A research proposal submitted in partial fulfillment of the requirements for the degree of Master of Business Administration

The objective of the study is to investigate the customer shopping behavior at supermarkets in Hanoi city, then to find out the gaps between what is currently available and what shoppers want and are expecting.

ASSESSMENT THE LONG-TERM VIABILITY OF SUPERMARKETS: A CUSTOMER SURVEY IN HANOI

by

Ms.Luc Thi Thu Huong

A research proposal submitted in partial fulfillment of the requirements for the degree of Master of Business Administration

Examination Committee: Dr Mark Speece (chairman) Dr Do Ba Khang

Dr Bechter Clemens

Luc Thi Thu Huong

Nationality: Vietnam

Previous degree: Bachelor of economics

Donhesk University of Soviet Trade, Ukraine, former Soviet Union

Scholarship:Swiss government

Acknowledgement

I am most grateful to Dr Mark Speece, my Research Advisor and Chairman of Research Committee, for his restless guidance, invaluable suggestion, encouragement throughout the course of my research study His profound knowledge and boundless enthusiasm were a great inspiration for me to complete the study

I would like to express my gratitude to Dr Do Ba Khang and Dr Clemens Bechter for their valuable contribution in serving as committee members, as well as for their constructive comments and helpful instructions on the research study

I would like to take this opportunity to express my deep appreciation to the Swiss-AIT-Vietnam Management Development Program for providing me with a scholarship to pursue my MBA at AIT.

Thanks are also extended to many supermarkets managers and staff, as well as Hanoi Commercial University for helping me in data collection

I remain indebted to my family, who have not only provided continuous moral support but also invaluable assistance during my study period in HCM city and in Bangkok.

Last but not least, I would like to thank all the faculty and friends at SOM and AIT for their help and boundless inspiration.

Abstract

The objective of the study is to investigate the customer shopping behavior at supermarkets in Hanoi city, then to find out the gaps between what is currently available and what shoppers want and are expecting

A personal interview survey was conducted around the stores in the city The pattern found is that the target customers are quite sophisticated, they are value-oriented, they are young working people with above-average income The top three important store choice criteria are merchandise quality, price level and product variety The customers quite satisfy with product quality in supermarkets, but the stores fail to fulfill what shoppers consider the second and the third important There is a big difference in behavior between the two groups: non-users and heavy-users The latter hold much more favorable assessment on the stores and they seemed to prefer convenience, better atmosphere and services against higher prices

The market is potential with the growing affluence among urban population, but there is also a strong need for the supermarkets to adjust and upgrade themselves to get higher patronage among their customers Some measurements suggested for improvement are expansions of product varieties and services, awareness promotion focus, increase in store size and modernization of facilities

1.4 Scope and limitations 1.5 Organization of the study 1.6 Research frame work

II.Literature Review

2.1 Background and definitions of the supermarket 2.2 Supermarket in Asian developing countries 2.3 Vietnam retailing environment

2.3.1 Economic overview and consumer purchasing power2.3.2 Retail options

2.4 Consumer store choice behavior and retailer strategy 2.5 The store choice decision process

VI.Discussions and analysis

4.1 From customer survey

4.1.1 Shopping frequency in general and at supermarkets4.1.2 Store choice criteria

4.1.3 Supermarkets evaluation4.1.4 Spending at supermarkets4.1.5 Things bought at supermarkets

4.1.6 Prior intention of going supermarkets 4.1.7 Purposes of going supermarkets

4.1.8 Perception toward supermarkets

4.1.9 Attitude towards supermarkets

4.1.10 Demographic profile of non-users and heavy- users

4.1.11 Summary

4.2 From the supermarket side

V.Conclusions and recommendations

D Raw output of SPSS for the whole sample 55 E Raw output of SPSS for non-users 90 F Raw output of SPSS for heavy-users 106

4.2 Importance ranking of store choice criteria 24 4.3 Comparison in importance ranking of store choice criteria 25 4.4 Customers’ evaluations on supermarket performance 27 4.5 Comparison in supermarkets’ performance 28

4.8 Prior intention of going supermarkets 31 4.9 Comparison in prior intention of going supermarkets 31

4.11 Supermarkets concept among shoppers 33

4.15 Comparison in attitudes towards statements 36

List of figures

4.1 Differences in store choice criteria 26 4.2 Comparison between what’s important and what’s evaluated

4.3 Differences in evaluation of supermarket performance 28 4.4 Differences in spending at supermarkets 29

4.5 Differences in things bought at supermarkets 30 4.6 Differences in purposes of going supermarkets 32

Chapter 1Introduction 1.1 Rationale of the study

After 20 years of isolation, Vietnam is vigorously embracing its economic freedom and prosperity and is taking a headlong leap into the next century With a young population of 76 million, a rapid growth rate and an apparently stable government, Vietnam has vast potential in the retail industry Yet there are still a lot of difficulties in logistics and supply and there is no international group operating shopping centers in Vietnam To serve the affluent middle-class Vietnamese and expatriates living in major cities, since 1993, local retailers have opened dozens western-style stores, which they call “supermarkets”

