Dozens of Now shippers sometimes queue up for hours at The Alley store in Hanoi’s Trung Hoa area to buy milk tea and fill orders for their online customers, and many other milk tea and fast-food stores find themselves dealing with similar queues. So much so that such scenes are no longer unusual in either Hanoi or Ho Chi Minh City, where online food and beverage (F&B) delivery is becoming more popular than ever. 

With 67 per cent of Vietnam’s population being internet users and 57 per cent are active on social media, the country is seeing an increasingly higher number of online searches and orders, according to Mr. Doan Thai Kien, CEO of digital advertising agency Reputable Asia. 

“Retailers, upon noticing the trend, have been boosting their investment in digital marketing and e-commerce, and seeking Online-to-Offline and Offline-to-Online (O2O) solutions,” he said.

From Offline to Online

O2O has become a trend in Vietnam’s retail market as local consumer habits change and shopping behavior becomes more complex from online to offline and vice-versa, connecting a lot of devices through different channels. 

“Opportunities for online sales are often higher in B2C categories given that customers tend to look for products and services and make purchasing decisions more easily than in B2B categories,” said Mr. Tran Trong Tuyen, CEO of Sapo Technology JSC, the provider of an omni-channel sales and management platform. “The boom in the internet and smartphones in Vietnam has created favorable conditions for retailers to develop the O2O model.”

In Vietnam’s fashion retail market for more than ten years, focusing on handbags and shoes, Juno became well-known in 2015 after receiving substantial investment from the venture fund Seedcom. It immediately began to grow its presence by expanding its store chain at a handy annual rate. 

“Juno now has 81 stores nationwide and the number will reach 90 by early 2019,” Mr. Nguyen Quoc Tuan, CEO of Juno, told VET. “We now cover 30 cities and provinces, including the two major markets of Hanoi and Ho Chi Minh City, with a brand coverage of over 80 per cent.”

Along with accelerating the quantity of its physical locations, boosting online channels has also been the retailer’s investment priority. 

“Online sales reached 20 per cent of the total this year, up from 13 per cent in 2017,” he went on. 

“This is quite high compared to benchmark retail models in the local market, which only began pushing online channels to reach 4-5 per cent. Juno has doubled its online sales every year.”

He also revealed that Juno’s online operating system has received heavy investment at the same time as it expands its bricks-and-mortar chain. 

“I think the current proportion between online and offline sales for a retail model like Juno is at an optimum level and to what extent online revenue may increase in the future totally depends on customer behavior and market conditions such as logistics and digital payments,” he said.

Juno and Vascara have been the two most remarkable domestic handbag and shoe brands in Vietnam recently. Vascara now has nearly 120 stores throughout the country, nearly 80 of which it directly operates. 

“We have seen impressive growth this year, with around 30 per cent recorded in the fourth quarter compared to the third,” said Ms. Le Canh Bich Hanh, CEO of Vascara. “We launched our online channel around two years ago and we’re now investing in new technologies like AI and payment security in order to further boost online sales.”

Online sales representing 5 per cent of the total and online revenue growing 12 per cent every month are quite low compared to total revenue. “It will still drive us to continue developing in the future,” Ms. Hanh said.

“The optimum proportion between online and offline is entirely relative, as it depends on each period and what technology and tools are being used. Of course, changing our structure to increase online density is one of Vascara’s goals in the years to come.”

The success of Juno, Vascara, and The Coffee House can be seen as the result of offline and online models being perfectly matched. Under Mr. Tuan’s definition, O2O simply means customers can access the same products, price, promotions, and services whether they buy online or offline. “A good O2O model will help enterprises optimize revenue and profit and bolster the customer experience,” he said.

Local lifestyle O2O value chain

Source: Ahamove, 2018

Digital in Vietnam

Source: We Are Social, January 2018

Blurring boundaries

In practice, segments that require offline validation of products and therefore find e-commerce growth more problematic should focus on applying the O2O model, in particular F&B, fashion, personal care, and furniture, according to Mr. Kien from Reputable Asia. 

“Within a genuine O2O context, boosting sales should rely on efficiency in online marketing and e-commerce operations, and quality improvements should rely on greater consistency between online and offline services, efficiency, and customer services at physical stores,” he said.

Mr. Tuyen from Sapo said that the boundaries between online and offline are fading away, traditional retail chains are looking to expand their online channels to acquire more potential customers, and some online retailers find it necessary to open physical stores under a roadmap to grow to their potential. 

Vietnam’s retail sector has reached a new standard, and offline stores need to focus on goods displays, optimizing multi-point customer experience throughout, and enhancing their competitiveness.

Mr. Nguyen Hoanh Tien, President of The Coffee House, another prominent O2O retail model with nearly 160 stores, said it’s become difficult to differentiate between online and offline, as customers visit physical locations and then make online orders for in-store delivery. In a few years, the online and offline experience will no longer be separate and any boundaries will disappear. 

“We will launch a New Retail model in the first quarter of 2019 at several of our benchmark stores,” he revealed.

He added that there have been three retail waves The Coffee House has passed through. The first was growing from offline to online sales. In the second, it connected both online and offline channels then promoted omni-channels to create the same experience for customers all the time. 

“The third and final wave is New Retail, which means that our customers will not feel much difference between online and offline purchases by creating online interaction at a physical store,” he said. “This very new model will not only change customer behavior but also completely change the whole operations of a business.” 

After launching its app more than two years ago, The Coffee House is still focusing on technological developments like Big Data and AI. 

However, Mr. Tien believes the most important factor is technology being closely attached to the customer experience and business operations, which would contribute to creating a smooth and close supply chain in retail - technology - operations. 

“This is the foundation on which The Coffee House can expand swiftly in the future,” he said.

Market disadvantages

When retailers move online, the customer experience becomes key and consistency between online promises and offline fulfilment are essential for them to win in the market, according to Mr. Kien. 

“Vietnam is known as a price-driven market but only a few businesses can survive in the long-run amid price competition,” he said. “Balancing online and offline should rely on consumer behavior, while cost optimization is a common challenge for all retail models, not just O2O. I think two of the most pressing problems for Vietnamese retailers are to develop and maintain a consistent customer experience and increase return sales.”

One feature of this O2O trend is that stores are selling on many different online channels and using diverse management methods. For example, each channel uses different types of sales management software, which unintentionally makes the implementation, management, and supervision of efficiency on each sale or marketing channel take a lot of time, resources, and cost, according to Mr. Tuyen.

Mr. Tuan from Juno added that some emerging retail brands moving from offline to online face issues in terms of systems management and inventory control, due to insufficient investment in technology. 

This stems from a strategy and vision that results in online and offline systems being in conflict, so both must be conducted at the same time and each store should also act as a warehouse for online distribution. 

Looking to the future, Mr. Tien from The Coffee House believes Vietnam’s retail market will change in a very different manner and what all retailers must do is be fully-prepared to adapt to new challenges.

VN Economic Times