Vietnam has ended India’s three-year reign as the most attractive emerging market destination for retail investment according to the 2008 Global Retail Development Index (GRDI), a study of retail investment attractiveness among 30 emerging markets conducted by management consulting firm A.T. Kearney.
Vietnam’s leap from 4th in the 2007 GRDI to 1st place in 2008 was driven by strong GDP growth, changes to the country’s regulatory structure favoring foreign investors, and increasing consumer demand for modern retail concepts.
India, Russia and China, the top three countries in last year’s GRDI, fell to second, third and fourth, respectively, in the 2008 GRDI. While these countries remain important retail investment destinations, high real estate costs in large cities and growing competition have decreased their attractiveness relative to prior years and forced retailers to look for opportunities in tier II and III cities.
While Vietnam’s $20 billion retail market pales in comparison to India or China, the absence of competition and 8 percent GDP growth make it an attractive expansion opportunity for global retailers.
Vietnamese consumers are among the youngest in Asia, with 79 million below the age of 65, and increased their consumer spending by more than 75 percent between 2000 and 2007. The country is growing increasingly urbanized and concentrated with more than one million people a year migrating into the two large cities of Ho Chi Minh and Ha Noi.
The Vietnamese government is expected to remove controls on 100% foreign ownership of retailers in the country and has established a new program to develop wholesale and retail real estate by 2010. The region has already seen the recent emergence of modern retail in neighboring countries such as Thailand, Philippines and Malaysia.
“The Vietnamese consumer is seeing rapidly growing per capita income and regulations are drastically opening up the market for new entry,” said Mike Moriarty, a partner with A.T. Kearney and co-leader of the GRDI. “Now is the perfect time to get involved. It won’t be easy and you’ll be a pioneer. But now is the moment. Currently the top five organized retailers in the country, including Saigon Co-op, G7 and Casino, have less than 3% of the market.”
India and China
India continues to be one of the most attractive countries for global retailers today. The retail market opportunity is larger than ever at $510 billion and spending patterns and consumer maturity are growing faster than most global retailers had forecast. But challenges have emerged which could potentially slow the pace of growth for global entrants. Foreign players entering India today face stifling regulations, a clouded political atmosphere, soaring real estate costs and a fiercely competitive domestic retailer group.
In China, the countryside has turned into the next retail battleground, despite China’s drop to number four in this year’s GRDI. China remains one of the fastest-growing economies in the world. Although its per capita GDP remains low given China’s large population, consumer spending has more than doubled from the mid-1990s and continues to grow rapidly in the large southern and eastern cities.