It should be noted that, in general, a so-called supermarket in Vietnam is not as large or as modern as international retailing standards It has the scale of convenience store or somewhat bigger Its merchandise includes various imported product categories, but each category has limited brands The prices are fixed and higher than traditional stores and wet markets Based on the descriptions above, it can be classified as a “mini supermarket” The new kind of store offers self-service, high quality goods, well-designed interiors and shopping comforts, such as air conditioning, refrigerated storage and electronic check-outs Nevertheless the patronage level is still very low

Meanwhile in neighboring countries, modern retailing is rapidly taking market share from the domain of “mom and pop” stores, street stalls and wet markets The modern retailing concepts are increasingly crossing national boundaries The 7-eleven convenience stores are now in Thailand, Malaysia, Singapore, Hong Kong, Mainland China, South Korea, the Philippines; Macro is in Thailand and Taiwan, Carrefour from France is in Taiwan; and Wellcome is in Taiwan, Hong Kong, Mainland China and Singapore Major Japanese department stores are in most Asian cities According to Dairy Farm, in Hong Kong in 1980, 32% of housewives visited a supermarket at least once a week In 1992, that figure had risen to 75% and now is holding at this level In Taiwan, Wellcome statistics indicate that in 1991, 26% of Taipei residents visited supermarket once a week, in 1992, it has increased to 32% - the same as the position in Hong Kong in 1980 The figure is expected to rise to 75% by the end of the nineties, less than half the time it took in Hong Kong In the Philippines, despite the low income per capita, department store and other modern retailing outlets are mushrooming all over the country’s main cities at an unprecedented growth rate And in Indonesia, the changing spending patterns within the Jakarta area are contributing to an increase in the use of department stores and supermarkets

The problem of slow sales in Vietnamese supermarkets is a big challenge for their further development Studies on how to win increased patronage and how to satisfy customers receive the greatest attention from the researchers in retailing industry in other countries, but specific knowledge on Vietnam’s situation is scarce Without such an understanding of customers’ shopping behavior, it is difficult for this kind of store to evaluate its business and grow further

1.2 Problem Statement

This research study will try to assess long-term viability of supermarkets in Vietnam and give some ideas for performance’s improvement

1.3 Research objectives

 to identify demographic and psychographic profile of shoppers and non-shoppers of this kind of store in Vietnamese emerging middle class.

 to determine how they choose shopping place: their shopping behavior, store choice criteria and expectations from such a store

 to find out the likely ways to shift their behavior toward the store’s position

 based on the findings, recommendations will be suggested for improvements of the store’s offer (merchandise, prices, range, image) to gain more business

1.4 Scope of the study

First of all, this study is only conducted in Hanoi, the country’s capital Due to its role and contributions into the national economy, Hanoi is considered as one of major business hubs in Vietnam But the supermarket industry is still in its embryonic stage of development, and there are only local players in the market In the near future, international group will come in and the market picture will be change dramatically, and the paterns identified by this study may evolve by then

Secondly, the supermarket shoppers are among the middle and upper-middle income families in the city, who might not be representative for Vietnamese middle class in other areas, and difenitely not valid for average Vietnamese shoppers in general However, they can represent a segment of sophisticated customers with increasing demand for more modern and more convenient retailing outlets, and they likely may show the way of behavior which can serve as a guide for other customers in the Vietnamese market.

1.5 Organization of the study

Chapter I provides an introduction including the rationale of the study, indentification of the problem, objectives, scope and limitations of the study.

Chapter 3 deals with the methodology of the study It will present the information needs, target population, sampling procedure, as well as the sample charactericstics of the study

Chapter 4 contains discussion and analysis of findings from a customer survey in Hanoi and the result of indepth interviews of supermarket manegers and their staff in another side.

Chapter 5 draws out the conclusions and recommendation for future improvements of supermarkets in Hanoi.

1.4 Research frame work

The analysis will be two-dimensional First, it will focus on shoppers’ points of views The shopping behavior of the Vietnamese emerging middle class will be found out as well as their shopping experiences with the supermarkets Along with the actual evaluations of the stores’ performance, the research tries to uncover the shoppers’ expectations of this kind of store In addition, the demographic profile of the store’ users and non-users (but potential ones) will be also describes in terms of purchasing power, occupations and family life cycle The shoppers’ dimension leads to defining the gaps between what are currently available and what shoppers are expecting for.

