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Retail Trends and Disruptions – What Drive The Future?September 2019

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Preface: Retail in Vietnam continues to show strong growth with EC; the more important question is: “What is the future dynamic?”

1.8 2.4 3.3 4.1 5.5 8.1

70.2 78.2 85.995.6

104.9

140.7

2013 2014 2015 2016 2017 2020F

E-Commerce Modern & Traditional Retail

Previous Expectation: 8.1 bil USDLatest: 10 bil USD

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E-COMMERCE: REAL THREAT OR BOGEYMAN?

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EC Retailing Value vs. Total Retailing Value, 2015 - 2020

▪2015: EC / Internet contributed less than 3% of total retailing value in studied countries, which remains at the low contribution level, compared to other countries:▪China: ~14%▪South Korea: ~11%▪USA: ~7%▪Singapore: ~6% in Singapore

<3%7%

>VND 240,372 billions (2020)

<VND 72,112 billion (2015)

Source: Vietnam Ministry of Industry and Trade; Bain; Electronic Transactions Development Agency; Ipsos Interview and Analysis

EC: when it stops? EC GROWTH IS IMPRESSIVE, WHEN WE LOOK TO PEERS

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EC is still not for everything. Prime Example: buying fresh food online

KEY CATEGORIES TO EXAMINE IN THE STUDY

2015-2021 CAGR of Main Spending Segments

Food & beverage

11%

Clothing & Footwear

10.9%

Household Goods11.32%

Personal care & effects10.29%

Electric Appliance products

Products that Vietnam E-Commerce players focusing on

High competition market –focusing sectors

Low competition but operation challenging market

Source: Speeda, IBC analysis

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EC major players still have opportunityCHARACTERISTICS OF VIETNAM’S EC MARKET

KEY CHARACTERISTICS OF VIETNAM’S EC MARKET

Source:Various Industrynews, Ipsos Business Consultinganalysis

• Highly fragmented with over 50,000 E-commerce sites in 2016, withkey players such as Lazada, The Gioi Di Dong, Shopee, Sendo, etc.

• Popular platform: EC and social media, especially Facebook, where 66% of consumers buy their products.

• Delivery system: Fairly well-developed in two big cities of Hanoi and Ho Chi Minh City. However, delivery to other places requires long lead time, due to being under-developed.

• Payment: Multiple payment methods are available. However, Vietnamese consumers prefer COD (97%)

• Government: fully committed to supporting EC. The government is also looking for more effective tax regulations on transactions via social media

Where VN consumers buy products, 2016

66%

34%

Facebook Other EC sites

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LAZADA VAT GIA INDEPENDENT GARAGE

AUTHORIZED DEALER

Price VND 1,705,000 VND1,710,000

VND 1,930,000 VND 1,627,500

Warranty 7 Years ofWarranty OR30% tread, whichever comes first. (Lazada)

Nowarranty

30% tread, regardless oftime or distance travelled.

7 Years of warranty.

Service Free Installation (Lazada)

No service Free Installation

InstallationFee: VND 125,000

BRIDGESTONE TYRE 195/65R15

Lazada is the only EC that offers additional service such as installation

Source: Ipsos Business Consulting research

How EC fall short of automotive aftermarketCASE STUDY: AFTER MARKET PART AT EC

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Three questions for EC:

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THE EVOLVING CONSUMER TRUST: A KEY PILLAR OF THE TIME AHEAD

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NOT FUN FOODBORNE ILLNESSES FACTS

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▪ Vietnamese’s moms prefer to hand pick theingredients :

✓ Prefer to buy daily meat and seafood✓ Prefer to cook minimum amount each

time to preserve real taste, natural &flavorful aroma, and freshness

▪ “Naturalness in Food” = Cleanliness and freshness▪ Color, smell and feel all contribute to the consumers’

perception of the term “naturalness”

Fresh, green and crisp

Firm and juicy

Succulent, juicy and no blood leaking

Fresh, prefer live fish and seafood

Source: Ipsos UU

Succulent, juicy and no blood leaking

Fresh, prefer live fish and seafood

HUNGER FOR #NATURALNESS

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The PAST

The FUTURE

CLEAR LABELED FOOD –information about farming practice

CERTIFIED FOODS –✓GlobalGAP ✓Organic – USDA, JAS, Naturland

Invisible EVIDENCE?

