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Saturday, 19/08/2017 | 12:24:59 GMT+7
Why Thai Retailers Like Vietnam

In recent years, Vietnam’s growing retail market has been attracting attention from foreign retailers. This includes several Thai corporations that see better opportunities in Vietnam than in their own country.

01/06/2016 16:26:00


Why Thai Retailers Like Vietnam - 1


Thailand’s retail market has been contracting. The retail sector grew an average of 8% from 2002 to 2012, but in 2013 and 2014 it shrank 3%. Then last year it dropped another 1%. The primary reason is continuous contraction of household size in urban areas.
The upcountry consumers are regarded as conservative to brand awareness and still rely on income from agricultural activities for living, thereby not being a driver for retail sector. Therefore, besides maximizing existing customers at their homeland, several companies in this country are expanding their scope in other markets, particularly in those major cities that open new room of consumption.
Meanwhile, current domestic producers in Vietnam still inadequate to meet the increasing demand of the locals in terms of product range and quality. In addition, young generation in urban areas of Vietnam are receptive and open-minded to foreign products. Thai’s products are gaining preference from Vietnamese consumers for their high quality and appealing outlook.
Vietnam’s labor force and consumer population is young – the 15 to 64 age group accounted for over 70 percent of the population in the two-year period ending in 2016. This enviable demographic is helping to stimulate the economy, pushing the average retail growth rate for the same period up to eight percent.
 
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The average Vietnamese person has growing levels of disposable income. This is fueling consumption and creating new opportunities for companies who can supply what people want to buy.
Thai companies have noticed this lucrative market. More and more Thai products have been appearing on Vietnam’s shelves. This trend is projected to continue until at least 2030.
One way Thai companies are gaining exposure to Vietnam’s market is by means of mergers and acquisitions (M&A). For example, 49% stake of Vietnam’s top electronics retailers, Nguyen Kim Trading Joint Stock, was recently acquired by Thailand giant Central Group.
One company being bought by another bigger one is not especially big news. But this is not an isolated event. Many major players in Vietnam’s domestic marketplace are being taken over by larger Thai companies. These takeovers are putting pressure on local businesses and squeezing out Vietnamese products.
Prime examples are the acquisition of Metro Cash & Carry (the wholesaler to Vietnamese wholesalers) and supermarket chain Big C by Thai businesses.
These foreign-owned supermarkets make it hard for local products to get on their shelves by imposing high entrance fees and extra discounts. In fact, foreign owners are imposing a significantly higher commission rate (the difference between revenue and the proceeds that suppliers received afterwards) of 5-10% on total revenue, compared to a much lower charge of 1% to 2% in regard to local retailers.
Besides, according to some suppliers, retail stores and supermarkets tend to use their buying power for capital tie-up. The business contracts between foreign-owned retailers and domestic suppliers often stipulate that the proceeds from selling are held by the retailers for relatively longer period of time, which increases average days of receivables from normally 30 to 45 days. Under this duress, some local providers have no choice but to retreat to more affordable distribution channels.
Many local companies have insufficient financial backing. They also don’t have enough control over the supply of goods. This is because they are not fully aware of the issues involved and of the need to unite with other domestic companies.
On the other hand, many Thai products are provided by suppliers with more money and a strong supply chain. Consequently, products from Thailand are gaining ground in Vietnam and putting stress on many local producers.