Retail in Vietnam: Evolving market dynamics

For families, in particular, shopping malls offer a one-stop shop for both non-grocery and grocery items.

>> Retail in Vietnam: Omnichannel takes off

Non-grocery retail segment

As consumers scaled back their discretionary expenditure, most non-grocery sub-segments had experienced some degree of decline in their sales numbers in 2020 and 2021. Indeed, even large retail chains have had to close some of their underperforming stores in response to dwindling consumer demand.

But it is not all doom and gloom. For some sub-segments – in particular, electronic and appliance specialist retailers, as well as health and beauty specialist retailers – there has been rapid growth in recent years, given the greater uptake of at-home entertainment and at-home health and fitness activities amidst the pandemic.

Overall, our general market observation is that retail stores in standalone locations tend to perform better than those located in shopping malls. One reason for this has to do with the high levels of traffic congestion in urban areas, which has resulted in many consumers preferring to frequent retail stores that are easily accessible from the street. Making a trip to a mall in the suburbs, on the other hand, could entail a long commute back and forth under the traffic conditions.

However, the catch is that rental prices for retail spaces in many of the urban centres – including Hanoi and Ho Chi Minh City – have been skyrocketing. This is especially the case for stores in prime areas, such as standalone stores located on main streets. As a result, some retailers have been exploring ways to better leverage retail spaces located in less busy streets or alleys, as well as e-commerce storefronts.

While being not the preferred choice for consumers who are in a hurry, shopping malls had been on a rapid expansion path prior to the pandemic. Although these locations are less accessible, they are never able to compete with their unique ability to offer integrated shopping and entertainment experiences that standalone locations may be unable to provide. For families, in particular, shopping malls offer a one-stop shop for both non-grocery and grocery items.

Grocery retail segment

Within the grocery retail segment, traditional grocery retailers continue to hold the majority of market share. This dominance, however, experienced some degree of erosion during the pandemic: following the detection of a substantial number of COVID-19 positive cases in their premises, many traditional grocery retailers had to temporarily suspend operations during the pandemic. As a result, consumers who typically purchased from these retailers shifted their consumption to other grocery retail channels, such as convenience stores, supermarkets, and hypermarkets.

For convenience stores, amidst the pandemic, many convenience store chains quickly moved to develop their omnichannel presences, and expand their presences on food delivery platforms to enable consumers to conveniently order ready-to-eat meals and other items through these applications. Some players have also built and launched their own proprietary mobile applications to engage more directly with their customers – for example, by launching loyalty programs, and offering exclusive discounts and promotions.

Overall, foreign chains dominate Vietnam’s convenience store sub-segment, with four of the top five brands owned by foreign multinationals. Armed with extensive experience of operating convenience stores around the world, these chains have proven themselves quick to adapt to the changing market dynamics in recent years.

In response to growing consumer demand for ready-to-eat products, for example, several players could be observed to have partnered with local manufacturers to increase their assortment of local snacks, and set up separate dining areas within their stores. As a result, convenience stores are quickly gaining popularity amongst younger Vietnamese consumers, who associate these stores not only with a wide range of hot, ready-to-eat meals, but also as lounge areas where they can meet and socialise.

As far as the hypermarkets are concerned, during the pandemic, the hypermarkets sub-segment had sought to capitalise on the shift to digital channels by expanding their online presences, both in terms of e-commerce and mobile commerce. Leading players, for example, leveraged their presence on food delivery platforms to enable consumers to order grocery items in bulk – and thereby offer greater value and savings to those who would prefer to minimise the number of physical shopping trips that they will need to make.

Overall, foreign multinationals continue to dominate the hypermarkets sub-segment, with many players able to leverage their unique product assortments – for example, exclusive distribution of Japanese or Korean products – as competitive advantages. Looking ahead, hypermarkets should also consider ways in which they can leverage their large-scale layouts and formats to develop more entertaining shopping experiences for consumers.

As had been observed with hypermarkets and convenience stores, the supermarkets sub-segment had benefited from the shift in consumer expenditure away from traditional grocery retailers during the pandemic. At the same time, as consumers become increasingly price-conscious amidst the uncertain economic climate, supermarket chains have also been able to capitalise on this with the attractive pricing of their own private label products.