Domestic retailers need to shore up their regular local customers as a number of foreign retail chains eye Vietnam’s convenience store market.

Vietnam is drawing interest as a prime potential market for major international retail chains, confirmed by Deputy Trade Minister Phan The Rue acknowledging that distributors and retailers from seven countries have expressed local market entry aspirations, including those in specialty fields such as petroleum.

GMetro, Bourbon and Parkson have been feverishly opening new supermarkets in Vietnam. Other retail giants, such as WalMart, Carrefour, and Tesco are currently negotiating entry.

Lessons have been drawn from China’s opening of its distribution network to foreign operators. Calculations in China show that if Carrefour - the world’s second largest retail operator - opens a supermarket, three major distributors within a 35km radius will go bankrupt. Such dangers are very real for Vietnam in the near future, as local retailers operate loose business practices and are failing to realise the threat to their existence once the country opens its distribution markets.

Expanded ties and strengthened local distribution networks are two methods by which local retailers may shore up their operations against future competition, according to Dao Xuan Khuong, a business manager of the Phu Thai Group. The group currently has six member companies, 13 distribution centres, and eight freight and forwarding centres with over 3,000 wholesaling agents, 300 shops, 200 supermarkets and nearly 50,000 retail outlets.

“Phu Thai is preparing for competition from foreign retailers by strengthening its professionalism in its distribution network,” Mr Khuong said. Who went on to say that, in his opinion, low level professionalism is the Achilles heel of Vietnamese distributors.

The lesson of combination

Most local retailers realize that they will face a competitive showdown with larger, more experienced foreign firms within the next few years. Means to ensure their survival, and those that are open to them now, are of utmost concern.

The answer currently being given is “Associate, or Die”.

Deputy General Director of the Zen Plaza Trade Centre, Trieu Thi Huong Giang, says that to build and develop brand-names prior to integration, associations are a solid option, as “going it alone” can be costly and is prone to failure.

Three years ago, Japanese partners bought into the Nhat Nam supermarket in HCM City, aiming to turn the supermarket into a national fashion centre, where young designers would be linked to both market and customers. Success in such a plan would be very difficult to realise, according to Ms Giang, without the cooperation of designers.

Sales at Zen Plaza have increased six times, and the centre now boasts 6,000 – 9,000 customers a day, half of whom make purchases. Zen plans to open one or two more trade centres in the next few years, with at least 70% of retail space dedicated to domestic products.

Deputy General Director of Saigon Co-op Nguyen Thi Tranh accepts that in the current economic light, and due to its small capital, space limitations and lack of experience, Co-op has a very limited future developing alone. Like many other retailers, Ms Tranh said that it’s time for local retailers to join forces to reinforce competitiveness.

According to Ms Tranh, Saigon Co-op has no immediate plan to sell shares to raise more funds, but is looking to cover all 13 provinces in the Mekong Delta with its supermarkets.

Challenges in front

Viewing the whole distribution market in Vietnam, Pham Chi Lan, a member of the government Economic Research Group, judged that many local retailers are ready to face new challenges arising from both domestic and foreign markets.

On one side, many are working to improve direct distribution channels to key overseas markets, while not overlooking the importance of developing local production networks.

However, Ms Lan said that challenges clearly lie still ahead, and they will be different from any that local retailers have seen so far, such as continuous market fluctuations, supply-demand rules, pricing wars, and diverging consumer tastes.