Emerging middle class shoppers

• General shopping behavior

• Supermarkets shopping experiences• Expectations of the stores

• Demographic profile

Gap betweenwhat are currently

available & what shoppers are

Supermarkets’ owners

• Segmentation strategy

• Policies on merchandises, price, promotion & store image

• Problems of slow sales

Opportunities to increasepatronage levelEmerging middle class shoppers

Figure 1.1 Analytical frame work

Second, in-depth discussions with supermarkets’ owners and their staff on issues such as segmentation strategies and their marketing-mix to examine the problem of slow sales and the ways to improve the situation

These two dimensions end up with the opportunities to increase patronage level for supermarkets in Hanoi Figure 1.1 shows the flow of the two dimensions (These issues will be discussed in more details in literature review).

Chapter 2

Literature Review

2.1 Background and definitions of the supermarket

The supermarket is native to the US and was one of the most interesting marketing innovations that has changed the retailing environment of developed countries Exactly when and where in the US it was born has been debated for many years Most authorities cite December 8, 1932 as the birth date of the supermarket On that day, a new store called the Big Bear was opened in New Jersey This store, along with other early supermarkets, was a child of the Great Depression Economic conditions were such that the price was all-important, and every penny counted The supermarket was generally accepted as the food retailer until the years 1970s By the end of the decade, the changing lifestyle of the customers focused on convenience had led some operators to a “one-stop-shopping-for-household-goods” supermarket The emphasis on one-stop shopping and the adding of new departments and sections has continued up till now (Peak, 1977)

Today, a supermarket’s upgraded and upscale operations include such non-food lines as prescription drugs, small appliances, auto accessories, books, magazines, clothing, flowers , and houseware Recently many supermarkets have added numerous services, including dry cleaning, postal, banking, tailoring , medical, dental, insurance, and legal services

Supermarkets tend to be low-margin operations that depend on very high stock turnover rates to sustain profits Operation out of clean, modern facilities, the supermarket is basically a self-service operation supported by such services as parking, check cashing, fast checkout, and bagging Cash and carry is the preferred method of doing business (Lewison, 1994).

No one definition of a supermarket exists because of the wide range of business formula used in this industry There are 3 criteria used to define a supermarket: the minimum size requirements, the characteristics and extent of self-service, and the stock requirements In the US, a supermarket was first defined by the Supermarket Institute as a self-service departmentalized food store having a minimum sales volume of $ 250,000 per year In 1954, the minimum sales volume was revised to $ 500,000 (Charvat, 1961; Mccleland, 1963) Prior to 1981, supermarket included food stores with annual sales of at least $ 1 million Now, the minimum annual sales requirement is $ 2 million (Lewinson, 1994) In the UK, a supermarket is defined as a self-service food store with centralized check-outs and a sales area of over

2.2 Supermarket in Asian developing countries

In contrast with supermarket use in developed countries which is characterized by a large-volume, multi-line store that serves mass market at competitive prices, the modern supermarket in developing countries tends to cater the middle and upper class customers (Goldman, 1982; Khafifa Othman, 1990; AR, Nov 1992) They do not represent the common channel for food distribution They tend to be scarce, smaller in size, and more expensive than traditional outlets

However, the growing affluence of Asia is presenting international retailers with tremendous opportunities for investment and expansions But the cost of entry is high and investors can not expect an immediate payback, the prizes are also large if investors get it right (AR, Nov 1992)

The retail environments of the Asia can be classified into 4 categories:

 Mature - Japan (as we discuss here only developing countries, we won’t go for more details about Japan retailing industry)

 Sophisticated - Hong Kong and Singapore

 Transitional - Taiwan, South Korea, Thailand and Malaysia  Traditional - Indonesia, the Philippines, and China

Hong Kong’s population of 6.4 million enjoys one of the highest per capita incomes

in Asia (US$ 23,200, Asiaweek, Feb., 1997) and a standard of living to march The country is characterized by high investment, high concentration of sophisticated retailers, central warehousing and plenty of competition By 1990 there were well over 800 supermarkets, and the major chains were still growing rapidly (Kawahara and Speece, 1994) The number-one supermarket chain is Wellcome, which accounts for 40% of the grocery market and 18% of food sales Following it is Park ‘N Shop, which has traditionally been in ruthless and keen price competition with Wellcome (AR, April 1993) Besides, Japanese supermarkets are a very important element of food retailing in the territory They are Yaohan, Jusco, Seiyu and Uny, which are catering the broad market among middle to upper middle local Chinese Other Japanese supermarket are more like specialty niche marketers (Daimaru, Sogo, Tokyu) which maintain their Japanese identities strongly and serve relatively upscale customers Finally, one Japanese supermarket, Seibu, has positioned itself as the top quality supplier for the upper end of the market and tries to present an international image (Kawahara and Speece, 1994).

Singapore is the easiest place in Asia for international retailers to enter the market.

