More than $50 billion awaiting distributors

The ultimate consumption fund is a concept in trade, referring to the amount of money consumers can spend on goods. Normally, the total goods and service retail or actual spending accounts for around 80% of the ultimate consumption fund.

Recent research of the Trade Research Institute shows that the ratio between the ultimate consumption fund and GDP of Vietnam is high compared to other countries in the region. From 1996 to 2005, this ratio fluctuated between 70-82% compared to 56% for Singapore, 58% for Malaysia and 68% for Thailand.

Dr. Tu Thanh Thuy, an expert of the Trade Research Institute, said that in the 2001-2005 period, the growth of consumption of Vietnamese people was 7.7%, much higher than the increase of population, 1.4%.

“It is expected that the ratio of the ultimate consumption fund compared to GDP in 2007-2010 will be over 70% and the ultimate consumption fund by 2010 can reach VND840,000-VND860,000 billion ($52.5 – 53.75 billion), a figure worthy of the attention of local and foreign goods and service distributors,” Ms Thuy said.

According to the domestic trade development scheme to 2010 of the Trade Ministry, which has been approved by the government, Vietnam’s monthly per capital spending from 2006 to 2010 will increase 10.57% a year. By 2010, monthly per capital spending will be VND657,800 ($41).

Vietnamese people are spending more and the trend of consumption is also changing. Ms Thuy said that previously motorbikes, air-conditioners, fridges, washing machines and visual and audio equipment were considered high-class products in urban areas. Those things are now popular in rural areas. Purchases of high-value products like cars and famous-brand products are on the rise in urban areas.

Notably, the young have caught up with the trend of consumption of countries in the region, especially consumers in big cities like Hanoi and HCM City.

The change of consumption tendency also changes the mode of sales. The volume of foods distributed by supermarkets and specialised shops increases 150% a year.

Cosmetics and drugs are sold mostly in specialised shops with an average annual growth rate of 12% per year.

Clothes have the annual retail growth rate of 5% and are distributed through many channels like traditional markets, supermarkets, trade centres and shops.

For electronic and electric wares, Hanoi and HCM City account for 45% of the market share. However, the rural market for those products is predicted to grow very quickly in the coming time. The popular form of distribution of those products are electronic and machinery supermarkets, specialised shops and through the Internet.

Why are investors still hesitating?

According to Ms Thuy, by 2010, goods consumption via modern distribution systems like supermarkets, trade centres and specialised shops will account for around 20% of total retail goods compared to 6% at present.

Nevertheless, Huynh Van Minh, General Director of the Saigon Trading Corporation (Satra Group), said that provinces and cities still lacked plans to develop markets, super markets and trade centres, which worries investors.

“Only several days after Satra was licenced to build a duty free supermarket at the Moc Bai Border-gate, another investor was licenced to build another duty free supermarket next to Satra’s. Such licencing will lead to competition to kill each other, not to develop,” he said.

Similarly, Satra Group invested in a fruit wholesale centre worth hundreds of billion dong in the southern province of Tien Giang, a key project of the fruit sector. However, Dong Thap province also built another fruit wholesale centre, only several tens of kilometres from Satra’s.

This fact has been recognised by Deputy Minister of Trade Nguyen Thi Kim Ngan. She said that of the 64 provinces and cities of Vietnam only 29 had and or were designing construction plans for supermarkets and trade centres.

Since many province and cities lack such plans they very arbitrarily licence the construction of supermarkets and trade centres.

“To develop trade and services, the most important thing at present is provinces and cities must have plans to develop the system of supermarkets and trade centres based on the national trade development strategy. Thus, investors will dare to invest in this area before foreign supermarket groups come to Vietnam,” Ms Ngan said.

According to the Trade Ministry, from 12 supermarkets and two trade centres in 1995, Vietnam presently has 250 supermarkets and 50 trade centres. In addition, 27 supermarkets and 40 trade centres are under construction. However, the system of supermarkets accounts for just 6% of total retail revenue.

Source: TBKTSG