like in Malaysia, where 77 supermarkets have been developed, including the 13 ones opened in 2011 and 2012.

A report by AT Kearney released in June 2012 showed that Vietnam has fallen into the 32nd position in the global retail development index from the first position in 2008. However, Nguyen Thanh Nhan, Deputy General Director of Co-op Mart said that the grade fall has in no way made foreign retailers shrink back.

The retail market has been witnessing the strong development of the three biggest retail brands in Vietnam, namely Metro, Big C and Co-op Mart. Metro on October 17 opened the 19th wholesale center in Vietnam after one decade of joining the market.

Meanwhile, Big C has had 20 shops in Vietnam, while the Vietnamese Co-op Mart strives to set up 10 supermarkets a year to obtain 100 supermarkets by 2015.

The biggest obstacle to retailers in Vietnam is the high retail premises rents. In order to make profit after five years of operation, a retailer needs to obtain the turnover of 200 million dong per day at least for a 1000 square meter supermarket, if the premises rent is not higher than 20 dollars per square meter a month in the central area, and no more than 10 dollars in other areas.