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Middle class look for quality

Update: October, 30/2009 - 00:00

Middle class look for quality

(31-10-2009)

HCM CITY — There’s a retail revolution coming to Viet Nam. The growing middle class of Vietnamese comsumers are becoming savvier and more discerning about their product quality and shopping ambiance. At the same time, the prices of mid-range goods are coming down. Together, these pressures will modernise trade in the country, according to delegates at a conference in HCM City yesterday.

"Rising incomes over the last 10 years have dramatically changed the buying habits of Vietnamese consumers," said Pabrice Carrasco, general manager of Kantar Worldpanel Viet Nam and Philippines, TNS Viet Nam. "With 56 per cent of the population under 30 years old, Viet Nam has a large consumer market with young, demanding and newly sophisticated consumers."

Retail sales in the country grew by 18 to 22 each year between 2003 and 2007. Despite the global financial crisis, total revenue from the retail sector in the first eight months of this year rose by 18 per cent against the same period last year.

"As purchasing power has exploded, many consumers have begun to prefer shopping in safe, clean and convenient, and sometimes indulgent places," said Carrasco.

Viet Nam currently houses around 230 supermarkets and hypermarkets, 23 trade centres, 165 wholesale markets and nearly1 million square metres of floor area under construction for retail business, according to Tran Tinh Minh Triet, consultant at Retail Chain.

One key indicator of the changing retail landscape is the food industry, in which consumers are increasingly patronising brick-and-mortar stores instead of traditional markets.

Supermarkets, led by the Sai Gon Co-op Mart, "are rapidly developing in Viet Nam and enjoying healthy growth, and will continue to play a key role in modern trade for the next 10 years," Triet said.

Hypermarkets like Metro Cash and Carry enjoy relatively low market-share right now, but their presence is expected to increase in the near future due to improved infrastructure and changing lifestyles.

Mini markets, convenience stores, speciality stores and online retailers had also rapidly developed in recent years, he said.

The nascent online shopping market was expected to take a foothold soon, but only in major urban areas with reliable Internet access.

"With the opening of Vietnamese retail market under the World Trade Organisation commitments, foreign investors can wholly own companies here, add trading or distribution rights to the existing scope of their businesses and acquire a local company currently doing trade and distribution," said Indochine Counsel partner Bui Ngoc Hong.

"Opportunities are even more abundant for international distributors since the country has committed to reduce import tariffs to help foreign goods better compete," Hong said.

Many foreign investors would join Viet Nam’s retail market in the future, he said, noting that his company had helped at least seven investors prepare the necessary documents to enter Viet Nam.

But the market here is not totally open to foreign firms, and the local labour market and infrastructure do not meet standards. These facts impede the growth and modernisation of the retail industry.

"The doors to trading and distribution rights for foreign investors have been opened to the largest extent ever, however, implementation of these rights faces difficulties due to ambiguous legal provisions," Hong said.

For instance, under the WTO commitment, a foreign retailer can open only one outlet. Its expansion plans are subject to the Economic Needs Test (ENT), an instrument the WTO allows to be used to limit foreign access to domestic markets.

Under the ENT, the foreign-invested company would apply for a separate licence for each subsequent outlet, with approvals made on a case-by-case basis based on four criteria: the number of existing outlets, market stability, population density and the conformity of the project with the province’s planning. — VNS

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