Retail thrives but is hobbled by lagging distribution sector

Modern distribution has begun to flourish in Vietnam

Untapped potential

ReDI data show that more than 20 foreign retailers are investing directly in Vietnam, among them world-leading chains such as BigC, Metro, Aeon, Lotte and Emart. Rapid, stable economic growth and increased per capita income are the driving force for the strong growth of the distribution sector.

However, according to a report by the Korea International Cooperation Agency (KOICA), the opening or expansion of large-sized stores causes unemployment and socioeconomic problems due to the contraction and withdrawal of small and medium-size distribution businesses that lack the resources to compete in terms of management knowhow, capital, organization, facilities, and expertise.

“Addressing this problem would allow the Vietnamese distribution industry to play a role in national economic development and national competitiveness,” said Do Phuong Dung, Deputy Director of Asia Africa Market Department of the Ministry of Industry and Trade.

The potential of the Vietnamese distribution market remains huge, according to Yoon Hyun Ki, KOICA’s Chief of Research. “Vietnam’s retail distribution market is growing at an annual average of 10 percent or more, which is expected to increase from around US$95.4 billion in 2016 to US$124.2 billion in 2018. Additionally, A.T. Kearney ranked Vietnam 11th among the top 30 retail markets worldwide,” he added.

At present, the Vietnamese market is still dominated by traditional distribution channels, which account for 70-85 percent of trade. In border regions and areas around cities, the traditional market has a significant advantage in terms of daily consumption goods, such as food, because the majority of Vietnamese consumers prefer to buy this way. There are about 8,550 traditional markets in addition to 1.3 million household-run grocery stores throughout Vietnam.

Recommendations

The Ministry of Industry and Trade is seeking solutions for the distribution industry, such as balancing the growth of foreign invested and domestic enterprises, of large and small-to-medium enterprises, and promoting the role of traditional markets.

KOICA suggested the first objective is to enhance the productivity and competitiveness of the distribution industry. Secondly, Vietnam should ensure that large-scale stores and small and medium-sized distributors can develop in a balanced manner, resolving the conflict caused by the entry or expansion of large stores by forming strategic partnerships instead.

Thirdly, the development of Vietnam’s distribution industry should be based on sustainable development models consistent with Vietnam’s economy and society.

Nguyen Van Hoi, Deputy Director of the Ministry of Industry and Trade’s Domestic Market Department, said the ministry would consider the recommendations and see if they are suitable to Vietnam’s conditions. The presence of products made by small to medium-sized enterprises in distribution channels will be increased, Hoi said. Nguyen Van Hoi, Deputy Director of the Ministry of Industry and Trade’s Domestic Market Department, said the ministry is enriching its experience and improving the legal framework for the distribution industry.