Supermarket Chains in Vietnam: Opportunities and Challenges

A growing population, rising wealth, and the popularity of online shopping has seen supermarkets in Vietnam well poised for substantial growth and rapid modernization. Here’s what foreign investors should know.

Over the past few years, changes in customer behavior have significantly altered the retail environment in Vietnam. This transformation was accelerated by the COVID-19 pandemic, which forced numerous grocery merchants to adapt and innovate.

Specifically, in 2021, traditional marketplaces experienced a decline. Street shops, wet markets, and mom-and-pop stores were compelled to cease operations due to stringent pandemic restrictions. These closures precipitated a shift in consumer grocery shopping habits, paving the way for a more contemporary retail landscape, with online shopping taking center stage.

Furthermore, gaps left by smaller outlets as a result of the pandemic provided supermarket players a fertile ground in which to grow their business and accelerate expansion. With the proliferation of modern shopping centers and the surge in e-commerce popularity, supermarkets have been well-placed to access robust growth opportunities.

Nonetheless, there exist specific challenges that could pose significant risks to supermarket operators in Vietnam.

Supply chain disruptions, inadequate management of commodity prices, and rising costs associated with the distribution of goods are substantial concerns affecting both businesses and consumers. With a multitude of new entrants engaging in a spree of acquisitions and fueling the expansion of new stores, comprehending these challenges becomes imperative for foreign companies seeking to establish a presence in Vietnam’s supermarket industry.

Vietnam’s supermarket chain in numbers

Vietnam’s retail sector is growing fast. The size of Vietnam’s retail market is anticipated to increase from US$246.65 billion in 2023 to US$435.59 billion by 2028, with a CAGR of 12.05 percent. E-retailing is also growing at an exponential pace. E-commerce businesses in Vietnam brought in US$14 billion in 2022, and it is predicted that they will bring in US$32 billion by 2025. This represents huge potential in Vietnam’s retail market for foreign firms.

Meanwhile, supermarkets are regarded as an attractive retailing option in Vietnam, with wide-ranging products, seamless customer experiences, and guaranteed product quality. Supermarkets have a number of competitive advantages over their smaller competitors in the retail market and have seen continuous positive sales performance in recent years.

Data from Euromonitor shows that supermarket sales in 2023 are estimated to reach VND 110,234 billion (US$4.5 billion), increasing by 8.8 percent from the previous year. These figures also show that there has been a substantial shift in consumer behavior toward buying groceries at modern grocery retailers.

Additionally, the General Statistics Office also recorded retail sales of consumer goods and services in Vietnam hit nearly VND 5,679 trillion (US$230 billion) in 2022, showing an increase of 19.8 percent from the same period in the previous year.

Private-label products have also shown strong growth and increased prevalence in recent years. Their offerings span across a wide variety of product categories, including fresh vegetables, apparel, and personal care products. This, in turn, should help supermarkets to diversify their product lines, and help build customer loyalty, and strengthen their competitive advantage. Major players like Co.opMart, Aeon Citimart, Bach Hoa Xanh, and WinMart are all developing their private label lines to gain a greater share of the market.

Leading players in Vietnam’s supermarket segment are predominantly domestic brands, with Co.op Mart and Winmart topping the list with 128 and 123 stores, respectively.

Convenience stores in Vietnam

Source: Q&Me

Supermarkets in Vietnam

Source: Q&Me

Opportunities

Foreign enterprises and investment funds are seizing on the fast-growing opportunities in Vietnam’s retail market and scrambling to inject money into Vietnamese businesses.

Recently, it was reported that private investment firm Bain Capital had committed to investing at least US$200 million in equity capital in Masan Group (MSN). At VND 85,000 per share, the cost exceeds the market price of VND 77,400 at which shares are valued on the stock exchange.

Reuters in September 2023 also reported that Singapore-based sovereign wealth fund GIC is among investors in talks to acquire a 20 percent stake in the small-supermarket chain Bach Hoa Xanh from Vietnam’s retail giant Mobile World. The potential deal could be worth up to US$1.7 billion, underscoring the immense investor interest in Vietnam’s retail market.

In February 2023, Thai retail giant Central Retail also announced its biggest investment in Vietnam at nearly US$1.45 billion over a five-year period. The company plans to increase the number of supermarkets in owns in Vietnam to 600 stores by 2027.

Armed with rapid urbanization and growth in retail e-commerce, domestic and international supermarkets are expanding their presence in Vietnam. At the same time, foreign investors are seizing on the high potential of the retail market in Vietnam through a number of expansion strategies, including M&A, franchising, and partnerships. This is a golden time for foreign conglomerates to invest in Vietnam’s retail market, especially the supermarket segment.

Challenges

Currently, inadequate supply capabilities and poor commodity price management are hindering growth of supermarket chains in Vietnam.

Supply capabilities: Big retailers in Vietnam often face supply challenges buying fresh items in bulk. Small-scale farms lack the resources and incentives for advanced supply chain standardization, which can lead to a poor supply of fresh inventory. A fragmented and fluctuating supplier base has been an issue that has made it difficult for supermarkets to win out over wet markets and other traditional retail outlets.

Commodity price management: Vietnam recorded several increases in its consumer price index (CPI) in the first seven months of 2023, driven by the higher prices of some food items, according to the General Statistics Office. This has impeded the increase in domestic purchasing power and directly impacted supermarkets’ financial performance. Sudden price increases can also cause inflation to accelerate, making it challenging for supermarket chains to manage the costs of some goods and groceries.

The path ahead

The retail industry in Vietnam is expanding at a phenomenal rate, which presents significant opportunities for global retail brands. Recent years have seen large M&A deals and expansion plans from big supermarket chains in Vietnam.

Vietnam’s modernizing economy, burgeoning middle class, and rapid e-commerce growth will serve as facilitators for foreign retail prospects. However, firms should have plans in place to manage on-the-ground challenges in logistics and distribution. This is also necessary to stay ahead of intense competition from local retailers.

With these insights in consideration, foreign businesses seeking to invest in this promising market are advised to engage local experts to establish optimal strategies.

For more information on entering Vietnam’s supermarket segment, contact the business advisory experts at Dezan Shira and Associates.

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