A number of very big name retailers are gearing up to provide the island’s 3.1 million inhabitants with per capita incomes of US$ 26,400 and 5 million tourists with retail facilities for a population twice the size The 1990s is shakeout time in the Singapore retail sector Dramatic developments along the Orchard Road shopping belt and further afield are due to collide with high rentals, a labour shortage and a distinct lack of competitiveness Meanwhile, Singaporeans’ shopping patterns are changing Nowadays, many are not so concerned about prices They want convenience and a wide variety of goods They want shopping to be lively and fun (AR, Mar 1993).

In the supermarket business, there are 11 players competing at all market segments: Cold Storage, Daimaru, Jasons, Kimisawa, Smart Supermarkets, Sogo, and St Michael Foods are in the medium and high end targets While NTUC FairPrice, Oriental Emporium, Prime Supermarkets and Yaohan are located in low and medium broad markets In general,

the market is dominated by the “political” NTUC FairPrice chain and a large presence of Japanese players (AR, Mar 1992.).

In Taiwan supermarkets are getting more popular than ever Business is booming for

the one-stop shopping that supermarkets offer and the 24-hour service provided by convenience stores Changes in Taiwan society are influencing the retail sector The Taiwan consumer has experienced spectacular rises in income in the last few decades The population of 21,7 million people with a GNP per capita of US$ 12,300 leads to retail business expanding at 10% yearly.(AR, June 1992).

Like most places in Asia , retailing used to be the domain of mom and pop stores and streets stalls In 1987, when foreign investment was first allowed in retailing, there is considerable investment from the Japanese, the French (Carrefour), Hong Kong (Wellcome) and Europe (Markro) Today, supermarkets and fast food outlets are so common they have become part of the lifestyle in the main cities Statistics figures of May 1993 showed the number of supermarkets at 450 stores with size more than 330 sq.m The largest supermarket chain on the island is Wellcome from Hong Kong, which has 58 outlets and offers a vast product range, better service, lower prices and aesthetic appeal to Taiwan consumers Following it are Produce Co., Park ‘N Shop, Kasumi , Marsuse, Inageya, Great Wholesalers, President and Summit (AR, June 1993).

South Korea has 45 million people, who have a US$ 10,076 GNP per capita As

disposable income increases and consumption patterns change, the retail business will get more diversified, more specialized and larger Foreign investment was not allowed until recently and even now foreign investment is limited to 28 stores not exceeding 800 sq m Existing retailers are sophisticated , aggressive and big In general retailing, foreign business will participate in an indirect way, through licensing or joint venture Therefore the retail market is expected to grow under the lead of local companies (AR, Jan 1992)

Thailand has 61.5 million people with a GNP of US$ 2,680 per capita (AR, Nov.

1992) The traditional retail market is strong all over the country while in Bangkok there has been an explosion of modern stores Forty percent of processed foods in the city are sold through supermarkets The Thais have always been open about encouraging foreign investment as long as it does not exceed 49% The largest grocery chain is Foodland, which has seven stores after 18 years in business Following it, Central Supermarket Co (CSC) aligned with Carrefour from France and the Charoen Pokphand (CP) with Markro from Holland are together dominating the marketplace (AR, June 1996) Both groups have plans to expand rapidly by building stand-alone supermarkets, and both have developed their own concept for big discount stores - Central with Big C SuperCentre, and the CP group with Lotus Further in mid 1996, Dutch-based supermarket operator Royal Ahold has signed an agreement with Thailand’ Central Group to jointly develop the supermarket business in the country (AR, Sep.1996).

Malaysia has 20.6 million population and a per capita GNP of US$ 3900 Eighty

percent of business is still done through small family stores The large sophisticated chains are present and doing well However, supermarkets have to stock a wide variety of goods to meet the needs of a multi-racial, multi-religious society, yet at the same time they have to maintain competitive prices Cold Storage supermarket is the oldest chain in the country Opened in early 1970s, it served a then relatively large expatriate market as well as affluent and curious Malaysians Supermarkets are by now attracting a much wider clientele.(AR, Nov 1992; AR, Mar 1993).

Indonesia is often called a land of contrasts - and the description is certainly fitting

for the retailing industry where thousands of hawkers and pasars (general markets) compete with modern supermarkets and department stores The 197.6 million population has a GNP per capita income of US$ 940 More than 40% of the urban population lives in Jakarta where most money is concentrated Traditional stores still play a major role and there is a high dependence on wholesalers and distributors, who are very strong (AR, Nov 1992)

Despite a lack of structure in the retail business there is a slowly emerging supermarket and self-service network It accounts for about 10% of all packaged goods sales Indonesia has 250 supermarkets of which 150 are in Jakarta The leading group is Hero, a 20-year-old publicly listed company with 42 outlets, which is positioned itself to cater to the expanding needs of the upper middle and high income groups It is followed by Matahari, a combination department store and grocery operation of 39 outlets, and Golden Truly which has five outlets (AR, Feb./Mar 1993).

