Big C in Vietnam

SUBMISSION FOR THE INTERNATIONAL CONFERENCE:

“NEW MARKETING PARADIGMS IN EMERGING ECONOMIES”

January 13-14, 2005

INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD

BIG C IN VIETNAM,

Retail challenges at corporate and country level

Dr. BUI Thi Lan Huong,

CFVG, Hochiminh city, Vietnam

Prof. Jean-Paul LEMAIRE,

ESCP-EAP,EuropeanSchool of Management, Paris, London, Berlin, Madrid, Torino

Abstract:

This case story deals with retail distribution evolution in Vietnam, on a comparative basis, with other neighbouring countries, likeIndonesia, Malaysia and Thailand. This example focuses on the choices to be made by a foreign retailer established there as a pioneer after the Asian crisis. The issues are manifold, encompassing environmental change’s impact, both in a sector’s and in a country’s perspective.

It tends to identify the converging as well as the diverging features of the retailing sector in diverse emerging Asian countries which are positioned at diverse stages of maturity but in the same geographic area. It, also, emphasizes on the sector’s dynamics and on the impact of the regional crisis during the late 90s. At last, it opens the debate on anticipation for the involved actors and groups of actors: corporations, customers as local authorities.

The theoretical background of this case lies in the relationship to establish between company incentives to develop operations abroad (here, in retailing) and countries policies to attract, more or less selectively, foreign investment in specific sectors. It leads to joint together international sector analysis and internationalisation decision processing, both for companies and for local authorities.

Key words: retailing, international sector’s analysis, international corporate development, international corporate strategies, country attractiveness, FDI policies, Asiatic crisis.

INTRODUCTION:

Retailing represents certainly a key sector for an emerging country, especially in a context of the accelerating “declustering” process, which has been taking place during the past decades, accelerating, even, during the last one.Which means, for them, to envisage and to implement a quick or progressive removal, not only of administrative and taxation barriers, but, also, of a large set of other obstacles, ranking from infrastructure lacks to culture gaps.

This process concerns, first, a large span of regions, especially those which were largely living in a state of complete or limited autarky, due to the cold war and/or to major post-colonial external or internal conflicts, which is the case of Vietnam of course, for these two reasons, but also, of China, Cambodia, and, to a lesser extent, in Asia, India. These specific conditions apply, also, more or less, to Russia as to former Eastern European communist states. If all evolve in the same direction, with the same target, an harmonious insertion into the international trade and investment flows, they don’t stick to the same integration agenda, due to their economic, social, cultural and political diversity.

WTO adhesion provides a good indicator of the respective countries progression in terms of “declustering”: as an example, if China, a major actor, or Cambodia, a minor one, having, both, applied to this organisation later than Vietnam,they have, both, become already members, the latest remains at the door of this inescapable institution, which symbolises belonging to the international commercial community and provides to each member country a basic waver to expand trade and attract more FDI. Unfortunately for Vietnam, it has neither the economic weight of China, the present propeller of the world growth, nor the harmless image of Cambodia. It has, then, with its 80 million populations and its important textile and agricultural exports, to pay the price of its integration, not only in terms of negotiations with its major import and export partners, but, all the same,in terms of legal and structural adjustments.

In such a perspective, associating short term (as adhesion had be initially forecasted for January the 1st, 2005) as long term perspectives, retailing offers an adequate example in order to illustrate them. All ingredients of “declustering” challenges are, in fact, gathered, in order to confront the differentiated interests of a large set of stakeholders, all directly or indirectly involved t in the process:

-at first, the foreign corporate entrants, which want to create or enlarge as to secure a significant market share and a good profitability in a promising market,

-then, the local players, among which, the modern retailer which have already conquered a dominating market share in urban areas, and the traditional ones, still present in the cities and dominant in the country side,

-of course, the local authorities, which deliver licences to all types of actors and define the policies and regulation applying to the retail activity,

-and, at last, the customers which demands tend to evolve permanently, balancing between attractiveness for Western distribution models and attachment to cultural buying habits and patterns.

Such a case may, also, permit, from a more methodological point of view,

-to analyse the more specific consequences of “declustering” for the large set of local as foreign actors, above mentioned, encompassing local customers, modern as traditional retailers and local authorities;

-to identify the major drivers of the retail sector’s evolution in an emerging country, as its capacity to adjust to both, external and internal constraints, applying an environment analysis approach;

-to include comparative elements allowing benchmarking between comparable countries and various level of economic and social maturity, in order to stem from this approach possible transferable lessons;

-to extend the analysis approach to the decision making stage, at the corporate level of the foreign retailer chosen to illustrate the internationalisation problems raised in such a context,

-but, also, possibly, to consider this decisions to take at an institutional level, as far as local authorities may think to adjust their own policy for the sector, in relation with the general “declustering” issues to which the country is confronted.

