How SaaS can Accelerate New Retail in Vietnam
Growing up in suburban United States, I spent much time in shopping centers and strip malls. One retail block after the other, the names of established brands shown large and apparent. Some of these brands proliferated technology to engage their customers through digital channels. Others did not adapt or did so slowly, and they endured stiff consequences.
In Vietnam, SME’s are king and they dominate the offline consumer market, from F&B to retail to services. The neighborhood hẻm (alleyway) is how many urbanites get a quick bite, basic haircut, and pair of pants.
While I adore the hẻm economy (local businesses serving local communities), I believe consumer tastes will evolve rapidly and reward those that decided to innovate early.
What is New Retail
First, it’s important to understand what is new retail. Coined by Jack Ma in 2016, it’s the blending of online and offline shopping experiences, backed by efficient supply chain and logistic networks. Successful execution of the model greatly enhances customer engagement and merchant operations through data collection, integrated services, and payments.
The model is championed by e-commerce giants like Alibaba and Amazon. They acquired most of their users through online platforms before expanding into physical locations. Because the platforms could deliver almost any product, these offline stores focused more on the experience of shopping rather than the process of buying.
Going from online to offline versus offline to online is nuanced yet fundamentally different. I believe Vietnam and other developing countries have the chance to leapfrog here. As a large majority of shopping still happens offline, aspiring brands can build with a mindset that will make their transition to online seamless. Leveraging software, they can establish the foundation to do omni-channel sales, rewards, and digital payments. So when their customers inevitably move online, they will be ready.
The Catalyst for Change
Rising incomes: Before COVID, Vietnam was among the few countries that were projected to sustain at least a 7% GDP growth over the next decade. The projection would indicate a $10k per-capita GDP by 2030 - cementing the middle income country status. During COVID, Vietnam has been fortunate enough to grow GDP slightly because of effective containment and shifting supply chains. Post COVID growth circle 8%, though cautious optimism should be exercised. The result of the growth is the expansion of the middle class - estimated to double to 26% by 2026, from the current 13%.
Why it matters: Higher incomes means more spending power, and more spending power means more refined tastes. That comes in many shapes and sizes. For a developing country like Vietnam, that could mean a convergence of diverse product selection, dependable quality, and variable price points.
Expanding infrastructure: It’s tough to go anywhere in HCMC without seeing roads, overpasses, bridges, and buildings being constructed. Thu Duc City (eastern HCMC) will be its own semi-autonomous administrative region and Thu Thiem will be a central business district of the city within a city. Thu Thiem will be connected to central HCMC districts through series of bridges: the first one built and second one under construction. Though the city is getting larger, the introduction of the metro, larger roads, and affordable ride hailing will simultaneously make it more accessible.
Why it matters: For essential products, convenience is a key factor in determining your quality of life. If you had to walk more than 10 minutes to find drinkable water, you may not live in the best spot. To a lesser degree, it’s also true for commoditized products. Most prefer not to go out of their way for daily groceries. Discretionary products is where it gets interesting. If customers love what you have to offer, they will seek you. Modern urban infrastructure facilitates strong businesses serving customers beyond their neighborhood.
Technological coming-of-age: The digital economy in Vietnam is expanding rapidly as internet-savvy millennials become a larger portion of the workforce. Most promising is the growth in digital payments. From 2018 to 2019, the transaction value grew 210% to $240B with a majority coming from mobile banking. COVID has also been a factor in the growing adoption of tech and tech-enabled services. A majority of new users in online services like food delivery and e-commerce reported they would continue after the pandemic.
Why it matters: Although Vietnam e-commerce market size is growing rapidly, it remains only 3-4% of the retail market. That is a massive opportunity for offline stores to front run competitors by offering online experiences to their customers. This will build brand equity as the business scales and enable a dual lane of attack.
SaaS is the Battery for the New Retail EV
How can SME’s and aspiring brands use tech to supercharge their customer experience? Similarly how can tech start-ups service the demand for digital transformation?
Quite simply, it’s SaaS (software-as-a-service)
Specifically, it’s vertically-integrated SaaS that connects ecosystem stakeholders while addressing the major pain points of each. I will explore major SaaS solutions as it relates to new retail in Vietnam.
Omni-channel Selling
Selling online should mean having the ability to sell anywhere online. These channels include e-commerce platforms, social media, or your own website.
Haravan assists merchants with building an interactive website, connecting to multiple sales channels, and integrating with logistic networks.
Marketing
Each vertical sales channel has separate marketing strategies. For social media, brands can engage with KOL’s through platforms like Ecomobi and MeTub. For e-commerce, enablers like OnPoint and Epsilo help merchants manage their in-platform advertising.
Point-of-Sales (POS)
POS is essential because it is the touch point where transaction data is collected and therefore feeds into many other SaaS products. The most obvious one is payments. POS software should integrate with many payment gateways, e-wallets, and banking solutions.
On top of that, POS SaaS can also include modules like CRM, business intelligence, customer bookings, and inventory management. POS SaaS can tailor its functionality to the most ubiquitous needs of a vertical industry, replace existing systems for that vertical, and create a high barrier to exit once scale has been reached. Companies like bePOS target nail shops and Squire Technologies target barbershops.
Procurement
Vertical B2B marketplaces (FMCG, produce, clothing, cosmetics, pharmaceuticals) is an emerging trend in Vietnam. Merchants need access to good pricing, quality, and selection. However, I would argue the greatest value the platforms can provide is the SaaS to their stakeholders. For example, an ERP/WMS that detects and orders when inventory is low. Or perhaps RPA’s that generate compliant e-invoices.
Financing
Payment cycles are almost always distorted and usually never favor the SME’s because of their small bargaining power. This is why many growing brands face working capital and free cash flow issues. Ideally, merchants would be able to use an API embedded into their B2B marketplace or POS SaaS that would allow them to access lending networks.
Rewards and Loyalty
The goal of any business is to lower their CAC. The cheaper they can acquire customers, the better it is for their profitability. Engaging your customers with rewards for their loyalty is a great way to collect data and build habit-forming behaviors, which lowers CAC over time. Many merchants do not have the scale so they join centralized ecosystem of merchants. However, this limits their access to data.
I believe aspiring retail brands should seek to do their own loyalty programs. Companies like CNV Loyalty help with the development of the loyalty product. In the long run, as the business is growing, it enables merchants to test new products and reacquire customers at a fraction of the cost.
Conclusion
While still in the early stages of digital adoption, I am optimistic about Vietnam’s retail and tech ecosystem converging. I am equally impressed by the sheer number of boutique fashion brands and unique F&B concepts as I am with the introduction of SaaS solutions that will service these businesses. Nothing excites me more than seeing which of these businesses will use what tech to win the domestic market and become an international brand.
Sources/additional readings: Link 1 | Link 2 | Link 3 | Link 4