Vietnam Tops A.T. Kearney's Annual List of Most Attractive Emerging Market Retail Destinations

Middle East/North Africa rises with the powerful petrodollar and rapidly maturing consumer base India, Russia, China still attractive, but demand new entry strategies

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 Index™ (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."

India and China – Speed Bumps on the Retail Highway
India continues to be one of the most attractive countries for global retailers today.  The retail market opportunity is larger than ever at $510 billion and spending patterns and consumer maturity are growing faster than most global retailers had forecast.  But challenges have emerged which could potentially slow the pace of growth for global entrants.  Foreign players entering India today face stifling regulations, a clouded political atmosphere, soaring real estate costs and a fiercely competitive domestic retailer group.  

In China, the countryside has turned into the next retail battleground, despite China's drop to number four in this year's GRDI.  China remains one of the fastest-growing economies in the world.  Although its per capita GDP remains low given China's large population, consumer spending has more than doubled from the mid-1990s and continues to grow rapidly in the large southern and eastern cities.

Latin American Resurgence
Prospects for retail expansion in Latin America, led by Brazil, grow stronger as political and economic stability return to the region.  GDP and retail sales growth are increasing and higher commodity prices are providing purchasing power.  Five countries from the region — Chile, Brazil, Mexico, Peru and Colombia — all appear in the GRDI top 20 this year, up from only one country in 2005. 

Brazil tops A.T. Kearney's Apparel Retail Index, an analysis of the 30 most attractive emerging market retail destinations for apparel retailers that is included for the first time with the 2008 GRDI.

While Eastern and Central Europe as a whole remain attractive for retail investment, the window of opportunity for large-scale supermarket and convenience store build-outs will likely close over the next year or two, according to the GRDI.  The opportunity for entry into Eastern Europe is for wave-2 retailers — do-it-yourself, consumer electronics and apparel retailers — as multi-level fashion malls and mixed-use centers are cropping up throughout the region.  Nine of the 12 Eastern European countries in last year's GRDI  Index retained a presence on the 2008 Index of 30 countries.

As emerging markets continue to evolve, GRDI's Window of Opportunity analysis provides line-of-sight to the current and future state of each of these markets. 

"The 2008 GRDI shows that using the 'window of opportunity' measurement we introduced in 2006 continues to be crucial," said Ben-Shabat.  "Markets typically progress through four stages as they evolve from emergence to maturity, usually over the course of five to 10 years. Using the GRDI, retailers can carefully evaluate these markets to identify their individual focus areas."

A full report on the 2008 GRDI is available at www.atkearney.com.          

A.T. Kearney Global Retail Development Index, 2008

About the study
A.T. Kearney’s Global Retail Development Index ranks 30 emerging countries on the urgency for retailers to enter the country. The scores are based on 25 variables across four primary categories: economic and political risk; market attractiveness; market saturation; and time pressure (difference or addition between gross domestic product and modern retail area growth).

About A.T. Kearney
A.T. Kearney is a global strategic management consulting firm known for helping clients gain lasting results through a unique combination of strategic insight and collaborative working style. The firm was established in 1926 to provide management advice concerning issues on the CEO’s agenda. Today, we serve the largest global clients in all major industries. A.T. Kearney’s offices are located in major business centers in 34 countries.