This case will, then, be organized from a brief presentation of company’s general features and of itsVietnamese venture, which will lead to a short review of the Vietnamese political and economic context, emphasizing on the facts which can be of some consequences for the sector’s evolution and for its various stakeholders. Then, a focus on the Vietnamese sector retail itself will give additional elements in order to give the necessary insights on its recent evolution, the existing formats, the consumers’ expectations, the competition arena, the strategies of major players..some conclusive remarks, which will not be presented, just as this introduction, in the pedagogical version of the case, will provide some additional commentaries, in order to enlarge the questions raised for discussion[1].

I. COMPANY’S VIETNAMESE ESTABLISHMENT:

Founded half a century ago in La Réunion, the foreign French Département, island, North of Madagascar, and,incorporated, more recently, in Marseille, the “Groupe des Sociétés de Bourbon” is a French group, operating in distribution, through“Vindémia” and in maritime services through “Bourbon Maritimes”. Retailing activity plays the key role, with 50% of the total turnover of the group:sector’s leader in La Réunion Island where it has developed various formats; supermarkets, hypermarkets as well as cash-and-carry outlets.

Its cross border expansion relies on the internationalisation of the concept of mass distribution in emerging markets, such as Madagascar, Mayotte, Mauritus, just like inVietnam. In 2002, Groupe Bourbon became the leading retailer in Mauritius. In Vietnam, Vindémia has been operating in various activities, such as food (Bourbon Ben Luc), sugar refining (Bourbon Tay Ninh, Bourbon Gia Lai) and maritime services (Bourbon Duharco).

Sticking to its pioneering tradition, Vindémia has been the first foreign group to open, in 1998, a “French style” hypermarket under the “Cora” banner, in Vietnam, a country, then, unfamiliar with this retailing concept. It still operates there, by now, but using the group Casino’s banner “Big C”, already very popular in Thailand, one of the Vietnamese closest neighbor; its positive image having reached the Vietnamese consumers..

The French group Bourbon, owner of the Cora hypermarket chain, was the first foreign entity licensed to operate supermarkets in Vietnam in the context of economic recovery after the Asian financial crisis. It is worth noted, although general living standards were still low,that Vietnam would appear, then, as very promising to foreign investors in the modern retail sector, dominated by traditional distributors. In fact, the acceleration of annual economic growth rate during the 1990s, combined with the increase of average annual revenue of urban population[2] boostedquickly the growing private consumption.

Hypermarkets’ deployment

Cora Dong Nai hypermarket was established in these propitious conditions. Moreover, the competition was not fierce at that time, as its main local competitors such as Co-op mart, Citimart, and Maximark were, then, quite small, both in number and size. In 1998, Coop-mart had only 3 stores operating in Ho Chi Minh City with selling areascovering, more or less, 1000 square meters per store. At that time, there were about 30 supermarkets and mini-marts established in the country; the number growing up to 100 by the end of 2003. Meanwhile, since its first installation, Bourbon has developed three additional stores, in Hochiminh city, and, at the end of 2004, another one in Hanoi, the capital of Vietnam.

CORA Dong Nai

Opened in the late of 1998, this first “French style hypermarket” in Vietnam is located 30km East of Hochiminh city, at the T-junction of National High way 1, near one of the most quickly expanding industrial parks of Southern Vietnam, in a trading zone of 2 to 3 million of inhabitants. The “CORA Dong Nai” project cost reached about USD 54 million. It has been incorporated as a 65%/35% Joint Venture between Groupe Bourbon and Donimex, a state-owned import-export enterprise based in Dong Nai province.

The shopping complex encompasses within 20 000 square meters, a 6000 square meters selling area, completed by 30 smaller outlets and a set of large warehouses. CORA Dong Nai has also a huge parking with 550 slots for cars and 2200 for motorbikes. It hires 391 employees. It hires 391 employees.

During its early opening period, it is reported that CORA Dong Nai had attracted just for a look thousands of local shoppers who were used to visit smaller supermarkets (Maximark with 2667 square meters, Coopmart with only 760 square meters). “The hypermarket receives from 3000 to 9 000 customers per day. In the first three month of its opening -in a blaze of publicit-, up to 50 000 farmers and factory workers surge through its doors each Sunday and 15 000 on other days [attracted] by anything from washing machines to shoes” [3].

CORA An Lac

Two years later, with a similar approach, another hypermarket, “CORA An Lac”,required an investment of 35 millions USD, through a new JV: 80% of the capital hold by Group Bourbon and 20% by Binh Chanh Construction and Investment Shareholding Company (itself a Joint Venture between Espace Bourbon An Lac, the owner of Cora An Lac and Cora Mien Dong).It started operations in Hochiminh city‘s outskirts, in Binh Chanh district, by March 2000.

