Fresh baked bread seen as part of recipe for retailer's success
Aeon malls in Vietnam attract shoppers even on holidays. (Photo by Tomoya Onishi)
RYO ASAYAMA and TOMOYA ONISHI, Nikkei staff writersOctober 9, 2022 05:16 JST
TOKYO/HANOI -- Japanese retail group Aeon is accelerating its opening of malls and other stores in Vietnam, attracted to the country's growing middle class and the expected lifting of restrictions on foreign operators in two years.
Aeon plans to triple its malls in Vietnam by 2025, looking to gain an advantage in the food sector. With almost 40 years of experience in Southeast Asia, the retailer will leverage the knowledge it has accumulated in Malaysia, where it first entered the region, and other markets to intensify its store opening offensive.
At the end of August at the Aeon Mall Ha Dong in Hanoi, a huge kitchen was in full operation despite it being only 6 a.m. Dozens of bakers were busy taking bread out of ovens and loading them into special containers.
The site ships 60 different kinds of bread and other baked goods to five nearby MaxValu supermarkets, baking 5,000 to 6,000 items on a typical weekday. Aeon makes bread deliveries to stores three times a day using its logistics network.
"We can deliver freshly baked bread to any of their stores at a reasonable price," Nguyen Thanh Tung, head of the bread production, said with pride.
As Aeon expands store openings in Vietnam, it is offering freshly baked bread and ready-made dishes, using its shopping malls as central kitchens. Its know-how in delivering to surrounding supermarkets gives it a competitive advantage.
"We have expertise in mass production and efficient delivery that we cultivated in Japan and Malaysia, these are areas where we can never be outdone by other companies," said Yasuyuki Furusawa, head of Aeon Vietnam.
Aeon currently has some 200 stores in Vietnam, including six shopping malls and several supermarkets. Stores are concentrated in Ho Chi Minh City, the country's largest city, and Hanoi, the capital, but a mall will open in the central city of Hue in 2024.
The company plans to increase supermarkets in Hanoi to 100 stores by 2025, about 10 times the current number. The number of malls will also be nearly tripled to 16 throughout the country.
"We need to accelerate our store openings, which is why we must take new initiatives now," Furusawa said. Strengthening its food businesses -- such as bakeries and kitchens -- is part of that effort.
Many local supermarkets are small and do not have enough kitchen space.
"A bread and ready-made foods section would differentiate us," Furusawa said.
Aeon the Nine, a Hanoi site that opened in May, embodies this concept. It features 1,200 sq. meters of retail space, compared with roughly 300 sq. meters typical of supermarkets in Vietnam. The store includes a kitchen and a food court, with such attractions as a salad bar and fresh baked bread.
A shift toward Southeast Asia is one of the prongs of the company's medium-term business plan. Vietnam is "the most important market in our overseas strategy," said a top Aeon executive. The country has a population of 100 million people with an average age of 33. Economic growth of more than 7% is expected again this year.
But Vietnam is attractive for another reason. As a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the country plans to abolish its foreign investment restrictions as early as 2024. One such restriction that will be scrapped is a requirement that foreign retailers seek permission when opening stores of 500 sq. meters or more.
The expansion of the Vietnamese market is likely to continue, but competition is already becoming more intense.
According to the sales ranking of Vietnamese retailers compiled by U.S. consultancy Kearney, the top company is local company Mobile World, which handles consumer electronics as well as mobile phone outlets and supermarkets, with sales of $4.8 billion. It has 5,500 stores in Vietnam and other countries. At home, its market share is about 5%, making it by far the largest.
At No. 2 is Saigon Co.op, with $1.6 billion in sales and a market share of around 1.5%. Central Retail, a major Thai retailer, is the third largest with a share of slightly under 1%.
Aeon does not disclose sales figures for its Vietnam operations, but they are estimated to be about $700 million, putting it behind local Masan Group, which holds the fifth spot at $868 million.
Other companies are expanding as well. Thailand's Central Retail plans to invest 30 billion baht ($797 million) in Vietnam. Masan Group has opened more than 100 convenience stores and other outlets every month since April. Saigon Co.op also plans to open 100 small stores by the end of the year.
In this environment, doing business in Vietnam is tricky. German retailer Metro AG pulled out of the country in 2014 and France's Auchan did so in 2019.
But this is not Aeon's first foray in the region. Before opening a mall in Vietnam in 2014, Aeon had opened its first store in Malaysia in 1985. In 2012, it acquired a local subsidiary of France's Carrefour in France and converted the stores into the discount brand Aeon Big. It now operates 21 of those stores in Malaysia.
The key to expansion there was ready-made foods and bread. It currently has 28 shopping malls in Malaysia.
According to Kearney, Aeon is the second-largest retailer in Malaysia with sales $1.2 billion and a 2.3% market share, only behind local player 99 Speedmart.
"We now have a certain competitive edge in Malaysia," said an Aeon executive.
Aeon entered Indonesia in 2012, when it established a local subsidiary to develop a mall. However, restrictions on foreign investment in the country stood in the way. Aeon opened one of its Ministop convenience stores that featured a dine-in section, but was forced to pull out in 2016 due to stricter foreign investment regulations.
The first Aeon Mall opened in 2015, and the Indonesian government mandated that 30% of sale floor space be devoted to domestically produced goods as well as requiring licensing for the import of foreign food products. The regulations were revised about every six months, which made it difficult for foreign operators to keep up.
Furthermore, with the market around Jakarta saturated with local companies and the Lotte Group of South Korea, Aeon will need to invest more to compete. Its network consisted of just four malls as of last month.
"We enter a market at a stage of growth and exploit it," said a top Aeon executive.
Malaysia, Indonesia and Vietnam are all markets that fall into that category. Although there are still certain restrictions on foreign investment in Vietnam, those on imports are looser than in Indonesia, making it easier for foreign retailers to expand operations.
Japan's Aeon to step up Vietnam expansion, triple number of malls
Fresh baked bread seen as part of recipe for retailer's success