Saga of foreign retail brands

Twenty years ago the Vietnamese retail market started receiving many lucrative foreign investments. So far, we have seen many of these foreign retail brands come in as well as go out.

Parkson has made a gradual exit from the Vietnamese market because of its inability to adapt to the new and modern retail business environment.

Parkson has made a gradual exit from the Vietnamese market because of its inability to adapt to the new and modern retail business environment.

However, while we have offered foreign retail companies plenty of incentives, what have we actually got back in return after they entered or quit our market?

Big international brands set shop

In 1998, Bourbon and Casino from France established the Vinde’mia company and opened the Cora Supermarket in Dong Nai Province. Spread across a vast complex and offering a wide variety of products, Cora quickly become a favorite with many customers. In 2000 and 2001, two other Cora supermarkets were opened in Ho Chi Minh City. In 2003, Cora announced to change its name to Big C and later opened the Thang Long branch in Ha Noi. Some years later, Big C was taken over by Casino. In 2016, when Casino wanted to resell Big C, the retail chain had 32 existing supermarket stores, 10 convenient stores and an ecommerce website (Cdiscount.vn).

In 2002, Metro Cash & Carry of Germany was officially established as a modern wholesale model in Vietnam. In 2014, after 12 years of operations in Vietnam, Metro had grown to 19 shopping centers and five warehouses. Metro has grown so strongly in terms of revenue but still this retail chain reported losses in 11 of its operating years out of 12 years in Vietnam. In 2014, Metro was taken over by another foreign investor. Up to now, many questions about cost transfer and tax evasion still remain unanswered.

In 2005, Parkson of Malaysia entered the Vietnamese retail market offering a new retail model in a modern shopping mall. This retail chain grew strongly in seven years. In 2012, Parkson had five shopping mall branches, namely Parkson Hung Vuong, Parkson Flemington, Parkson Long Bien, Parkson Viet Tower and Parkson Landmark, besides three other leasing and operating shopping malls including Saigon Tourist, Paragon and C.T. Besides these, Parkson also had a shopping mall in Hai Phong. In 2013, Parkson further added Parkson Cantavil and Parkson Leman on its list. However, since 2014, Parkson has not opened any new shopping mall and has started showing a downward trend.

In 2008, Lotte also jumped into the Vietnamese retail market. After 11 years in Vietnam, Lotte now has 13 shopping centers. The company also plans to expand more in Vietnam in coming times.

The Vietnamese retail market has been so attractive that many other retail brands have also entered the market, including Emart of Korea in 2015, Auchan of France and Aeon.

In 2014, Aeon opened the first one-stop shopping mall in Vietnam which quickly gave Parkson tough competition because of its new trend in shopping mall model in Vietnam.

Aeon entered Vietnam in 2011 soon after the establishment of the Ministop convenient store chain. In terms of convenient store chains, Vietnam now has many names like Family mart, Ministop (Aeon), 7-eleven (Japan), Circle K (US), Shop & Go (Singapore), and B’s Mart (Thailand).

One of the reasons why foreign companies are encouraged to expand their retail businesses is because the Vietnamese government offers huge tax and land bank incentives.
Before 2000, Vietnam had opened many shopping malls and retail outlets, such as Saigon Coop, Maximart and Hapro, but these outlets did not recognize the huge potential of the retail market and did not have the competitive edge to deal with the bigger retail players.

One of the reasons that attract foreign retailers to enter the Vietnamese market are the incentives offered by the government, such as tax and land bank incentives. By utilizing these advantages, they can easily beat domestic retail companies in the marketing arena.

M&A

The Vietnamese retail market has been so attractive, hence, it has seen many retail brands from across the globe entering the country. Consequently, competition has become fierce, and some retailers have even had to leave the market.

In 2014, when Aeon started its first one-stop shopping mall, Parkson began preparing to close some of its shopping malls because of losses and an inflexible business model. In the same year in 2014, BJC made a surprise entry into the Vietnamese retail market by taking over Metro Vietnam for USD 879mn. In 2016, the Central Group of Thailand also bought Big C for USD 1.14bn.

