People shop at Co-op Mart in Can Tho Province. The Vietnamese retail market has huge potential, but local investors have failed to implement modern retail methods. — VNA/VNS Photo Thanh Vu

HCM CITY (Biz Hub) — The Vietnamese retail market has huge potential, but local investors are frittering away the advantage by failing to develop modern retail, a senior industry-trade official has warned.

The industry is dominated by traditional distribution channels and plagued by tiny investments, and is a sitting target for foreign investors, Nguyen Loc An, deputy head of the Ministry of Industry and Trade's Domestic Market Department, said.

According to ministry statistics, the retail industry accounted for 13-15 per cent of GDP growth and provides over 6.3 million jobs.

With the national population at over 90 million, a third of it living in urban areas and having an average income of US$2,000 per year, the potential for modern retail is huge.

Besides, infrastructure has improved and expanded, creating favourable conditions for easy distribution of goods.

But traditional delivery channels dominate. At the end of last year there were 8,546 traditional markets of various kinds and around 1 million mom-and-pop businesses.

In comparison there were only 724 supermarket outlets, 132 malls, and a few hundred convenient stores in the country.

The market share of modern retail is estimated at less than 25 per cent, much lower than in neighbouring countries like Indonesia (43 per cent), Thailand (46 per cent), Malaysia (53 per cent), and China (64 per cent).

Even in HCM City modern retail accounts for only 37 per cent. In Shanghai 88 per cent, in Kuala Lumpur 63 per cent, in Bangkok 70 per cent, and in Jakarta 66 per cent.

"Most of our traders are small or medium-sized, with 55 per cent of retail enterprises having a capital of under VND100 million (US$5,000)," a member of the Viet Nam Retailers Association revealed.

There are several foreign investors in the modern retail sector — like Big C (France), Lotte, Lock&Lock (South Korea), and Aeon (Japan) – who have speeded up development.

"The modern retail model will strongly develop in various forms," An was quoted as saying in Sai Gon Giai Phong (Liberated Saigon) newspaper.

Last year Saigon Co.op and Ocean Retail opened many new stores and plan to cover the whole country.

Foreign retailers are trying hard to complete the procedures required to enter the market.

An said: "The traditional will also improve. Traditional retail has upgraded quality under competitive pressure."

The former would continue be popular until 2020, especially in rural areas, he said.

"Rural consumers are more and more important because they make up 70 per cent of the population and can now buy everything — like electronic products, furniture, mobile phones, and motorbikes — not just essential goods like in the past."

The rural market is attractive to both manufacturers and retailers, he added.

According to the Viet Nam E-commerce Association (VECOM), online and non-shop retail is quite big in the country.

Around 36 per cent of the population uses the internet and 57 per cent of that number often shops online.

Viet Nam ranks 16th in online shopping globally and Master Card expects online retail to grow to $8 billion by 2017.

The Vietnamese economy in general, and retail in particular, is expected to grow rapidly in this high-technology era.

In what is a new trend brought about by the economic downturn and high inflation, products made by retailers – distributors themselves or together with manufacturers are becoming more and more popular since their prices can be 10 – 30 per cent lower.

Analysts expect this trend to sustain and forge ahead in the years ahead when the economy recovers. — VNS