US consulting firm AT Kearney has just released its annual ranking of retail investment attractiveness among 30 emerging markets, with Vietnam jumping five slots to number three behind leaders India and Russia.
In the firm's 2006 Global Retail Development Index (GRDI), China slipped to take the number five spot. The analyst claims the country is showing signs of saturation as large Western retailers like Tesco and Wal-Mart move out of the big cities of Beijing and Shanghai into smaller regional centres. It has been slowing falling down the GRDI ranks for the last five years.
Planet Retail's Robert Gregory explained that although China has an immense population, its grocery market has become more competitive and as a result many foreign retailers are downgrading their expansion plans.
"Many can't find good store sites in the big cities and competition is growing all the time. Price-Mart China is one casualty so far. It went bankrupt last year as it couldn't compete in the larger cities and tried to set up in secondary cities but found the outlay was too much, and failed," Gregory said.
Meanwhile, recent political developments in Vietnam are heightening its attractiveness to foreign investors.
From 2004 retail restrictions began to dissipate, with foreign companies able to take a 30 per cent share in local operations. This encouraged French-owned Casino and the Hong Kong Dairy Farm chain to invest in the country.
Then in October 2005 the market was liberated further to allow Western retailers to own a 49 per cent share in Vietnamese businesses. And by 2008 US companies will be allowed to wholly-own distribution centres, said Gregory, in a deal that may be widened to include other Western companies.
"Vietnam is an attractive virgin market. There are no big players operating there at the moment and there is high GDP growth," he said.
It has been rumoured that Tesco is interested in entering the market, and many media sources earlier this month suggested the same is true of Wal-Mart.