High rent hampers retail growth

A Family Mart store in HCM City’s District  三. The extremely high rentals in Vietnamese cities are a hurdle to convenience stores’ expansion in the country. — VNS Photo Hoàng Nguyên

HCM CITY — Retail companies are racing to expand but are challenged by high rental costs in major cities.

Người Lao Động (The Labourer) newspaper quoted a Jones Lang LaSalle Q 一 report on the property market as saying that in HCM City the number of convenience stores exceeded  一, 八00 by the end of March.

They now occupy a combined  二 七0,000sq.m of floor space.

Việt Nam is forecast to be the fastest-growing convenience store market in Asia until  二0 二 一 with a growth rate of  三 七. 四 per cent, according to international grocery research organisation IGD. Competition between local and international players would therefore be “fierce”, it said.

Foreign chains currently dominate the market with major brands like Family Mart from Japan, Circle K from the US and two Asian brands, Shop Go and B’s mart, making up  七0 per cent of all convenience stores.

GS 二 五, a South Korean chain, recently entered the market and targets opening  二, 五00 stores nationwide in  一0 years. In six months it has opened  一 五 and aims to reach  四0- 五0 by year end.

Local companies have also entered the race to expand and compete with the international players.

Among them are Vingroup and Saigon Co.op.

Vingroup has nearly  一, 三00 convenience stores under the Vinmart+ brand, and Saigon Co.op has  二 五0 Co.op Food stores and  七0 Co.opSmile stores.

The latter is seeking to franchise the two brands to accelerate their expansion.

Due to this competition among convenience and mini-store chains, retail floor space rentals have surged, sometimes rising two-fold.

As a result, some of them have been forced to close some stores quickly.

Food company Vissan has closed down  六0 mini-stores due to poor sales.

Besides, the company could not afford the rent, according to Phan Văn Dũng, its deputy general director.

“Floor space of  八0- 一00sq.m in Gò Vấp, Tân Phú and Bình Tân districts cost around VNĐ 三 五 million (US$ 一, 五00) a month, but their owners do not want to sign long-term lease contracts and usually hike rent by  一0 per cent on an annual basis.

“Rent together with staff salary, utilities and water cost us VNĐ 二00 million a month. That’s a lot of pressure.”

Đỗ Quốc Huy, marketing director of Saigon Co.op, said it usually takes three to five years for a convenience store to break even and a retailer must have at least  五00 stores to achieve optimal scale.

He said major international brands with deep pockets and which have done thorough market research are leading the game at the moment.

However, according to Ju Young Yun, executive director of GS 二 五, even big players will find rents in HCM City and Hà Nội a hurdle.

He said his company is considering franchising to resolve this problem. — VNS