SECC, Ho Chi Minh City, Vietnam
18-21 Nov. 2020

Becoming more local as a key for foreign players to gain stronger footprints in Vietnam’s food and beverage market

Various indicators have been still showing Vietnam as a highly potential destination for foreign players to tap into its food and beverage market. However, domestic retailers as well as Vietnam-owned food and beverage chains seems to outpace their international competitors based on their local advantages of understanding customers’ typical demand and behaviors, cultural factors, and occupying faster and better locations. Moreover, by joining a series of free trade agreements (FTA), Vietnam has created a highly competitive market for all agricultural products, food ingredients as well as fast-moving consumer goods from its FTA partners. Overall, Vietnam has signed over 15 FTAs in just over a decade. Foreign players need to become more local to gain hearts of Vietnamese consumers.

Vietnam’s economy has steadily expanded over the last three years. GDP growth was 6.2 percent in 2016 and grew to a ten-year record level of 7.1 percent in 2018. Per capita income increased from $2,170 in 2016 to an estimated $2,380 in 2018. World exports of consumer-oriented products to Vietnam totaled $14.5 billion in 2018, up 4 percent over 2017, with top export items include beef, poultry, dairy products, tree nuts, and fresh fruits. The compound average growth rate (CAGR) of the accommodation, food, and beverage service sector increased 12 percent from 2013 to 2017. These factors have been providing  international food and beverage brands all reasons to eye to Vietnam’s market with high hopes. However, the current situation has not told many successful stories of foreign players in Vietnam’s retail market, food service or coffee chains.

According to a new report on Vietnamese retail store status by domestic market researcher Q&Me (owned by Asia Plus Inc.), Thailand’s B-Mart chain expected to open 3,000 stores by 2027, South Korea’s GS25 with 2,500 stores by 2028, and Japan’s 7-Eleven with 1,000 stores by 2027. In reality, the stores of these brands currently number 125, 32, and 27, respectively, massively lower than initial ambitions. Circle K has owned the largest convenience store network in Vietnam but the chain has not set goals for store openings, so there is no way to evaluate its pace of expansion. “Vietnam’s retail industry has a lot of potential to exploit but competition is fierce and not as straightforward as we imagined, so we decided to withdraw,” said a Shop&Go representative after VinCommerce announced acquisition of 87 convenience Shop&Go stores with a surprising nominal sum of $1 in April 2019. According to Kengo Kurokawa, founder and CEO of Asia Plus Inc., the quality of traffic in Vietnam is not bad but the average pricing per person is much lower and also the rent payable for stores in the urban area is high, making it difficult for investors to maintain their profitability. Meanwhile, international groups try to differentiate themselves with the quality of services but in general, Vietnamese customers mostly pay attention to price-oriented marketing plans.

On the other hand, some local players, notably VinCommerce - the retail arm of Vingroup and the corporation managing VinMart and VinMart+, are performing well. The success of Vingroup’s subsidiary in acquiring a ­number of retail chains such as Vinatexmart, Oceanmart, Maximark, Fivimart, and Shop&Go could show its determination to develop a network in order to gain market share as its strategy. The advantage of finance contributed to helping the group gain more market share from foreign players. Notably, after five years, the group developed 1,465 Vinmart+ stores, which is now by far the fastest-growing convenience store in the country. “Domestic companies have the edge in terms of finding the right locations and the speed of decision-making,” remarked Kurokawa. “Location is a key aspect for success, and a company like Vinmart+ is very quick to securing the best spots.” Moreover, salesperson in Vinmart+ stores have been trained to consult customers carefully, made them feel familiar, like shopping in traditional markets, especially middle age women, who made most spending decisions in families.

The story in coffee chain market has demonstrated some similar aspects. Many foreign coffee chains have failed to secure their positions in the market, but Vietnamese owned chains have reported revenue growth in recent years, although not all of them have reported high profits. According to VIRAC, a market analysis firm, Highlands Coffee led the market in 2018 in number of shops in Vietnam. Its 240 shops brought turnover of VND1.628 trillion, followed by The Coffee House with 140 shops and revenue of VND669 billion, and the third spot belonged to Starbucks with 45 shops and VND593 billion. While Highlands Coffee, The Coffee House, Starbucks Vietnam and Phuc Long made profit, though modest (Highlands Coffee made post-tax profit of VND99 billion, The Coffee House VND2 billion, Starbucks VND27 billion and Phuc Long VND3.6 billion), The Coffee Bean & Tea Leaf incurred a loss of VND29 billion and Trung Nguyen VND24 billion. Foreign owned coffee chains have advantage of meeting international standards in quality and disadvantage of high operation cost. Nguyen Ngoc Vuong Linh, marketing director of Tra Ca Phe Viet Nam, which owns The Coffee House, said the competitiveness of Vietnamese owned companies lies in the deep understanding about the tastes of customers, which is different from other Asian markets. When comparing Vietnamese and foreign owned coffee chains, Nguyen Huu Long, the founder of Shin Coffee, said foreign chains target medium- and high-income earners, so their selling prices are relatively high.

In summary, providing goods and services at international standards but behaving like a local, creating familiar-feeling space and interactions, understanding the differences in terms of priorities and tastes of Vietnamese consumers, could open a high-way for international players in retailing industry as well as food and beverage services to make their own spotlights in Vietnam’s food and beverage market.