Retail in Vietnam
The retail industry has been evolving gradually in recent years, together with Vietnam’s growing population and emerging middle class. In 2020, retail sales of goods and services reached over USD 200 million and still had much potential to grow. The Vietnamese retail industry was valued at USD 170 billion in the same year and was predicted to grow at a CAGR of more than 10% from 2021 to 2026.
Within the retail sector, food and beverage accounts for the majority of revenues (over USD 51 billion in 2020), of which package food was the most preferred item as there is a shift towards convenience products. Other retail segments such as electronic devices and household goods have seen continuous development due to rising consumer demand.
Traditional retail channels such as street stores and wet markets were still the most popular channels to most Vietnamese people, however, modern trade channels such as convenience stores and supermarkets started to gain in popularity and be more preferred by especially urban consumers. Currently, local players such as VinMart and Bach Hoa Xanh have been dominating the modern retail landscape, but many foreign retailers have gradually become more known for their modern trade outlets, such as Japanese AEON and Korean LOTTE franchises. E-commerce has also accounted for a growing portion of retail revenues in recent years.
Impact of the COVID-19 pandemic
The outbreak of COVID-19 pandemic recorded in early 2020 until now led to many national and regional lockdowns in Vietnam. Traditional retail channels are no longer suitable since hygiene and safety concerns have been raised. Hence, consumers start opting for modern trade channels or e-commerce when shopping as a safer and more convenient alternative. What’s more, due to the pandemic, many people had temporary leaves from their job, which led to the significant decrease in spending intention among consumers in many product categories apart from food and beverages and healthcare items. In general, the COVID-19 pandemic has changed the way Vietnamese consumers shop; modern retailers and e-commerce were expected to become the new shopping habits in the future.
General procedures for foreign investors
In general, except for traded goods that are specified on the list of prohibited or restricted for trading, or are subject to specific licenses for trade, foreigh investors are not restricted to any trade of goods (exports, imports, wholesale and retail) within the Vietnam legal framework.
To begin, a Vietnamese firm must have retail business lines recognized as allowed business activity before attempting to construct a retail location. It entails either forming a company in Vietnam with relevant retail business lines registered, or incorporating appropriate retail business lines into an existing firm’s business lines.
A typical process and timeline for establishing foreign-owned retail stores
Step 1: Company establishment or adding trading business lines – 1 month
Step 2: Obtaining Trading License – From 2 to 3 months
Step 3: Obtaining Retail Outlet License – From 3 to 4 months
Please note that:
- Each retail outlet will require its own Retail Outlet Establishment License
- The first Retail Outlet Establishment, as well as subsequent outlets that are I less than 500m2 in size, (ii) not located in a shopping mall, and (iii) not classified as a convenience store/mini supermarket, can be completed without an Economic Needs Test (“ENT”) process, but other successive outlets must complete the ENT process in addition to the Retail Outlet Establishment process; and
- Upon becoming a foreign invested corporate entity or being deemed a foreign investor under the Law on Investment, a domestically held firm with retail outlet(s) in Vietnam must apply for both a Trading License and a Retail Outlet Establishment License.
How to obtain a Trading License and a Retail Outlet Establishment License
| Trading License | Retail Outlet Establishment License | |
| Authority | Department of Industry and Trade (DOIT) In special cases, DOIT will seek approval from the Ministry of Industry and Trade’s (MOIT) before issuing the license for instance, such as retail of rice, sugar, recorded items, books, newspapers and magazines which are distributed by the companies in its retail outlets (can be supermarkets, mini supermarkets or convenience stores). | The Department of Industry and Trade (and the Ministry of Industry and Trade’s involved for giving opinion and potentially an ENT Council appointed by the provincial People’s Committee) |
| Requirements |
| The company must meet the following standards for the first retail outlet and subsequent retail outlets that are I less than 500m2 in size, (ii) located in a shopping mall, and (iii) not classified as a convenience store or mini supermarket:
|
The company must meet extra standards for additional retail outlets (apart from the first outlet and the aforementioned subsequent retail outlets in section 1), as follows:
| ||
| Required documents |
|
|
| Validity period | Normal case: No need for the Trading License to be valid for a specified period of time. Sensitive/restricted cases: 5 years, if
|
|
| Procedure | Step 1: Client’s Role The Client prepares the application files and sends them to DOIT either directly, online, or by mail. Step 2: Statutory Role DOIT evaluates the company’s capacity to satisfy the requirements before issuing a trade license. Before issuing a license, DOIT will seek MOIT’s permission in a few special cases. | Step 1: Client’s role The Client prepares the application files and sends them to DOIT either directly, online, or by mail. Step 2: Statutory role DOIT evaluates the company’s capacity to satisfy the requirements before issuing a trade license Please note that in some situations, before issuing the Retail Outlet Establishment License:
|
| Estimated timeline | For normal cases: around 2-3 months For special cases that need the approval from the Ministry: 3-4 months | From 3-4 months |
Please note that:
- If the firm’s first retail outlet is in the same province as its headquarters, it is eligible to apply for both a trading and a retail outlet license; and
- The company is required to report to the authorities on the sale of goods and other related activities on the annual basis by 31 January.
Issues on ENT
The economic needs test (ENT) is frequently applied to foreign investors intending to open retail shops in Vietnam. This restriction has been criticized by some investors as a barrier to the business environment, adding to bureaucratic issues and delays. Good news is the government has acknowledged the problem and may review the requirement in the future. Until then, certain free trade agreements have waived the ENT requirements. For countries who are part of the EU-Vietnam free trade agreement (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the UK-Vietnam free trade agreement (UKVFTA), ENT will be scrapped.
To be more detailed:
- Five years after the EVFTA and CPTPP take effect, the ENT will be scrapped;
- Five years after the EVFTA is in effect, the Vietnamese government has committed to phasing out the ENT for the UKVFTA.
Note: However, for investors not included in these agreements such as South Korea, which is the second largest investor in Vietnam, they are still subject to ENT.
Vietnam has strived to improve its business environment over the previous couple of years and continues to remain a magnet for attracting foreign direct investment. Although further reforms are needed, the Vietnamese government is willing to listen to get things improved. Currently, the Government has eased restrictions for some requirements for foreigners getting work permits. It also considered the economic impact of the lockdowns and movement restrictions, and resumed company operations in Ho Chi Minh City and the surrounding regions.
Sources:
Acclime Vietnam. 2022. Opening Retail Stores/Outlets in Vietnam for Foreign Investors. [online] Available at: <https://vietnam.acclime.com/news-insights/opening-retail-stores-outlets-in-vietnam/> [Accessed 14 January 2022].
Statista. 2022. Topic: Retail sector in Vietnam. [online] Available at: <https://www.statista.com/topics/5334/fmcg-retail-in-vietnam> [Accessed 14 January 2022].
Vietnam-Briefing., 2022. Vietnam’s Retail Industry: Economic Needs Test – Vietnam Briefing News. [online] Vietnam Briefing News. Available at: <https://www.vietnam-briefing.com/news/vietnams-retail-industry-economic-needs-test.html/> [Accessed 14 January 2022].
