Japan's Sojitz buys Vietnam food wholesaler amid modernization push

Sojitz intends to convert Dai Tan Viet into a wholly owned subsidiary by acquiring all shares from the founding family.

Though Vietnam's food logistics network is not fully developed, the country is a large Southeast Asian market where business opportunities are expected to expand with the growth of the economy.

Against that backdrop, Vietnam is attracting international businesses looking to wield their technology and expertise to develop the nation's food distribution market.

Dai Tan Viet made $320 million in revenue last year. The company sells 2,000 food products to 6,000 mid-price to high-end hotels and restaurants.

Not only is Dai Tan Viet strong in importing food, the company also owns food processing facilities. Sojitz foresees synergy with the customer base and the products overseen by an existing consumer goods wholesale business in Vietnam owned by the Japanese trader.

Sojitz has partnered with Vinamilk, Vietnam's largest dairy producer, to build a Japanese-style cattle ranch and beef processing complex, with a total investment of up to $500 million. Sojitz also helped open Ministop convenience stores in Vietnam.

Through these activities, Sojitz has made inroads in Vietnam's upstream and downstream food distribution industry.

"The goal is to break even in the Vietnamese business in the fiscal year ending March 2024," said Makoto Shibuya, chief financial officer at Sojitz.

Many foreign businesses are entering Vietnam's food distribution sector. Japanese trading house Marubeni acquired a stake in AIG Asia Ingredients, a leading supplier of food ingredients in Vietnam.

AIG is said to sell over 1,500 food products to more than 1,200 business clients. Marubeni is also a shareholder in Acecook Vietnam, the subsidiary under Japanese instant noodle maker Acecook.

French market management company Semmaris is spending about $300 million to develop an agricultural wholesale market in the Gia Lam District outside of the capital, Hanoi. It will cover 1 million square meters.

The market will be divided into five sections, each serving a type of product such as vegetables, meat or seafood. It will differentiate itself from other wholesale markets by providing refrigeration facilities and other modern equipment.

The development of a cold chain to keep perishable food fresh is also taking off. Vietnam's Tan Bao An Logistics has teamed with Japanese frozen food seller Nichirei to build a cold warehouse in Long An, a province near Ho Chi Minh City, by March 2025. Japan's Yokorei is building a cold warehouse in the same province.

"Vietnam is a major market in Asia," Marubeni President and CEO Masumi Kakinoki said Nov. 13 when meeting with Vietnamese Prime Minister Pham Minh Chinh.

Vietnam's population is estimated to surpass 100 million this year, putting the country in third place in Southeast Asia. Per-capita gross domestic product rose above $4,000 last year.

As a middle-income nation, Vietnam is at a place where consumer spending generally climbs at an accelerated pace. In 2022, the retail market totaled 4.2 quadrillion dong ($174 billion at current rates), growing by more than 10% annually over the past decade.

But compared with the fast-growing economy, the modernization of the food distribution network has lagged. Modern trade, a term used for more structured businesses with temperature control and sanitation management, is believed to make up only about 10% of the market.

Northern and central Vietnam are especially slow to catch up. In Hanoi, shopping at traditional markets remains the norm. Alleys are lined with vendors selling meat and fish from open-air stalls.

In advanced nations like Japan and South Korea, modern trade accounts for 80%-90% of the market. Modern trade has achieved penetration of roughly 50% in Thailand and 30% in Indonesia, surveys show.

Modernized food distribution networks will create more room for retail chains to grow. Vietnam is expected to lift some restrictions on store openings next year that had hindered expansion by foreign chains, potentially providing a policy tailwind for modern trade.

Hong Kong-based Golden Resources Development International, which operates Circle K convenience stores in Vietnam, plans to expand its network by about 20% to 500 locations by the end of next year. The GS25 chain run by South Korea's GS Retail is gaining ground fast with over 200 stores. Ministop, which had 138 Vietnamese stores at the end of fiscal 2022, aims to reach 500 in fiscal 2025.

In the supermarket sector, Vietnamese developer BRG Group is partnering with Japanese trading house Sumitomo Corp. on a push by FujiMart stores into Hanoi. Aeon, Japan's largest retailer, has positioned Vietnam as its most important overseas market, and plans to open central Vietnam's first Aeon Mall in Thua Thien Hue province as early as next year.

A challenge will be figuring out how to draw shoppers away from traditional markets, where locals enjoy having the opportunity to chat with vendors and ride motorbikes through as they shop.

With fewer refrigeration and shipping expenses to worry about, traditional markets are tough to compete with on price.

"Vietnamese consumers are price-sensitive," said Keisuke Hitotsumatsu, FujiMart Vietnam's general director.

Digital capabilities will be important as well, after e-commerce took off in Vietnam during the coronavirus pandemic. Online purchases of fresh food could expand, which would make efficient distribution systems and physical-digital integration key for retailers.

Source: Nikkei Asia