CHICAGO (June 2, 2008) - Vietnam has ended India's three-year reign as the most attractive emerging market destination for retail investment according to the seventh annual Global Retail Development IndexTM (GRDI), a study of retail investment attractiveness among 30 emerging markets conducted by management consulting firm A.T. Kearney.
Vietnam's leap from fourth in the 2007 GRDI to first place in 2008 was driven by strong GDP growth, changes to the country's regulatory structure favoring foreign investors, and increasing consumer demand for modern retail concepts. India, Russia and China, the top three countries in last year's GRDI, fell to second, third and fourth, respectively, in the 2008 GRDI. While these countries remain important retail investment destinations, high real estate costs in large cities and growing competition have decreased their attractiveness relative to prior years and forced retailers to look for opportunities in tier II and III cities.
Published since 2001, the GRDI helps retailers prioritize their global development strategies by ranking the retail expansion attractiveness of emerging countries based on a set of 25 variables including economic and political risk, retail market attractiveness, retail saturation levels, and the difference between gross domestic product growth and retail growth. The GRDI focuses on opportunities for mass merchant and food retailers, which are typically the bellwether for modern retailing concepts in a country.
"Despite slowing economies in developed countries, the retail opportunity in emerging economies is more compelling than ever as less than 10 percent of the retail market in these countries is organized," said Hana Ben-Shabat, a partner with A.T. Kearney and co-leader of the study. "These markets will provide the engines for continued growth and profits for global retailers as sales in their home countries turn sluggish."
While Vietnam's $20 billion retail market pales in comparison to India or China, the absence of competition and 8 percent GDP growth make it an attractive expansion opportunity for global retailers. Vietnamese consumers are among the youngest in Asia, with 79 million below the age of 65, and increased their consumer spending by more than 75 percent between 2000 and 2007. The country is growing increasingly urbanized and concentrated with more than one million people a year migrating into the two large cities of Ho Chi Minh and Ha Noi.
The Vietnamese government is expected to remove controls on 100 percent foreign ownership of retailers in the country and has established a new program to develop wholesale and retail real estate by 2010. The region has already seen the recent emergence of modern retail in neighboring countries such as Thailand, Philippines and Malaysia.
"The Vietnamese consumer is seeing rapidly growing per capita income and regulations are drastically opening up the market for new entry," said Mike Moriarty, a partner with A.T. Kearney and co-leader of the GRDI. "Now is the perfect time to get involved. It won't be easy and you'll be a pioneer. But now is the moment. Currently the top five organized retailers in the country, including Saigon Co-op, G7 and Casino, have less than 3 percent of the market."
Seven Middle Eastern and North African Countries Among Top 20
With seven countries among the top 20 in the 2008 GRDI, the Middle East/North Africa region is clearly the world's hottest region for retail expansion. The strong Euro supporting investment in the region, consumer familiarity with modern retail concepts and petrodollar wealth are the primary factors making the region an attractive retail destination. With more than $9 trillion flowing into the region by 2020, infrastructure investments will spur consumer and retail growth over the next decade, according to A.T. Kearney.
Among the gulf countries, Saudi Arabia, with a robust 9 percent growth rate and low retail consolidation - less than 7 percent of the market is held by the top 5 retail players - is among the most attractive global retail destinations.
North Africa has three countries in the top 15 rankings this year - Morocco, Algeria and Tunisia. These countries are, on average, projected to grow by more than 6 percent in 2008 and are benefiting from tourism, trade with Europe and periods of political and economic stability.
"European retailers are especially well suited for expansion in the Middle East and North Africa because of proximity and consumer familiarity with their brands," said Robert Ziegler, a partner with A.T. Kearney in Dubai. "However, laws in some markets make entry difficult and lead to low brand diversification and limited consumer choices."
Full story at http://www.atkearney.com/main.taf?p=1,5,1,204 [1]
GRDI 2008 report available for download at www.atkearney.com [2]