HANOI -- Retailers from across Asia are flooding into Vietnam as the country loosens restrictions on foreign companies, racing to bring convenience stores and supermarkets to a market dominated by small business.
Among foreign companies, manufacturers such as South Korea's Samsung Electronics have long seen the value in Vietnam, despite the country lagging behind its Southeast Asian peers in economic development. Now retailers are following suit.
One of the newcomers heralding a major foray into the Southeast Asian nation's retail market is the convenience store GS25, which arrived in downtown Ho Chi Minh City in January.
GS Retail, the operator of South Korea's top convenience store chain, plans to have 50 of the stores in Vietnam by the end of this year and expand its network here to 2,500 locations within a decade. In its home market, GS25 boasts 12,000 stores.
Out the outskirts of the city, South Korea's top retailer, E-Mart, has packed three hectares with a vast selection of foods, clothing and household goods, enticing shoppers to pile their baskets high. Modern sanitary controls for the store's fresh food section are welcomed by shoppers used to the city's fly-choked marketplaces. Based on the success of its first location in Vietnam, E-Mart is expected to open 10 or more locations in the country.
Meanwhile, South Korean conglomerate Lotte plans to increase the number of Lotte Mart supermarkets in Vietnam to 87 from the current 13. An executive at the group calls the country "the most important market in Asia."
Total retail sales in Vietnam reached a record of $129.6 billion in 2017.
Vietnam has allowed 100% foreign ownership of retail businesses under certain conditions since 2009, two years after acceding to the World Trade Organization. This puts it ahead of Indonesia and others in terms of market openness. Free trade and economic partnership pacts with countries, including Japan, have encouraged further liberalization.
In 2016, the country lowered barriers to opening stores under 500 sq. meters, and foreign convenience store chains flourished. Under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, signed in March, these companies will eventually be able to expand without any further government screening.
Japan's Seven & i Holdings plans to have 1,000 7-Eleven stores in Vietnam by 2027, and Thailand's B's Mart chain is aiming for 3,000 locations. One resident of Ho Chi Minh City said she hardly goes to the market anymore: "Convenience stores are becoming more numerous -- they're very convenient."
Mom-and-pop retailers and small chains have long dominated Vietnam's retail landscape, and continue to do so today. According to Euromonitor International, modern grocery retailers -- supermarkets, convenience stores and the like -- make up only 5.4% of Vietnamese food sellers this year, the lowest figure in Southeast Asia.
But as incomes rise, more Vietnamese are willing to pay higher prices for higher-quality foods at modern stores. Vietnam's economy is growing around 7% annually, and per capita gross domestic product reached $2,385 in 2017. In Ho Chi Minh City, the figure is over $5,000.
This spells a major opportunity for foreign chains, as Vietnam only has around 1,000 supermarkets and 2,000 convenience stores at present -- one-20th and one-30th of the numbers in Japan.
The prospect of foreign capital flooding the retail market has alarmed some. "If overseas companies come to dominate, it will be domestic companies and the Vietnamese people who pay the price," said a member of the country's parliament.
But domestic players are not sitting by idly. VinMart+, the convenience store arm of real estate heavyweight Vingroup, plans to quadruple its network to 4,000 stores by 2020. MobileWorld, Vietnam's top cellphone retailer, has built its supermarket business to 375 stores in three years, and targets 500 locations by the end of this year.
Vietnam is in need of several thousand modern retail stores, according to Nguyen Duc Tai, chairman and CEO of MobileWorld. "If we build the stores, we're bound to capture a certain level of market share."