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Spire comments on Vietnam’s retail industry outlook

Bloomberg BusinessWeek, Indonesia
23 December 2010 – 12 January 2011
Interview with Spire’s Deputy Chief Executive Officer, Jeffrey Bahar


Spire comments on Vietnam’s retail industry outlook: Positive growth and
deregulation will attract foreign retailers into the country

Synopsis
The retail industry is seeing a growth spurt in Vietnam, with most of that growth coming from the major cities. The net revenues for the retail industry in the year 2000 were VND200 trillion but reached VND 1,200 trillion in 2009 (with US$1 = ~19 VND currently).

Growth has been driven by a hike in consumer spending over the past decade or so as the country’s economy boomed. Vietnam’s demographic structure is a major supporting factor for the long-term growth of the retail industry. 66% of its population is 15-69 years of age.

The growth has also been fuelled by other factors: lessening rates of poverty, rising consumer confidence, government deregulation and growing foreign investment. For example, in 2009 Vietnam recorded 5.3% GDP growth, one of the highest growth rates in the Asia-Pacific in that year, after China and India. This year, her economy is set to expand by 6.5%.

Growth has also been supported by structural changes in the retail industry itself. As of now, between 80% and 82% of the retail industry is housed in traditional markets like wet markets and old convenience stores. The remaining 18%-20% belongs to modern outlets like supermarkets, hypermarkets, convenience stores and department stores. Most of the growth will come from the modern retail segment. 

Modern retail outlets have grown by leaps and bounds. In 1995, the country only had 10 supermarkets and 2 shopping centers. Now, it has about 400 of such establishments. This wave of growth has been a magnet attracting foreign retailers to compete with their Vietnamese counterparts.

Spire Research and Consulting predicts that, in spite of Vietnam’s current economic difficulties, the retail industry in Vietnam will double its revenue to VND2,400 trillion by 2013 due to sound economic fundamentals and under-penetration of modern retailing.

“The modern retail contribution in Vietnam’s cities will reach 30%-40% this year and will be the biggest segment contributor with a share of 60% in 2020,” commented Jeffrey Bahar, Deputy Chief Executive Officer at Spire Research and Consulting.

Ever since Vietnam joined the WTO in 2007, the government has started to loosen regulations on the retail industry. From allowing foreign retailers to do joint ventures with a maximum 49% share ownership in the past, the government now permits any form of retail business with 100% share ownership by foreigners. This deregulation led to foreign retailers diving into the market, particularly in the categories of F&B, fashion, processed food and mass grocery.

According to Spire, the retail categories presenting the best opportunities are mass grocery retail (especially convenience stores, supermarkets and hypermarkets) as well as F&B (specifically global fast food chains and coffee chains).

Besides that, retail businesses should thrive in the fashion, processed food, confectionaries and electronics & IT categories as well.

“Fundamentally, consumers prefer to shop at places with modern retail outlets. They value hygiene and an enjoyable shopping experience,” said Jeffrey Bahar.

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