Officially, outsiders are banned from direct ownership, but big names signs such as Sogo, Yaohan (Japan), Markro (Holland) are appearing all over Jakarta as local entrepreneurs get together with overseas interests in joint ventures August 1996, the world’s largest retailer, Wal-Mart from the US has opened the largest shopping and entertainment center , 30 km west of Jakarta, which carries a large assortment of 30% food, 25% apparel and 45% hard-line products (AR, Sep 1996)

The Philippines has population 69.3 million and a GNP per capita of US$ 1130, but

there is a big disparity between the rich and the poor In the entire country, 10 million people account for 60% of the business The retail industry is dominated by Filipino-Chinese There are 100,000 sari-sari stores and a tremendous dependence on distributors and wholesalers While the more middle and up-market supermarkets and department stores enjoy a large share of Malina’s retailing activity, the wet market complexes take on their share of the so-called “underground” economy (AR, Nov 1992).

The key players in supermarket business are local companies Shoemart (SM) was pioneered in the concept of the one-stop shopping complex in the mid 1970 Now the company has 3 “mega-mall” in big cities, each spans one to two sq hectares, and is equipped with the latest facilities for the modern shopper Its competitor, the Ayala group, owners of the Makati Commercial center in Manila, is also rushing the nine-hectare Ayala Center in the Cebu Business Park (AR, Feb 1994)

In the Philippines, the wholly-owned foreign retailer is , in principle, non-existent The government promotes foreign investment, but laws mandate that retailers should be Filipino nationals Corporations are not allowed to have more than 40% foreign ownership (AR, sep 1992)

China has a 1,225 million population and a GNP per capita income of US$ 540 and

is rated highly on the list of promising places The coastal cities have 40 million people who are increasing affluent and who offer the would-be retailers some exciting possibilities China has agreed to test retailing, and on May 1994, Yaohan opened its first supermarket with sales area of 580 sq.m in Shanghai, the joint venture with Shanghai City Agricultural Committee Until mid 1996, it already has 27 supermarkets in China and has an ambitious expansion plans of a chain of 1000 supermarkets operating across the country by the year 2005 Meanwhile, Wal-Mart with its openings of 2 superstores in Shenzhen (each one has size more or less 15000 sq.m) on august 1996 represent that it will play a significant role in the future (AR, Aug 1996)

From above facts and figures we can see that the sophisticated group such as Hong Kong and Singapore are characterized by well-structured markets and fierce competition in the supermarket business Traditional outlets still remain, and include both small neighborhood stores and the wet markets However they continue to lose sales to supermarkets which have strong produce and meat sections

Meanwhile, business is booming for one-stop shopping supermarket in the transitional markets of Taiwan, South Korea, Thailand and Malaysia Local middle class customers show ever-increasing preference to supermarkets which are considered more modern, cleaner and with better atmosphere At the same time, the traditional retailing methods still have strong presence in national economies

The traditional groups are characterized by high populations, low capita incomes, low consumers expectations and few self-service Sales still concentrate in wet markets and traditional “mom and pop” shops, the wholesalers play a major role They are “sellers’ markets and there is limited direct sales involvement between manufacturers and retailers There are limited but growing opportunities in those countries for modern supermarkets and those that exist tend to cater for the top end of the market They are markets of the futures What took 20 years to achieve in Hong Kong and Singapore has been achieved in less than 10 years in Taiwan And what has been achieved in 10 years in Taiwan will be achieved in even less time in other newly developing Asian markets (AR, April 1993)

Vietnam, based on its economic conditions and retailing environment (more details will discussed in the next paragraph), can be included in the group of traditional markets As there are government restrictions on foreign involvement in distributions channels as well as many difficulties in logistics and supply, there is still no international player operating supermarkets in Vietnam Since the first local supermarket opened in HCM city in October 1993, this kind of store is mushrooming to serve for affluent middle-class Vietnamese and expatriates living in major cities They are now 31 outlets in HCM city and 13 outlets in Hanoi The situation presents considerable opportunities for the development of these minisupermarkets

2.3 Vietnam retailing environment

2.3.1 Economic overview and consumer purchasing power

The World Bank has predicted that Vietnam’s economy is likely to grow at a rate of approximately 8% per annum until the end of the century (Ashwood, 1994) In a country with a population of 74 million, the emerging consumer market is a substantial market and if the Government’s goal to double GNP by the year 2000 is achieved, the consumer market will blossom into one of Asia’s most rewarding (Business in Vietnam: illusion & reality, 1995) The Vietnamese market, measured in terms of nominal GNP at market prices and the GNP per head were estimated by BMI are showed in table 2.1:

