Is Brick-and-Mortar Retail still Relevant for Food Exporters to Vietnam?
Vietnam’s GDP is expected to grow at a breakneck speed of 6 to 7% p.a. over the next several years. Rising GDP leads to more income leading to more consumption. Furthermore, the population is expected to grow from the current 100 million to 120 million in 2050. These factors are creating a lot of opportunities for food exporters. Traditionally, a lot of international food companies were looking into brick-and-mortar retail to distribute their products locally. For most though, sales are stalling and remain at rather small volumes. So, does this strategy still carry or is brick-and-mortar retail becoming irrelevant for exporters?
How Food Products Enter the Market
Most exporters work with importers (aka distributors) to gain market access. These partners have the necessary know-how to import foodstuffs without friction. Importers can also store goods and have a network of clients from hospitality, food processing and retail sectors. Some importers, such as Annam or Hapro, are part of larger company groups which have their own retail operations. These companies are basically gatekeepers to local wholesalers, retail chains and to Vietnamese consumers. For most exporters, distributors are indispensable partners in their market expansion efforts.
The Role of Brick-and-Mortar Retail
Traditionally, the Vietnamese are doing most of their daily grocery shopping at so-called “wet markets”. These are essentially open markets with a lot of small stalls selling all kinds of meat, vegetable, fruit and other foodstuffs. They can be found everywhere in Vietnam. Things are changing though: The locals begin to prefer “modern” retail. A Deloitte study from 2019 lists roughly 300 supermarkets and 2,400 convenience stores (CVs) in Vietnam. As a comparison, in 2018 there were 35,000 food retail outlets in Germany (Statista). Overall, the Vietnamese retail market is however more akin to Japan because of the dense urban population and the size of the country. According to Statista, there are currently roughly 5,000 supermarkets and – this is astonishing – 56,000 CVs in Japan. If the Vietnamese retail development should follow Japan, and the current proportion of supermarkets-CVs suggests this, the local retail market could be bound to grow twentyfold.
Is this good news for food exporters? Probably yes and no. Yes, for those lucky few already listed with one of the big retail chains. No, for most others. There are two major challenges for newcomers:
Local taste = Few international offerings The locals love their Vietnamese food. I personally must agree: Vietnamese dishes have a deep and rich taste and are diverse enough to allow totally different meals each day. While some foreign food such as from Japan or Italy has gained a foothold in Vietnam, many locals still prefer “their” local tastes. This narrows the room for foreign foodstuffs. And indeed, in Vietnamese supermarket aisles foreign, especially Western, food remains a rare finding. Notable exceptions might be cheese, sweets or beef which historically were not part of the local cuisine. Generally, the "localness" of the market makes a listing in a local supermarket chain for a foreign product difficult.
Concentration in the retail sector A couple of years back there was a solid oligopoly in the Vietnamese retail market. There were some local players, such as Intimex or Co.Op. And there also were some international retailers such as Metro, Big C or Auchan. These foreign companies were more prone to offer an increased international product portfolio than their local competitors. However, all three of the aforementioned and more – especially Western – players have since left Vietnam. Foreign retailers are now mostly from Japan (e.g. Aeon), Korea (Lotte) or Thailand (MM Mega Mart). And they don’t play a major role anymore. Now, the market is dominated by local enterprises. The whale in the pond is the Masan Group which bought all of Vingroup’s burgeoning retailing operations in 2019. It now operates 70 of the 300 Vietnamese supermarkets and 1,700 of its 2,400 CVs. These “Winmarts” are omnipresent in the country’s cities. A listing here would most likely be a jackpot for a foreign food company.
Most foreign processed food is therefore first and foremost present in Vietnam’s “import supermarkets” such as L’s Place or Annam. The high pricing of their products here means high margins. However, due to a low number of these import supermarkets, volumes and overall turnover remain small.
So, is Brick-and-Mortar-Retail irrelevant for foreign exporters? If a food exporter not one of the big brands such as Haribo, Bitburger or Zott she’ll have a hard time winning a listing at one of the big retail players and hence will probably not achieve a turnover that could rival European markets. While brick-and-mortar is not irrelevant for exporters its potential seems to be severely limited.
E-Commerce as an Opportunity
There has been a lot of talk about e-commerce over the past few years. Essentially, shopping online seems to be a great opportunity because brick-and-mortar-retail is not yet as prevalent as in Western markets. Hence, there is a huge niche for digital retail in Vietnam.
E-Commerce really took off during the lockdowns of the COVID-19 pandemic. Social distancing forced consumers to shop online. Retailers reacted with improving their offerings and delivery systems. This created new business cases and favorable customer experiences. So, even after the lockdowns eased e-commerce is still going strong. While online shopping in Vietnam is not yet as sophisticated as in Western countries or in China it is developing fast, and its rise seems to be unstoppable. In 2020, e-commerce grew by 18% and is expected to expand by a whopping 53% in 2021. Digital retailers such as Tiki, Lazada and Telio are receiving hundreds of millions of dollars in investments. Brick-and-Mortar market leader Masan also bets big on e-commerce with the ongoing digitization of its retail business and already received massive amounts of capital by partners such as Alibaba and the Korean SK Group.
For foreign exporters, these developments may pose a chance to penetrate the Vietnamese market aside from the established brick-and-mortar retail chains. Coupled with the right online marketing strategy a large clientele may be reached even for niche Western food products.
Of course, formulating and implementing such sales strategies may be challenging for a foreign player. Also, technical issues such as importation, storage and distribution of the goods will have to be solved. Hence, working with a distributor will still be the go-to solution for exporters. However, when establishing or deepening the relationship with a local distributor, e-commerce strategies should nowadays actively be discussed.
📣 New Project: Vietnam Competence Center for the German Agriculture and Food Industry
Recently, we have started this project with the aim of assisting German companies in the field of food and agriculture with market entry and expansion in Vietnam. With the "Competence Center", we are offering the following support:
👉 Information on the Vietnamese market; mainly provided in German language 👉 Government-promoted individual services, such as B2B matchings and market studies 👉 Other support in all aspects of operating in the Vietnamese market
Soon, a website with further information will be up and running. Stay tuned! 📡
If you have any comments or questions you may contact the Competence Center at firstname.lastname@example.org or +84 28 38227538 (Vietnamese, German, English)