High rents hamper retail growth

Thursday, Jul 19, 2018 09:46

A Family Mart store in HCM City’s District 3. The high rent prices in Vietnamese cities are a hurdle to convenience stores’ expansion in the country. — VNS Photo Hoang Nguyen

Retail companies are racing to expand but are challenged by high rental costs in major cities.

Nguoi Lao Dong (The Labourer) newspaper quoted a Jones Lang LaSalle Q1 report on the property market as saying that in HCM City the number of convenience stores exceeded 1,800 by the end of March.

They now occupy a combined 270,000sq.m of floor space.

Viet Nam is forecast to be the fastest-growing convenience store market in Asia until 2021 with a growth rate of 37.4 per cent, according to international grocery research organisation IGD. Competition between local and international players would therefore be “fierce”, it said.

Foreign chains currently dominate the market with major brands like Family Mart from Japan, Circle K from the US and two Asian brands, Shop&Go and B’s mart, making up 70 per cent of all convenience stores.

GS25, a South Korean chain, recently entered the market and targets opening 2,500 stores nationwide in 10 years. In six months it has opened 15 and aims to reach 40-50 by year end.

Local companies have also entered the race to expand and compete with the international players.

Among them are Vingroup and Saigon Co.op.

Vingroup has nearly 1,300 convenience stores under the Vinmart+ brand, and Saigon Co.op has 250 Co.op Food stores and 70 Co.opSmile stores.

The latter is seeking to franchise the two brands to accelerate their expansion.

Due to this competition among convenience and mini-store chains, retail floor space rentals have surged, sometimes rising two-fold.

As a result, some of them have been forced to close some stores quickly.

Food company Vissan has closed down 60 mini-stores due to poor sales.

Besides, the company could not afford the rent, according to Phan Van Dung, its deputy general director.

“Floor space of 80-100sq.m in Go Vap, Tan Phu and Binh Tan districts cost around VND35 million (US$1,500) a month, but their owners do not want to sign long-term lease contracts and usually hike rent by 10 per cent on an annual basis.

“Rent together with staff salary, utilities and water cost us VND200 million a month. That’s a lot of pressure.”

Do Quoc Huy, marketing director of Saigon Co.op, said it usually takes three to five years for a convenience store to break even and a retailer must have at least 500 stores to achieve optimal scale.

He said major international brands with deep pockets and which have done thorough market research are leading the game at the moment.

However, according to Ju Young Yun, executive director of GS25, even big players will find rents in HCM City and Ha Noi a hurdle.

He said his company is considering franchising to resolve this problem. — VNS

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