Previously, Lotte and Sai Gon Coop had competed to acquire Big C, but finally it was handed over to the Central Group. The question is whether the Central Group really wants to bet on the future of the retail market in Vietnam or does this company just want to reap benefits of the land banks that Big C owned.

While some foreign brands have quit the Vietnamese market, several domestic retail companies have grown in strength. In June 2019, Saigon Coop bought all 18 stores of Auchan in Vietnam. Auchan is a popular brand in France and Europe but it failed to make a mark in the Vietnamese market.

Some people said that the losses of Auchan originated from inaccurate market survey by this company. In 2015, in order to enter the Vietnamese market, Auchan cooperated with some real estate developers to open Auchan stores in apartment buildings. After four years of operations, 18 stores of Auchan left no image in the eyes of Vietnamese consumers because of dull and uninteresting products and too expensive pricing.

The other notable M&A deals in the retail market are Vingroup and Shop & Go. In April, Vingroup was successful in expanding its base by acquiring Shop & Go for USD 1. The price of USD 1 was because of losses incurred by this chain and this deal was considered a bankruptcy purchase of Shop & Go.

Practically speaking, convenient store models in Vietnam still face many difficulties and tough competition. Hence, several retailers have entered Vietnam with lucrative plans but the longer they have been operating in Vietnam, the more conservative their plan. For example, Family Mart used to target to have 1,000 stores in Vietnam, but until now this chain only owns less than 200 stores. The management of Family Mart said that this chain will not expand more because of losses and too high rental costs. The other chain like 7-Eleven also is quiet about its expansion plans in Vietnam. The tough competition in the convenient store market have also been caused by the traditional consumer behavior of Vietnamese who like to buy things quickly at grocery markets.

What has Vietnam actually got back?

In a discussion with Sai Gon Investment, Pham Viet Anh, a strategist in the Vietnamese retail market, said that there was a time when domestic companies were weak and we had to attract FDI investments. It was the same in the retail sector. The FDI companies will not come to Vietnam if they do not see incentives. Foreign investors come and create jobs for Vietnamese labor, transfer technology to Vietnamese companies and so on.

The issue of cost transfer and tax evasion is not only the issue in Vietnam but also across the global market. We also see it happening in the US. The important thing is we need to adjust our legal framework to minimize this risk.

“Cost transferring is not a new issue. It appeared across the globe a long time ago and many countries have been stuck with finding solutions to resolve this issue. Many multinational companies continue doing cost transfers and tax evasion sophisticatedly”, said Nguyen Trong Hanh, former Deputy Head of Ho Chi Minh Tax Office.

In a resolution of the Political Bureau on completing the mechanism, policies and legal framework by 2030, the government has set the target to resolve the problem of thin investment capital, cost transferring and hidden investments.

Some experts said that we should be fair in attracting FDI investments. Government should create a transparent business climate for competition between domestic companies and foreign enterprises.

According to Nguyen Trong Hanh, lawyer, there are some areas that tax authorities have no control, such as retail sales bills in super markets and convenient stores. If the system in retail chains is not linked to the system in the tax offices, retailers are able to evade taxes. Hence, in order to avoid cost transfer we need a strong legal system.
Talking about the issue that most foreign investors had shown lucrative plans when they entered the Vietnamese market but later had to exit because of losses, Pham Viet Anh said that it is normal when we see M&A deals doing business. Foreign retail businesses can be sold to domestic companies or to other foreign companies. The most notable thing here is that when foreign companies take over domestic companies, they control the distribution channel which is a way to bring products to consumers.

If we do not have a method to manage distribution costs, domestic producers will lose their competitive edge in competing with foreign manufacturers.

Many new establishments as well as withdrawals are happening, but we still see many big international brands staying on in Vietnam and several domestic brands growing in strength as well. The competition is expected to remain tough as the potential in this market is quite huge.

Note that, Vietnam’s population is 97.5mn, in which 60% are in the range of 18-50 years of age. The household consumption is expected to grow 10.5%/year to reach USD 714/month by 2020, while the coverage of modern retail chains in Vietnam is much slower than that in neighboring countries.

Thanh Lam

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