Vietnam's retail sector is witnessing an unprecedented, intense race that will potentially shake up the whole market and reveal where local companies may stand amid a strong invasion of foreign investors.
Together with Thailand’s Central Group, South Korea's Lotte and Japanese retail conglomerate Aeon, Vietnamese companies Saigon Co-op and Masan Group are seeking to acquire Big C Vietnam. The supermarket chain, owned by French retailer Casino, has 32 locations across the country.
The race is being watched very closely by industry insiders as its outcome will shape up the future of the market, where foreign retailers have quickly and consistently strengthened their foothold over the past few years.
Saigon Co-op said it has passed the first round of the bidding which was due on March 10. Casino is now reviewing the bids and will choose around five companies to conduct due diligence. Final, fully financed offers are then due around mid-April before a decision is made.
Diep Dung, chairman of Saigon Co.op, said his company is keen to buy Casino's wholly owned unit.
Acquiring Big C Vietnam is considered a golden opportunity for retailers to expand in one of Southeast Asia's most profitable retail markets, he said.
But whether local bidders really stand any chance in this race is a question that some might already have the answer to.
“I think foreign retailers have a 70 percent chance of winning the bid for Big C Vietnam," said Vu Vinh Phu, chairman of the Hanoi Supermarket Association.
"It is very difficult for Vietnamese enterprises because of their limited financial capacity,” he said.
Phu said Saigon Co-op, Vietnam’s largest retailer, had a registered capital of only around VND1 trillion ($45.5 million). Big C Vietnam has been valued by bankers at between $800 million and $1 billion.
Saigon Co-op could be a strong contender if only a small stake was involved, he added.
Casino’s Vietnam operations may be sold to Thai retailers, who are keen to expand further in Southeast Asia, and have deep pockets, Phu said.
Casino sold Thai hypermarket operator Big C Supercenter for 3.1 billion euros to Thailand's TCC Group last month. It said in January that it looked to mobilize four billion euros via selling operations in Colombia, Thailand and Vietnam.
Many local retailers are struggling to fight back strong foreign competitors, who have the upper hand thanks to their financial strength, management experience and cheap global supply chains.
In fact, many retailers have been taken over by foreign partners, while some others, like Intimex and Hapro, have closed several of their stores.
For foreign investors, the market is appealing thanks to a robust economy and increasing spending power.
Japanese retail giant Aeon Mall is planning to open one more megastore in Vietnam at an estimated cost of around US$200 million in 2019.
Since its arrival in Vietnam in January 2014, Aeon has opened three malls in Hanoi, Ho Chi Minh City and the southern province of Binh Duong. It described the country as its second most important market in Southeast Asia after Malaysia.
Aeon reportedly acquired stakes of 30 percent in Fivimart, a local retailer with 20 stores in Hanoi, last year, and 49 percent in Citimart, which has 27 stores mostly in Ho Chi Minh City.
Lotte Group said last year that it planned to open 60 supermarkets in Vietnam by 2020. The South Korean retail giant also runs Lotteria fast-food chains, shopping malls, hotels and cinemas in the country.
TCC in January completed the purchase of Metro AG’s Cash & Carry wholesale business in Vietnam for $704.1 million.
But some local players believe the market is still big enough for more competition.
“Competition is in every market. We don’t worry about it,” CEO Tran Kinh Doanh of top mobile retailer The Gioi Di Dong (Mobile World) said. “The market is large, and still has a lot of room for growth.”
Although there are many companies that have narrowed their business after failing to compete in the market, some others have gained success, Doanh said.
Vietnam posted retail sales of more than VND2.46 trillion (US$108.8 billion) in 2015, up 10.6 percent over the previous year, according to the General Statistics Office.
Experts say modern retail formats such as shopping malls, supermarkets and hypermarkets will play a crucial role in Vietnam’s future retail growth. The modern retail channel now accounts for around 25 percent of sales in Vietnam, representing a latent market opportunity for investors.
Local success stories
Saigon Co-op, which runs the popular chain Co.opmart, and Vingroup, which owns convenience stores, supermarkets and shopping malls, are now the two biggest local names in the sector.
From 2013 when it broke into the retail market to late last year, Vingroup opened 125 supermarkets and convenience stores, besides 12 shopping malls around the country.
With a population of more than 93 million, Vietnam now houses 724 supermarkets, 132 shopping malls and hundreds of convenience stores, according to the Ministry of Industry and Trade.
Dinh Thi My Loan, general secretary of the Association of Vietnam Retailers, said local retailers, with their deep understanding of local consumer habits, could compete well with foreign rivals in the domestic market.
What they need is more support from the state in terms of reasonable interest rates and a skilled talent pool, she said.
Many local firms lost prime locations to foreign foreign competitors because they lacked both the money and the skills to negotiate, Loan said.
In Vietnam spending on retail space often accounts for 30-40 percent of the total investment.
Former chairman of Saigon Co-op Nguyen Ngoc Hoa said a way out is cooperation.
“Local businesses will not be able to grow in such a competitive market unless they work together and have smart business strategies," Hoa said.