An Overview of Distribution & Retail Channels in Vietnam

An Overview of Distribution & Retail Channels in Vietnam

In the past 20 years, the Vietnamese market has continuously appeared with new distribution channels, and the sales method is also becoming more and more modern. Accompanying that is the diversity in customer segments and increasingly complex buying behaviors.
This article will share about the picture of distribution channels in Vietnam.

Vietnam market currently has 4 main distribution channels

The first is the traditional channel (GT – General Trade) with typical types such as grocery stores, market stalls, street vendors such as cigarette carts, roadside stalls…

The second is the modern channel (MT – Modern Trade) consisting of 4 main types: hypermarket (BigC, Co.opXtra, Aeon Mall…), minimart (Vinmart+, Co.op Food…), convenience store (Circle K, Ministop), chain stores (Hasaki, Watsons, Nguyen Kim…). In particular, unlike convenience stores, the minimart channel does not sell food, instant drinks or serve 24/7.

Next is the Horeca channel – which stands for Hotel, Restaurant and Cafe. These are channels where consumers can eat, drink and be served on-site.

The last channel that has just “blown up” in the last few years is e-commerce. This channel includes 3 main types:

Marketplace, especially those selling through social networks (Social Seller), account for about 80% of e-Commerce revenue.
Affiliate marketing with e-Commerce channels (e-Commerce Affiliate) such as Grab, Baemin, Now… accounts for about 10% of e-Commerce revenue.
Retailers such as Tiki, Lazada, Shopee… also account for about 10%.

The contribution ratio of each channel

Currently, depending on the characteristics of the product industry, goods will be distributed in different channels, so it will be difficult to assess the proportion. According to a preliminary statistics from some representative product lines in the Vietnam market, GT channel accounts for a relatively large proportion, about 55-75%. Of these, 75% comes mostly from FMCG companies.

MT channel accounts for a relatively small proportion of 15-20%. However, this number will change depending on the nature of the business line. Some businesses will focus on investing more in MT channel, typically Johnson & Johnson, their MT channel weight is up to 30%.

Finally, in general, the contribution of the e-Commerce channel is quite modest, accounting for only 10-11%. However, there are a few businesses that focus more on the e-Commerce channel. Typical in the beauty industry is L’Oréal with the proportion of e-commerce channels accounting for 30%.

The growth trend of the MT channel

The growth trend of the modern channel is quite clear, especially in the past 20 years. 20 years ago, experts in the fields of marketing, sales, and market research were quite worried about the possibility that an emerging channel like MT would “eclipse” the GT channel. However, the growth has not been as “very strong” as had been predicted.

The MT channel will continue to grow, but that does not mean that the GT channel will disappear because where there is still countryside, there is still the development of the GT channel.

There are 2 notable trends in the near future for modern channels. The development of the CVS channel and private labels will take place in the MT channel in the future.

Looking at today’s dense coverage, few people know that the CVS channel had a rough start when it first appeared in Vietnam. The reason comes from the fact that customers are familiar with the type of supermarket and they have not seen the convenience of convenience stores.

However, along with the process of urbanization and changing behavior of students, students, and office workers, CVS increasingly proves the importance of the channel. For example, students come to CVS to study, drink water, and eat snacks to wait for the next class, or office workers often come to CVS to have a quick meal at busy times. It is the dynamics of consumers, markets, and geography… that will make this channel more opportunities in the future.

In addition, the CVS channel will continue to develop further when the Metro subway line comes into operation. That’s my prediction based on observing the Thai market – where the characteristics are quite similar to Vietnam: Where there is a subway, there is a CVS.

The next trend is the appearance of private labels. According to a report in 2018, this type is not really prominent in the Vietnamese market with a contribution of about 13-15% to the MT channel. However, the opportunity for future growth is huge. Because the private label is a very good model to help solve the competitive problem and optimize profit, which is very fierce in the MT channel. On the other hand, businesses in developed countries are now very successful with this model. Specifically, in the world, the revenue contribution of private labels to the MT channel accounts for 30% (in 2018). Even in neighboring countries like China, some supermarkets have a share of private label sales up to 45-50%. And finally, Vietnam’s OEM production capacity is getting better and better. Therefore, it can be said that most supermarkets will make a move to invest in private brands in the future.

The future of GT channel

In the past 1-2 years, many ordering applications for retailers have appeared. These applications help retailers place orders directly with the company, instead of placing orders manually through sales staff or distributors as before. This affects more or less the relationship of 3 parties: Retailer – Sales staff – Company.

How this phenomenon develops is still a mystery. Some retailers refuse to adopt technology at the very beginning of implementation because they believe in interacting with humans rather than machines.

How the rise of e-commerce affects businesses

The development of e-commerce is quite interesting, somewhat like the story of GT and MT 20 years ago. That development makes many people curious about the potential growth of the channel in the future and how it affects other channels.

e-Commerce will continue to grow at a rate that makes us more concerned in the near future. This helps promote the development of the whole market, but at the same time makes many companies fall into the situation of low profit or even loss because of competition on price.

Here, businesses face a big challenge in how to take advantage of the e-commerce channel to grow without encountering a Zero-sum Game – the business sells well in other channels but the profit earned must cover the loss for e-commerce. businesses can balance Channel Mix and Product Mix to optimize business operations, thereby finding solutions for sustainable growth.

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