Table 2.1: Vietnamese market size/GDP per head

Source: Business Monitor International Ltd., General statistical office

Moreover, the role of the parallel economy in Vietnam should not be underestimated, possibly accounting for half, or more, of the country’s total GNP Further ‘working capital’ is provided by the estimated US$ 130 million remitted annually by families overseas Obviously, the hidden economy in Vietnam is enormous (Ashwood, 1994) Today, the most significant consumer growth is concentrate in the urban areas And Hanoi is one of the most affluent centers One need not be a genius to realize that urban Vietnamese are richer than official figures indicate (Doing business in Vietnam, 1995) Another important point is that Vietnamese families do not live as nuclear units; instead, extended families live together with as many as three generations in one house As a result, income is pooled, which increases buying power on a collective level.

2.3.2 Retail options

These few overall figures and facts support the coexistence of many kinds of retailing business Vietnam has its owned well-developed distribution system and, although it would be considered primitive by Western standards, it does effectively distribute products to consumers As for retailers, the majority of them are privately owned, but many are state-owned as well Of the 45,000 officially registered units in the country, two-third are in private hands with some 14,000 owned by the state Total retail sales of consumer goods rose 26.7% between 1993 and 1994, reaching 85.25 trillion dong, the equivalent of roughly $8.5 billion (Doing business in Vietnam, 1995) During three years 1991-1994, trade by State enterprises and collectives, as a percentage of retail sales, declined from 50% to 25% Although the State’s role in distribution is being quickly dwarfed by the growing private sector, these store still keep the large piece of the distribution system and well located in the central areas of the cities

Most retailing in urban centers is done through large comprehensive markets, street-front shops, specialized retail streets and local meat and produce markets There are twelve

large comprehensive markets in HCM City and three in Hanoi Most stalls in these large

markets are small but hold high levels of stock due to erratic distribution and supply Many

stalls sell similar products and carry few brands; however, there is greater diversity for packaged foods and clothing Refrigeration is not available and products that require refrigeration are rarely seen Those goods are cooled and packed in ice There is great variance in the attention paid to displays, with cosmetic products, for example, being attractively displayed and packaged foods being stacked in piles Point-of-sale materials are rarely seen, though they are becoming more prevalent

Street-front shops are located around city centers and along main roads They are

similar to shop houses found in other areas in Southeast Asia Privately-owned shops often lack sufficient stock to fill their shelves and any point-of-purchase material displayed is either out-of-date or not associated with the products being sold Government shops display fixed prices, but prices are always negotiable in private shops

Specialized retail streets consisting of up to 30 street-front shops sell the same

product categories within a single city block Street-front shops selling shoes, sports equipment, bicycle parts, clothes, hardware and electronic goods can be found Street-front shops are more specialized than others and carry only specific types of products These shops generally are run by the more entrepreneurial-minded shopkeepers Street-front shops carry the most current stock available, have good displays but don’t display point-of-sale materials Prices are always negotiable, with no prices displayed , as many of the goods are smuggled The tradition of single-item street distribution has early roots In the Old Quarter section of Hanoi, each street was named after the goods produced along it, from hats to horsehair.

Local fresh-produce markets are found on back streets and in alleyways, where 20 to

50 vendors may congregate their stalls These local markets serve neighborhood populations of up to 10,000 people Sometimes, dry and packaged foods are sold by these temporary stalls Food retailing is still very much associated with the traditional Asian wet markets where product are brought in fresh and unrefrigerated from farms and abattoirs each morning and sold off a slab in small portions

The rural environment offers fewer retailing options than do urban areas Only street-front shops and roadside stalls are found, and there are no stores selling high-value consumer goods There are some general-store types of shops selling a limited range of packaged foods, including some international brands, but most goods are either locally produced or imported form other Southeast Asian countries, with stock organized - or disorganized - according the shopkeeper’s state of mind (Business in Vietnam: illusion & reality, 1995).

A Singapore based consultant, Mr Ronald Tan had commented in AR, Oct 1992 that “the retail industry in Vietnam is in a state of flux and it would take another three to five years to settle down before there is a radical change” Up to now, we can see some upgrades in retailing industry: the stores are brighter, there are much more product varieties on shelve, self-service are more popular, and supermarkets are mushrooming, etc But still these movements can not be considered as “radical” based on scale and speed of changes.

2.4 Consumer store choice behavior and retailer strategy

Rogers (1992) in his book has revealed that a retailer’s ability to develop and apply a sound strategy depends on how well that retailer identifies and understands its customers This involves determining which types of target market to reach (mass market, market segment, or multiple segments), identifying the characteristics and needs of the retailer’s specific target market, and understanding how consumers make decisions.

