Vietnam: Cash & Carry

["Ulhas Joglekar" <joglekarulhas@xxxxxxxxxxx>]

Far Eastern Economic Review

Issue cover-dated April 25, 2002

VIETNAM

Cash & Carry
An international wholesale chain is welcomed to Ho Chi Minh City. But will
it thrive?

By Margot Cohen/HO CHI MINH CITY
Issue cover-dated April 25, 2002

FOREIGN INVESTMENTS OF $120 million don't come bouncing into Vietnam every
day of the week. So when German-owned Metro AG announced plans to open eight
giant Metro Cash & Carry wholesale outlets--launching the first one on March
28 in Ho Chi Minh City--Vietnamese officials rolled out the red carpet.
Apart from granting tax breaks, they made sure that Metro's massive freezers
and other heavy equipment cleared customs in just four days.
Vietnam's friendly welcome contrasts sharply with attitudes in Malaysia and
elsewhere in the region, where hypermarkets have raised protectionist
hackles. While other countries fret over the prospect of local enterprises
getting crushed, Vietnam seems to be buying Metro's argument that its
presence will benefit local companies.
The biggest lure: Metro's global chain of 337 wholesale outlets could
provide a window on the world for many Vietnamese products that currently
lack distribution channels. "Metro will help Vietnamese entrepreneurs keep
pace with those in other countries, " says Pham Xuan Ai, vice-director of
the state-run Institute for Economic Research in Ho Chi Minh City.
Piggybacking on Metro's connections is a lot easier than starting from
scratch. Last year, a Hong Kong-based Metro affiliate purchased and exported
some $75 million worth of Vietnamese goods, including textiles, shoes and
furniture.
That number could swell this year, depending on the firm's continuing
evaluations of Vietnamese seafood and various agricultural products.
Starting in May, Metro executives promise that they will team up with a
German development group to help Vietnamese farmers introduce new crop
varieties and ensure the supply of quality vegetables.
And for some Vietnamese retailers, Metro is already providing a useful model
for brighter, more hygienic displays of fresh meat, fish and produce. At the
Saigon Union of Trading Cooperatives, known as Saigon Co.Op, executives are
considering importing new equipment to improve cooling at its string of
supermarkets. "We have to try harder," says Nguyen Thi Nghia, president of
Saigon Co.Op.
WAIT AND SEE
But not everyone is rushing to embrace Metro. As the name suggests, Cash &
Carry rules out both credit and delivery--perks that buyers at Ho Chi Minh
City's major hotels and restaurants have long enjoyed in centrally located,
traditional markets like Ben Thanh. Delivery is a big issue because Metro
launched its first store in the southwest corner of the city, a 40-minute
ride from the centre. "Prices [at Metro] are only 10% lower than they are
outside. If you add transportation costs, the price is almost the same as in
Ben Thanh," says Pham Vu Hiep, acting food-and-beverage manager at the Rex
Hotel. For now, he's sticking with his traditional suppliers, who can
deliver goods within 15 minutes and extend daily credit of up to 20 million
dong ($1,315).
While opening day was jammed with an estimated 10,000 shoppers and gawkers,
subsequent visits on a Sunday afternoon and Friday morning found trade more
subdued, with short lines at checkout counters and a half-empty parking lot.
One factor is Metro's worldwide insistence that it's a wholesale outlet
rather than a discount-retail chain. Potential customers must produce a
business-registration number to obtain a plastic entry card emblazoned with
a photograph to avoid transferable use. And since few can afford cars in Ho
Chi Minh City, they're limited to what they can cart away on their
motorbikes.
Another damper is the barring of children under the age of 14. While Metro
aims to protect youngsters from getting hurt by the heavy machinery that
lifts items onto top shelves, the policy undercuts one of the main functions
of shopping in Vietnam--cheap family entertainment. Witness the hordes
shuffling through the halls of Trang Tien Plaza, Hanoi's first major mall,
which made its debut earlier this year. It's a natural trend, given the lack
of recreational alternatives and the novelty of seeing a wide variety of
foreign goods in Vietnam.
Rather than draw window shoppers, Metro is counting on cajoling more
customers like 30-year-old Le Hong Diem, who hawks home-care products such
as shampoo and toothpaste from a modest market stall. Although Diem didn't
buy anything on her first two trips to Metro, on her third foray she wheeled
two crammed shopping carts to the cash register and peeled off a fat wad of
dong. Even though she estimates that shopping at Metro won't save her more
than 100,000 dong, she says she doesn't mind paying the total bill of
4,525,100 dong in cash--and piling the massive load onto her motorbike to
take back to her stall.
For Vietnam, the broader question is whether Metro's presence will encourage
other foreign investors to jump in. "When a group like Metro invests in
Vietnam, it's a very strong signal of confidence in political stability and
growth," says Doan Viet Dai Tu, a Ho Chi Minh City-based business consultant
hired by Metro. Maybe so, but so far the numbers have been disappointing: In
the first quarter, approved foreign-investment capital dropped 30% from the
same period last year. To reverse the trend, Vietnamese officials must show
that Metro won't be the only customer to get red-carpet treatment.


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