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How companies can seize opportunity in Vietnam’s growing retail market

Vietnam’s economic stability and growing middle class create an attractive retail environment. Companies need to embrace three key trends to translate the opportunity into profitable enterprises.

Asian emerging economies are growing two to three times faster than developed economies—and Vietnam is one of the region’s great success stories. The country’s political stability, recent economic transformation, and growing middle class create an attractive business environment. The buoyant retail sector reflects these strong fundamentals and offers exciting growth opportunities for both regional and global companies.

Our new report, Seizing the fast-growing retail opportunity in Vietnam, shines a spotlight on the retail opportunity in Vietnam, first by considering the country’s macroeconomic outlook and then by examining key growth trends in the retail market itself. Finally, the report offers insight into how companies can translate the retail opportunity into profitable, sustainable enterprises.

Vietnam’s promising macroeconomic outlook

Vietnam is a strong contender for business investment when considered alongside other major Southeast Asian economies such as Indonesia, Malaysia, the Philippines, and Thailand.

Vietnam outperforms many of these economies on key macroeconomic indicators. Its forecast GDP growth is second highest in the region, with a 6.5 percent compound annual growth rate (CAGR) per year, and it has the fastest middle-class growth, forecast at 9.2 percent CAGR up to 2023. Vietnam’s private consumption rate of 68 percent of GDP is the second highest in the region. Although Vietnam is the least urbanized of these Southeast Asian economies, there is considerable future growth potential.

When it comes to business fundamentals, Vietnam outperforms comparable Southeast Asian economies by several measures. It leads the region in foreign direct investment (FDI) as a percentage of GDP, at 6.3 percent, and performs well on measures of political stability and logistics competence, though it is in the middle of the pack on the World Bank’s Ease of Doing Business index.

Finally, the rise in FDI in Vietnam is a further indicator of the country’s attractiveness to business. FDI has grown significantly over the past decade and exceeded $19 billion in 2018. 1

Vietnam’s fast-growing retail market

Vietnam’s retail sector is the fastest growing in Southeast Asia and is poised for rapid modernization. The overall retail market is currently worth $108 billion in annual revenues, a figure that is forecast to increase at a 7.3 percent CAGR over the next five years. Groceries and consumer electronics are the largest segments of the retail market, at 44 percent and 17 percent, respectively (exhibit). 2

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In consumer electronics, leading players have already driven rapid modernization of the segment. However, in the larger grocery segment, Vietnam’s modern trade penetration, at 8 percent in 2018, is low compared with that of other Southeast Asian countries. 3 This is expected to increase to 26 percent by 2025, as the groceries market is on the verge of significant modernization. If it follows the S-curve of comparable Southeast Asian countries, the modern groceries market is expected to grow from the current $4 billion to $20 billion by 2025.

Overall, Vietnam’s e-commerce penetration is still low, at only 3 percent of total retail sales, but this is expected to rapidly increase in the next five years and show significant growth in the long term. 4 The drivers of this growth include Vietnam’s young population and its high smartphone penetration—which today stands at more than 80 percent of the population over 15 years of age. The e-commerce sector is still in its early days, and key factors for success in this area include overcoming logistics challenges, especially last-mile delivery, managing the high rate of cash payments, and building consumer trust.

To succeed in Vietnam’s retail market, companies will need to keep three key trends top of mind. First, consumers are increasingly loyal to brands—especially local brands. Second, they prefer modern retail formats, as is evident from the rapid growth of such formats. And third, a wave of consolidation is under way across the sector.

These trends are already increasing the competitive intensity of the retail sector, particularly in groceries. In addition to large domestic and international players with an established footing in Vietnam, new competitors have entered the market in the past five years and embarked on a wave of acquisitions and new store openings.

Seizing the opportunity: How to succeed in Vietnam retail

McKinsey’s observations of high-performing retailers across the region point to six key success factors common across retail winners. To reach Vietnam’s consumers and win their loyalty in an increasingly competitive marketplace, it is necessary for retailers to invest in building scale across a broad network. Shaping compelling value propositions and honing attractive, trustworthy brands are also important, as is driving innovation across omnichannel platforms. All these should be backed up by robust operations and other business enablers, as well as relevant local knowledge.

Download Seizing the fast-growing retail opportunity in Vietnam, the full report on which this article is based (PDF–2.2MB).

About the author(s)

Marco Breu is a partner in McKinsey’s Hanoi office, Matthieu Francois is an associate partner in the Ho Chi Minh office, Dymfke Kuijpers is a senior partner in the Singapore office, and Alex Sawaya is a partner in the Hong Kong office.

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