The target market is the customer group that a retailer tries to satisfy When deciding on the type of target market to reach, a firm would consider its goods/service category, its goals, what competitors are doing, the size of various consumer segments, the relative efficiency of each target-market alternative for the particular company, the resources required, and other factors.

After the retailer chooses a target-market method, it identifies the characteristics and needs of those customers to whom it wants to appeal and endeavors to understand how they make purchase decisions Consumer characteristics include demographic and life-style factors Consumer needs relate to a firm’s store location, goods/service assortment, prices and so on Purchase decisions can be made impulsively or may encompass a detailed thought process.

Demographics are easily identifiable and measurable population statistics However,

consumer demographics vary widely by geographic area and because most retailers are local or regional, they must comply information about the people living in their particular trading areas and/or those most likely to patronize them A retailer could identify its target market in terms of some combination of the following demographic factors:

 Market size - How many consumers are in the target market?

 Where people live - How large is the trading area from which customers can realistically drawn?

 Mobility - What percentage of the target market moves each year?

 Gender - Is the target market predominantly male or female, or are they equal in proportion?

 Employment status - Does the target market contain working women, retirees, and so on?

 Age - What are the prime age groups to which the firm appeals?

 Occupation - In what industries and occupations are customers working?

 Marital and family status - Are consumers single or married? Do families have children?  Education - Are customers college-educated?

 Income - Is the target market lower-income, middle-income, or upper-income? Is discretionary income available for luxury purchases? etc

Life-styles are the ways in which individual consumers and families live and spend

time and money Consumer life-styles are based on a combination of social and psychological factors They are greatly affected by people’s demographic backgrounds A retailer could develop a life-style profile of its target market by analyzing these concepts:  Culture - What cultural values, norms , and customs are most important to the target

market?

 Social class - Are consumers lower-, middle-, or upper-class? Are they socially mobile?  Reference groups - Whom do consumers look to for purchasing advice? Does this differ

by good or service category? How can the retailer appeal to opinion leaders?

 Social performance - Are customers high or low performers? How do they react to this status?

 Family life cycle - In what stages of the cycle are the bulk of the customers?

 Time utilization - How do consumers spend their time? How do they view the time spent shopping?

 Personality - Do customers have identifiable personality traits?  Class consciousness - Are consumers status conscious?

 Attitudes - How does the target market feel about the retailer and its offerings in terms of specific strategy components?

 Perceived risk - Do customers feel risk in connection with the retailer? Which goods and services have the greatest perceived risk?

 Importance of the purchase - How important are the goods/services offered by the retailer to the target market?

2.5 The store choice decision process

Engel and colleagues in their book “Customer Behavior” have concluded that: the process of choosing a specific store is a function of consumer characteristics and store characteristics Consumers in each market segment form images of various store based on their perceptions of the attributes they consider important Store choice is thus a function of four variables shown in figure 2.2: (1) evaluative criteria, (2) perceived characteristics of stores, (3) comparison process, and (4) acceptable and unacceptable stores (figure 2.1).

Determinants of store-choice decision vary by market segment and by product class They usually fall into the following categories: location, nature and quality of assortment, price, advertising and promotion, sales personnel, services offered, physical store attributes, nature of clientele, sotre atomsphere, and post-transaction service and satisfaction

Location is in many ways a response to the convenience component of customer

expectations It may be perceived by consumers in terms of time and hassle as well as actual distance Many shopping decisions are based upon ease of access, parking and travelling time, and bulk food shopping The growth of “convenience stores” demonstrates the response of some retailers to changing aspects of consumer behaviour, as for some consumers ready access at late hours to a limited range of products has become a requirement

Depth, breadth, and quallity of assortment are often the importnant determinants of

store choice There is little doubt that product range decisions are fundamental and the role of merchandise management is to match the product offering of the company to the

Figure 2.1: Store choice process (Engel, Blackwell, and Miniard, 1995)

The importance of price as a determinant of store patronage varies by type of

product Supermarkets in the US have placed great emphasis on price since its early days Price is of crucial importance in the customers’s selection of store and it is interesting to note the changing nature of the price equation Many retailers continue to assume that price is quantity, based on the customers’ view of “value for money” In fact, other features such as quality, design and exclusivity are now just as important The importance of price also depends on the nature of the buyer Some customers prefer on other factors, such as convenience, will probably trade off that consideration against higher prices.

