Modern retail penetration is growing rapidly in ASEAN, led by urbanisation, rising incomes, a growing middle class population, increased consumer spending, improved lifestyle and evolving consumer habits. Retail channels are transitioning from traditional to modern formats as increasing wealth and lifestyle changes fuel the demand for branded products and services as well as for a more convenient retail environment. With an estimated middle class population of 500 million people by 2020 and present modern retail penetration below 50%, ASEAN presents an attractive growth engine for modern retailers who can capitalize on scale, higher operational efficiencies and brand firepower.
Vietnam, with increasing disposable incomes, rapid urbanisation and rising living standards, is one of the most dynamic emerging economies in the ASEAN region. Retail giants have been pouring investment in the country to target its relatively young population of consumers – of which 70% are aged between 15 and 64 years – who promise to be a key driver of robust market growth. In this edition of TaipanOracle we take a deeper look at the Modern Grocery Retail sector in Vietnam which is bubbling with activity as M&A action picks after the sector opened up completely to foreign investment in 2015.
Modern Grocery Retail in Vietnam
Euromonitor estimates the size of the Modern Grocery Retail (MGR) market in Vietnam at USD 2.4bn in 2014, far outperforming its ASEAN peers having grown at an unprecedented 5-year CAGR of 21.8%. In 2014, Hanoi and Ho Chi Minh City (HCMC), the country’s two biggest cities, ranked amongst the top 10 Asian cities for retail expansion.
Key drivers for the Vietnam MGR market have been the following;
Rising Disposable Income.
The Competitive Landscape
Ministry of Industry and Trade (MOIT) estimates that at the beginning of 2014, Vietnam had around 724 supermarkets, 132 trading centres, 8,546 markets, and about 1 million small-scale household stores - modern retail channels represented only 20% of the total retail trade.
By 2020, however, MOIT expects rapid modernization of the sector with as many as 1,300 supermarkets, 180 trading centres and 157 shopping centres operating in the country and modern retail channels accounting for 43% of the total trade.
Eight years after its accession to WTO, Vietnam has attracted most of the region’s leading retailers including France’s Casino Group (Big C supermarket) and Auchan, Malaysia’s Parkson, USA’s Circle K, South Korea’s Lotte and Emart, Japan’s Aeon and Family Mart, Singapore’s Mapletree Group, NTUC FairPrice and Shop&Go and Thailand’s Central Group, CP Group and Berli Jucker Plc.
The number of domestic retailers remains small led by Saigon Co.op (with 78 supermarkets, 86 Co.op Food stores, 200 Co.op stores, one Co.opXtraPlus and 1 Sense City commercial center), Citimart (with 27 supermarkets), Maximark (with 6 trade centers), Satra (with 2 supermarkets and 42 Satra Food stores), VinMart (over 200 stores), Nhat Nam JSC (with 20 Fivimart supermarkets), and Hanoi Trade Corporation (with 2 Hapro shopping centers, 3 market centers, 40 supermarkets and HaproMart convenient stores and 44 Haprofood shops). VinMart though is aggressively ramping up having grown its total store count to over 200 in 2015.
Understanding the different MGR formats
Performance of various MGR formats in charts;
Express Format is the way to go
The MGR sector has seen extremely strong strategic intent from both domestic as well as foreign players with primary investment and M&A in the sector increasing manifold. Recent transactions include Berli Jucker's acquisition of Metro Cash&Carry Vietnam (19 stores) for 655 million euros, Aeon's acquisition of 49% stake in Citimart and 30% in Fivimart, and VinGroup's acquisition of Ocean Mart Vinatex Mart (39 stores) and Maximark (9 supermarkets). France's Casino Group has also announced its intentions to sell its Big C supermarket chain with 32 outlets.
As competition heats up, some segments are beginning to look increasingly crowded. Convenience stores in Vietnam have almost tripled from 348 in 2014 to over 850 in 2015 with the numbers only expected to increase with rising competition between VinGroup, Circle K, Shop&Go and 7-Eleven.
However, in this increasingly crowded market, we believe the Express Format niche theme remains under exploited and a committed player can create a strong position for itself in the market. Our investment thesis is based on the following drivers:
- This format is seen gaining market share across APAC emerging markets due to Asian preference for fresh food and changes in lifestyle that favour convenience factor
- No significant MNC presence in this format in Vietnam
- Some local chain like Hapro Foods, SatraFoods are already present in this space and may allow opportunity for inorganic growth
- Attractive financials with much lower capex and opex due to smaller size (1/3 to 1/6 of Supermarket size), higher margins with pricing point similar to Supermarket and shorter payback period of 6-12 months
Have a chat with our M&A Advisory & Research team to discuss regional trends and identify investment opportunities for your business.
Taipan Partners is a boutique advisory firm specialising in integrated business solutions providing M&A advisory & research, talent management and business incubation services to high-growth, emerging and multi-national corporates, financial services firms and disruptive innovation startups with a focus on Asia