A Family Mart store in HCM City’s District 3 (Photo: VNA)
HCM City (VNS/VNA) - Retail companies areracing to expand but are challenged by high rental costs in major cities.
The Nguoi Lao Dong (The Labourer) newspaper quoted a JonesLang LaSalle Q1 report on the property market as saying that in HCM City thenumber of convenience stores exceeded 1,800 by the end of March.
They now occupy a combined 270,000sq.m of floor space.
Vietnam is forecast to be the fastest-growingconvenience store market in Asia until 2021 with a growth rate of 37.4 percent,according to international grocery research organisation IGD. Competitionbetween local and international players would therefore be “fierce”, it said.
Foreign chains currently dominate the market with majorbrands like Family Mart from Japan, Circle K from the US and two Asian brands,Shop&Go and B’s mart, making up 70 percent of all convenience stores.
GS25, a chain of the Republic of Korea, recently entered themarket and targets opening 2,500 stores nationwide in 10 years. In six monthsit has opened 15 and aims to reach 40-50 by year end.
Local companies have also entered the race to expand andcompete with the international players. Among them are Vingroup andSaigon Co.op.
Vingroup has nearly 1,300 convenience stores under theVinmart brand, and Saigon Co.op has 250 Co.op Food stores and 70 Co.opSmilestores.
The latter is seeking to franchise the two brands toaccelerate their expansion.
Due to this competition among convenience and mini-storechains, retail floor space rentals have surged, sometimes rising two-fold.
As a result, some of them have been forced to close somestores quickly.
Food company Vissan has closed down 60 mini-stores due topoor sales. Besides, the company could not afford the rent, according toPhan Van Dung, its deputy general director.
“Floor space of 80-100sq.m in Go Vap, Tan Phu and Binh Tandistricts cost around 35 million VND (1,500 USD) a month, but their owners donot want to sign long-term lease contracts and usually hike rent by 10 percenton an annual basis.
“Rent together with staff salary, utilities and water cost us200 million VND a month. That’s a lot of pressure.”
Do Quoc Huy, marketing director of Saigon Co.op, said itusually takes three to five years for a convenience store to break even and aretailer must have at least 500 stores to achieve optimal scale.
He said major international brands with deep pockets andwhich have done thorough market research are leading the game at the moment.
However, according to Ju Young Yun, executive director ofGS25, even big players will find rents in HCM City and Hanoi a hurdle.
He said his company is considering franchising to resolvethis problem.-VNS/VNA