Like CORA Dong Nai, CORA An Lac covers an area of 20 000 square meters shared between the store itself(6000 square meters)and a 50 shops corridor. It hires 400 employees. It targets not only the shoppers from the South of Hochiminh city, but also those from North Long An province’s and the Mekong delta. The hypermarket tend to attract both people traveling in and out Hochiminh city. Gilles Blin, director general of Espace Bourbon An Lac said, at the opening of his second store: “We expect the project to be profitable from the third year, but it will depend on actual performance”.

CORA Mien Dong

In 2001, “CORA Mien Dong”, on To Hien Thanh Street, was opened in district 10, just in the heart of Hochiminh city. Although it is not as large as the two others (3000 square meters), it attracts nearly the same number of shoppers per day.

Big C Hanoi

By October 2003, Vindémia started the construction of its fourth superstore in Vietnam. This store, with a surface of 14 500 square meters, due to open at the end of 2004, will be located near Hanoi, under the new banner “Big C”. It will be run by Espace Bourbon Thang Long, a Joint Venture between Group Bourbon and Thang Long tourism and trading company. The capital invested in this project is about 30 USD million. It plans to create 700 local jobs. This is the 7th project of Bourbon in Vietnam with a total capital registered of USD million 250.

Selling concept presentation and layout

Cora operates under the motto “Vietnam popular discount” and goods are “all under one roof” and it is the first major retailer aiming to mainly distribute Vietnamese products. Previously, nearly half of the goods sold in other big supermarkets, in Hochiminh city, like Maximark, Coopmart and Citimart were imported items. Henceforth 30,000 items[4]are available, of which 95% are provided by nearly 1,000 local producers. The store layout has adopted the French hypermarket style, with large aisles, about 2 meters large. To shoppers’ mind, it combines convenience, store layout, aisle placement, width, parking facilities.

While Cora would like to be a hard discounter, it pays much attention to the French style in the presentation of its stores. The assortment is both large and wideand has also contributed to create the personality of the store. The staff is well-trained and the store management very professional. The shelves are higher than those of Vietnamese supermarkets. The central aisle is displayed with promotional items. The ads tend to promote“the“ espace” men, as for women, children, with items used for men, including shoes, ties, underwear, clothing, …CD with service. And you will leave the store by buying French baguettes.., a French style presentation.

As a matter of fact, the store is very bright, with high ceilings and decorated walls. The hypermarket respects strictly safety and security conditions. The fresh food section is typical of French style modern retailers, offering bread, ham, and, especially, different kinds of cheese.

Product and assortment

To lower prices and ensure goods quality, the company has established an integrated supply system, selecting goods with its own very demanding evaluationprocedures. Food quality must be in accordance with the food safety and sanitation regulations: Big C cooperates with Health centers to have periodical and accidental tests, in order to check foods quality. Moreover, Big C develops its own production units of butchery, bakery, fishery..It bakes its own bread and cakes, and achieves the final processing of its own fresh seafood, fruit and vegetables sourced directly from the growers. Amazingly, fresh French style baguettes are the hottest sellers in the hypermarket. Besides, in order to better satisfy customers’ needs, it imports various European and Asian goods. Goods sold at Cora are definitive purchases, not under consignation, like in many other supermarkets. In Big C hypermarkets, customers can buy food, especially fresh products and in-house bakery, fabrics, cosmetics, garments, footwear, school supplies and cultural products

The company has developed relations with prestigious suppliers, including state-owned enterprises, MNC and private businesses, in order to secure the quality of the products supplied.. In fact, the figures indicate a higher proportion (95%) of Vietnamese products than in other supermarkets like Coopmart (85%), Citimart (70%) and Maximark (over 75%)[5]. And the turnover coming from the local items accounts In addition, Big C plans to promote Vietnamese products in European countries, in its retail international network. For instance, in 2003, Big C chain exported around USD million 5.

Price and Promotion

Goods sold at Cora hypermarkets are of high quality and affordable. Discount sales programs are often held. One of Big C‘s most ambitious targets is to offer prices that are equal or even lower than those of traditional markets and small stores. Cora outlets were the first to cut retail prices through a general sales campaign. And the owner expects to become a discounter with the pricing strategy as “low price every day”.“I don’t understand how Cora can offer such amazing prices”, one mini-mart manager says. “People go crazy for its special offers”[6]. As, at present, 95% of the goods at Big C hypermarkets are locally sourced and 5% imported from Asian countries, it has contracts with 400 local producers to provide products at factory prices and not through intermediates. “Cora is the cheapest because we eliminate extra-costs” said Frank Moreau, Cora’s managing director[7]. As far as promotion is concerned, “with a stock of 20 000 lines, Big C can offer about 100 heavily discounted products in a week, some as low as 50% off”[8]. Big C also does run theme promotions, where they focus on birthdays, national days. They tend to use handouts to advertise.

A recent study carried out by Saigon Co-op found, though, that Big C offered the highest prices. On the contrary, promotion programs were the most popular to shoppers (Table 1).