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Vietnam’s retail market is growing rapidly, making it highly lucrative in the eyes of foreign investors. The country is currently listed in the top five in Asia and ranked 28th globally in terms of growth rate of the retail market.

The Ministry of Industry and Trade forecasts the number of middle-class income citizens with a high shopping demand will triple by 2020. This Southeast Asian country currently has a population of more than 90 million, 60 percent of which are young people.

Official statistics show there are roughly 600,000 retail outlets nationwide. And it is estimated that the current figure will jump by 45 percent in the next four years.

Vietnamese local retailers won’t have it all their own way, however, as foreign giants like Thailand's Central Group, South Korea's Lotte, Japan's Aeon, and Malaysia's Parkson are descending on the market at speed.

Vietnam's retail market is listed in the top five in Asia and ranked 28th globally in terms of growth rate. Photo by Nhat Nam

Under increasingly mounting pressure from foreign competitors, Vietnamese retailers and suppliers are forming an alliance as a strategic move to strengthen their position at home.

Such cooperation will not only be a lot of help to local retailers but also protect domestic manufacturing companies.

There's a complex relationship between the retailers and the companies who supply the many products they sell. Suppliers fiercely compete to get retailers, which run a network of thousands of supermarkets and mini-marts nationwide, to feature their products on the shelves. During the race for the best place on the shelves, Vietnamese suppliers are forced to make a variety of payments including giving a discount or rebate to supermarkets.

“Domestic supermarkets often ask for a 10 percent discount at the maximum while foreign-invested players aim for a discount rate of between 10 percent and 30 percent,” said Le Thi Thanh Tam, chief executive of Saigon Food.

She added that suppliers just about break even if they have to discount to retailers by as much as 30 percent.

Vietnamese conglomerate Vingroup has recently decided to allow local fresh foodstuff suppliers to stack and sell their products at its 700 mini-marts throughout the country without paying a single penny of rebate for a year.

Vingroup, which is currently expanding at speed in the retail sector by opening two stores a day, signed cooperation agreements with 250 local firms earlier this week in the face of increasingly fierce competition from foreign players.

Thailand's TCC subsidiary Berli Jucker is among the bidders for Big C supermarkets in Vietnam, worth about $1 billion. Photo from Big C's website.

Industry experts suggested local firms should on one hand join forces with domestic retailers like Vingroup, and on the other hand stand shoulder to shoulder to negotiate with retailers.

Lawyer Pham Ngoc Hung, vice chairman of Business Association in Ho Chi Minh City cited the case study of the Vietnam Association of Seafood Exporters and Producers (VASEP) as a striking example of how local firms make bargains with retailers.

VASEP, representing thousands of Vietnamese companies in seafood business, has successfully struck a deal with foreign retailers to keep the discount rate unchanged until the end of this year.

Local manufacturing firms in different industries can also cooperate with each other to cut operating costs, said Truong Phu Chien, chief executive officer of confectionery maker Bibica.

He drew up a plan in which sweets producers, instant noodle makers and vegetable oil firms stack and sell their products at the same retail outlets so that they can cut their operating costs to 15 percent, much lower than the discount rate of 30 percent to foreign retailers.

Nguyen Ngoc Hoa, deputy director of Ho Chi Minh City’s Industry and Trade Department stressed the importance of connecting local suppliers with local retailers in the face of fiercer competition from foreign players.

Economist Pham Chi Lan said as 97 percent of Vietnamese firms were of small and medium sizes so there is an urgent need to link them together as well as connect them with local retailers, adding that “an economy can only be sustainable with a well developed local business community.”