Blood leaking meatCrispy and green vegetablesGoing to wet markets daily to purchase food

“TRUSTED CHANNEL” beside

“TRUSTED PRODUCT”

USER-GENERATED CONTENT PLATFORM – review and sharing information about SAFE PLACES to buy food

The NOW

HOW LONG CHANNEL CAN PLAY?THE NEVER ENDING CONSUMER QUEST TO LOOK FOR FOOD “EVIDENCE”…

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1.91%2.31%

2.92% 3.22%

4.32% 4.37%4.80%

2013 2014 2015 2016 2017 2018f 2019f

BRANDED PORK as a % in Total Vietnam Pork Consumption, 2013 – 2019f

WHAT ELSE?

“THỊT HEO SẠCH, AN TOÀN”

“THỊT HEO SẠCH VIETGAP”

“THỊT HEO THẢO MỘC”

“THỊT HEO THẢO DƯỢC”

“THỊT HEO THẢO DƯỠNG”

“THỊT SẠCH, AN TOÀN, TRUY XUẤT ĐƯỢC NGUỒN GỐC”

+60 Messages in Vietnam

PRIME EXAMPLE: BRANDED PORK AS A PROMISING INVESTMENT

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WHAT ELSE?THE FUTURE OF RETAIL

Customer experience is

everything

The changing face of retail

The everywhere

store

Operations drive

excellence

Next-gen technology

Living in the age of

uncertainty

THE FUTURE

OF RETAIL

Source: Microsoft Dynamics 365

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A NEW CONCEPT: SMARTER RETAIL

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The time to comeSMARTER RETAIL

SMARTER RETAIL promises customers a more seamless consumer path to

purchase to make the customer journey faster, safer, easierand better.

Digital MarketingE-Commerce

First phase – Online Sales & Marketing

Logistics In-StoreProduct

Development

Second phase – Also Encompasses Value Chain Digitization

Sourcing & production

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Case study: Hong KongSMARTER RETAIL, THE PRESENT CONTINUOUS

• First phase – online sales & marketing continuing to evolve

Online SMARTER RETAIL encompasses Purchase / payment New payment methods – HK Monetary Authority granting of 16 e-wallet licenses and

launch of Faster Payment System (FPS) in September 2018, enables online and offline

merchants to seamlessly accept HKD and CNY paymentsProduct information, product manuals Increasing information availability Digital receipts, warranties Relevant to aftersales App as primary portal for customer engagement Company / brand specific app to enable customer centric approach Product reviews Found across different platforms Offline to online promotion Physically providing in-store customers with promotion codes for online purchases –

promotion code is handed out by in-store staff which is receives a commission if the

customer actually uses the promotion code Social media as part of omni-channel strategy Communication channel – increase in content / videos

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Case study: Hong Kong adopts smarter retailSMARTER RETAIL, WHAT LIES AHEAD

• Second phase – In-store

In-store SMARTER RETAIL encompasses

• Technology

enhancing the

customer

interaction /

browsing /

product variety /

information

experience

(virtual displays)

• Digital merchandise displays to

communicate promotions

• Electronic price tag systems

• Smart pricing systems – linked with

inventory management system which

reduces operational risk

• In-store augmented reality / virtual

reality - body scanning for virtually

trying clothing and outfits

• Augmented virtual reality app that

lets people see how furniture will fit

in their home

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Case study: Hong Kong adopts smarter retailSMARTER RETAIL, WHAT LIES AHEAD

• Second phase – In-store

In-store SMARTER RETAIL encompasses• Technology

enhancing the

payment

experience

• Self-check-out (with barcode

reader, or AI product recognition)

• New payment methods – HK

Monetary Authority granting of

16 e-wallet licenses and launch of

Faster Payment System (FPS) in

September 2018, enables online

and offline merchants to

seamlessly accept HKD and CNY

payments

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Case study: Hong Kong fights counterfeits with block chain

SMARTER RETAIL, TECHNOLOGY ENABLES OPTIONS

• Second phase – Product Development

Sourcing and Production SMARTER RETAIL encompasses • Adoption of blockchain technology • Will enable both brands and customers to track the production and

lifecycle of the product, for example apparel from fabric to store and

beyond (sustainable and responsible business practices)

• Blockchain is important for helping stop counterfeiting

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Case study: Amazon driving “counterfeits to zero” with machine learning expertise and automated protections

SMARTER RETAIL, DIGITAL CAPABILITIES ENHANCES OPERATIONAL EXCELLENCE

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