Convenience store and minimart investors are looking to expand their coverage in Vietnam's fast-growing market.
In late July Vietnam’s retail market heard the news that 7-Eleven, the world’s largest convenience store chain, has signed a master franchise agreement with the Seven System Vietnam Co. Ltd. to develop and operate 7-Eleven stores in the country. The expansion marks its first stake in the Pacific Rim since it entered Indonesia in 2009. “7-Eleven’s entry into Vietnam aims to enhance the convenience shopping experience for Vietnamese customers and contribute to modernizing small retailers in the world’s 13th most populous country,” the company said in a press release.
The new master franchisee plans to construct 7-Eleven stores, convert existing locations to the 7-Eleven brand supported by enhanced infrastructure, and eventually franchise operations to local businesspeople.
Convenience stores of foreign retailers first saw a presence in Vietnam as the country began its international integration efforts. Some, though, tasted the bitterness of failure. Foreign names such as Day & Night, 365 Days, Small Mart 24g/7, Home, and Best & Buy joined local operator V-Mart in disappearing ten years ago. “That Vietnamese people were in the habit of buying goods at traditional markets and wet markets at that time was a major reason for the failure of convenience store chains,” said Ms. Dinh Thi My Loan, Chairwoman of the Vietnam Retailers Association (VRA).
Nonetheless, at the present time everything, including Vietnamese consumer habits, is gradually changing. The expansion of convenience stores continues to gain momentum in the country, especially in urban areas, according to Mr. Vaughan Ryan, Managing Director of Nielsen Vietnam. Convenience store numbers doubled in 2014, from 147 in 2012 to 348, while minimarts increased by 589 in number last year, from 863 in 2012 to 1,452, according to the latest Nielsen Vietnam figures. This new demand among Vietnamese consumers is being led by time-poor and predominantly young shoppers in making everyday food and grocery purchases and has been a key driver in the initial growth levels of convenience store expansions.
Race for space
The Ministop Co. under Japan’s AEON Group and Japan’s Sojitz Corporation announced a partnership in April to develop new Ministop convenience stores in Vietnam. Stores were first launched in Vietnam in 2011 under a franchise agreement with G7 Mart of Trung Nguyen Group. Under the cooperative agreement between Trung Nguyen and Ministop, G7 Mart and Ministop set up a joint venture with initial capital of over $10 million to open 500 stores over five years. Since the opening of the first Ministop more than three years ago, however, only 17 have been opened.
The figure is rather modest compared to competitors such as Circle K and Shop&Go. Since opening its first stores in Ho Chi Minh City in 2005, Singapore’s Shop&Go had expanded to 125 outlets around the country as at June this year. Circle K - the brand of an international chain of convenience stores in the US - arrived in Vietnam in 2008 under a franchise agreement with Red Circles Co. and has also opened more than 100 stores in Ho Chi Minh City.
Cooperating with its new partner Sojitz, Ministop’s goal is to open some 200 outlets over the next three years and expand its network to 800 within a decade. The expansion plan is expected to synergize with other businesses of the AEON Group in Vietnam, including AEON malls, AEON Citimart, and Fivimart supermarkets.
Meanwhile, Vietnamese enterprises are also increasing their convenience store coverage in major cities. Vingroup has opened 30 under the VinMart+ name this year. The group also plans to develop 1,000 convenience stores in its strategy to become the leading Vietnamese retailer in the next three to five years. The Saigon Trade Corporation (Satra) has also raised its number of convenience stores to 60, after opening its latest SatraFoods in Ho Chi Minh City’s District 9 at the end of June.
Saigon Co-op, meanwhile, now has 91 Co.opFood and nearly 200 Co.op convenience stores. According to a representative from Saigon Co-op, besides opening new outlets it will also enhance its added value services to customers. For example, in some Co.opFood stores consumers can still find essential utensils and garments they won’t find in other convenience stores operated by foreign investors. “Saigon Co-op plans to open more than 30 new Co.opFood stores, including ten franchises, in Ho Chi Minh City this year,” she said.
According to industry observers, the total investment required to open one convenience store is not huge, at about VND1.5-2 billion ($67,000-$90,000). Very few investors, however, see a profit in the early days. Retailers can only make a handy profit if the rent is no more than $9 per square meter a month. Average rents in central areas and favorable locations, however, stand at around $30-50 per square meter a month.
Many existing convenience stores don’t really stand out compared with supermarkets, grocery stores, or traditional markets, except for the fact they’re open 24/7. Most consumers don’t see any difference between convenience stores and grocery stores and complain that convenience stores have an insufficient choice of goods. Other consumers, meanwhile, are used to purchasing fresh goods at the market.
Industry insiders said that many companies are racing to increase the number of convenience stores and minimarts in their chain because of the significant potential for the sector’s development but are not necessarily focusing on what consumers actually need or want. “Investors in these retail models should carefully research the country’s market and customer thinking and habits to identify a suitable business strategy,” one insider said.
Among other things, the difference between the consumer behavior and cultures in different areas of the country may affect the business of convenience stores. It is clear that modern trade is much more developed in the south of the country than in the north, according to Mr. Nguyen Huy Hoang, Business Development Director at Kantar Worldpanel Vietnam. Hanoians are more traditional-trade oriented and conservative. In Hanoian culture, shoppers often have interaction with sellers, which can help them to choose the best products, depending on the seller’s advice or suggestion. Saigonese, meanwhile, are more open-minded and trend-setting. They head towards new things or new innovations that make life easier. Another important thing is the greater impact of westernization in Ho Chi Minh City, especially among younger people. So it’s easier in the south for convenience stores to make a mark and develop.
The latest Kantar Worldpanel Vietnam study shows that one out of seven households shop at convenience stores in Ho Chi Minh City while in Hanoi only one out of 100 households do so. “There is a big gap enterprises need to fill to gain more from one of the biggest markets in Vietnam,” said Mr. Hoang. For those enterprises who want to expand their outlets in Hanoi, he recommended they tackle and gradually change the preference towards traditional trade shopping in the capital, invest more in efforts to find good locations, and source a good range of products.
Investors in convenience stores should look at models that have been successful in neighboring countries, according to Mr. Ryan. “In Thailand you can see what 7-Eleven has been able to achieve - it has been the No. 1 retailer there for at least the last couple years,” he said. What they’ve been able to do is have a large numbers of stores. “They’re literally everywhere,” he explained.