The Evolving Landscape of Retail in Vietnam: Challenges for Mom-and-Pop Shops

Vietnam’s retail scene is witnessing a significant transformation as modern shopping channels, including supermarkets, hypermarkets, and convenience stores, gain traction. This shift presents both opportunities and challenges for traditional mom-and-pop shops, which remain a cornerstone of Vietnamese retail.

The Slowdown in Consumer Spending

In a recent interview with Tam Tran, head of the markets group at KPMG Vietnam and Cambodia, Retail Asia explored the dynamics of this evolving landscape, particularly the noticeable slowdown in consumer spending. In 2023, inflationary pressures from real estate and financial markets, coupled with weakening export markets globally, have contributed to a deceleration in expansion rates within the retail segment. Despite this slowdown, supermarkets continue to grow, albeit at a reduced rate of around 5% to 7%.

Tam emphasizes the allure of supermarkets, stating, “They really bring convenience for the consumers. They’re putting a lot of products under one roof.” This convenience facilitates easy product comparison and price checks, making the shopping experience more efficient.

The Battle Between Tradition and Modernity

The rise of modern retail channels poses significant challenges for traditional local vendors, particularly the small mom-and-pop shops, which make up approximately 90% of the retail structure in Vietnam. Tam acknowledges the potential consequences, saying, “The shift of consumers moving away from traditional retailers to the modern retailer might cause some of these traditional retailers to shut down. But that’s part of the trends, I guess.”

This transition underscores a broader trend where consumers prioritize convenience and variety, often opting for the efficiency that modern retailers provide.

The Popularity of Mini Supermarkets

In urban centers like Ho Chi Minh City and Hanoi, mini supermarkets and convenience stores have emerged as favorites among consumers with busy lifestyles. These establishments thrive on the concept of convenience, which, for many Vietnamese, is closely tied to the ease of parking a motorbike nearby.

Tam points out that mini supermarkets are sprouting in neighborhoods, catering to the demand for quick and hassle-free shopping. Their centralized procurement strategies enable them to offer competitive prices, pulling in cost-conscious consumers.

Recognizing this trend, some brands are strategically partnering with these convenience stores to roll out exclusive promotions and products, leveraging their heightened popularity to expand their reach.

The E-Commerce Surge

Over the past decade, e-commerce in Vietnam has experienced explosive growth, accounting for 20% to 30% of total retail sales by 2023, depending on the product category. The COVID-19 pandemic played a pivotal role in accelerating this trend, as lockdowns nudged consumers toward online shopping.

While e-commerce offers unparalleled convenience, traditional brick-and-mortar outlets are adapting by enhancing their offerings and customer experiences. Many convenience stores are now open 24/7, catering to late-night shoppers and busy professionals.

Tam also notes how partnerships with e-commerce platforms are allowing convenience stores to provide online shopping options, including in-store pickup for high-value items like mobile phones and laptops.

The Shift Towards Sustainable Consumption

As Vietnam’s middle-income class expands, there is a compelling shift in consumer preferences toward sustainable and ethical purchasing practices. Tam mentions a notable evolution in the mindset of younger consumers—particularly Gen Z and millennials—who prioritize eco-friendly products and health considerations in their buying decisions.

“Despite their youth, consumers nowadays show a clear preference for a more sustainable and ethical buying approach,” he states. This cultural shift urges brands to adapt by integrating sustainability into their business models, ensuring they remain relevant and competitive in Vietnam’s dynamic retail environment.

A Complex Retail Future

Vietnam’s retail landscape is at a crossroads. The rise of modern retail offers consumers greater convenience and variety but sidelines many traditional mom-and-pop shops. As the retail ecosystem evolves, the interplay between modern convenience, e-commerce, and sustainable consumption will define the future of shopping in Vietnam. Each aspect presents its own challenges and opportunities, creating a fascinating tapestry of retail dynamics that will continue to unfold in the years to come.