Advertising and promotion can be used in at least two ways in retailing One way is

to communicate information about price or other attributes of the store The second way is in positioning - creating perceptions about attributes or overall image of the store

Knowledgeable and helpful salespeople were rated as an important onsideration in

choice of a shopping center by more than three-quarters of those interviewed in five major metropolitan areas (Engel, 1995)

Services offered: convenient self-service facilities, ease of merchandise return,

delivery, credit and overall good service have all been found to be considerations affecting store image This also varies depending on the type of outlets and consumer expectations Physical store attributes such as elevators, lighting, air conditioning, convenient and visible washrooms, layout, aisle placement and width, carpeting and architecture have been found to be factors in and of themselves in store image and choice

2.6 Patronage motives

Redinbough (1976) has defined that patronage motives are those which encourage consumers to shop at one store rather than another Of course, patronage motives are a primary concern of every retailer Retailers are constantly seeking ways in which they can increase the store’s number of customers (patronage) all the elements of the retailing mix are focused upon inducing consumers to come to the store and browse, thereby increasing the opportunities for the consumers to purchase goods or services Since consumers are attracted or repelled by certain retail stores because of their personality or image, it is

important that the retailer develop a store image which will appeal to the customers In this

way, the retailer can possibly encourage the consumers to “patronize” the store.

Consumers are often motivated to patronize a retail store because of its location It is

not unusual for a store’s location to attract or repel a customer The rise and growth of planned regional shopping centers has done much to attract consumers to certain retail stores But upon closer investigation, one will discover that planned regional shopping centers attract only certain types and kinds of retail stores For instance, a discount retailer will not normally be located in a regional shopping outskirts of an area where rents are lower Since the outskirts of a trade area usually suffer from a “lower” consumer image, a discount retailer doesn’t care because the consumer expects this type of store image In fact, if a discount retailer were located in an expensive or exclusive shopping area, it is possible that many economy-minded customers would not patronize that store because the image would be wrong.

Other patronage motives include the merchandise and service mix that the store

makes available to the customers Some consumers will patronize a certain retail store because of a vast assortment of goods Other consumers will patronize a certain retail store because they offer a full line of customer services (such as delivery, gift wrapping, credit, installation, and liberal return privileges) This is why some retailers stress “service and selection” rather than price

Finally, one patronage motive which often ranks high in the customers’ mind is the

reputation of the retailer A retailer develops a reputation from the manner in which the

business is conducted with the customer Once customers find a retailer they trust, they are

The following pattern is theoretical patronage model: A consumer first becomes aware of a store That person then gains an understanding of the store by evaluating the store in terms of the factors comprising the choice criteria Based on the evaluation, the consumer forms a degree of preference for the store If preference exceeds a certain threshold level, the consumer will patronize the store (Naresh, 1993).

Some years ago, influenced by highly-controlled economic mechanism and state ownership, the local Vietnamese retailers did not care much about their customers to tailor their appropriate strategy As the country moved to market-oriented economy, characterized by more aggressive competition, pervasive uncertainty and unlimited opportunities, more and more retailers try to identify and understand the target customers as well as their shopping behavior to gain highest patronage level

Based on literature frame described above, our research is going to examine how people shop at supermarkets, the new Western-style stores in the city, why people go there, how do they evaluate the stores’ performance, and related things.

Chapter 3

Research Methodology 3.1 Information needs

In order to achieve the objectives of this research study as discussed in the Chapter 1, and based on store choice process and customer behavior in Vietnamese context identified in Chapter 2, the following information was needed for our research:

 What is shopping behavior of Vietnamese emerging middle class?

 Where do they often go shopping?

 When? Which day in a week and at what time in a day?

 How frequently?

 Preference for store’s location? etc

 What are their store choice criteria and why?

 Shopping comforts and nice environment

 Reputation of having high quality goods , especially no counterfeits

3.2 Research methodology3.2.1 Target population

Since this kind of store doesn’t focus on mass market, our target population is Vietnamese emerging middle class, who has money to spend and has tendency toward modern life Although foreigners are currently the major customers of the supermarkets, they are excluded from the population as Vietnamese people’s patronage will be much more important in determining the store’s long-term viability

3.2.2 Pilot survey and questionnaire development

Pilot was conducted here, at AIT campus, in the last week of October 1996 In order to avoid bias of shopping experiences in Thailand, all twelve respondents were newcomers that came to study in September Eight out of twelve were women Most of them are married, only two are young and single There were two in post-doctoral courses and they are in middle age of 40-45 The rest are in age of 30-35 years old Three out of twelve were from HCM city

Pilot was done in attempt to find out the rough idea of shopping behavior of target population, as well as to confirm their store choice criteria and supermarket shopping experiences Their expectations from supermarket was examined in pilot too Further, some demographic features were also discover for identification the sample respondents.

Based on pilot results, questionnaire for quantitative survey were developed A screening question was put at the very beginning to qualify the right respondents The interviewee, who has four or more than four durable items in the list is considered as in middle class sample (Cesais procedure) The questionnaire contained 22 questions devided in three sections The first section asks about general shopping behavior: the frequency to go shopping and the store choice criteria 5-point scale ranging from (1) not important at all to (5) very important were demonstrated the ranking Section B includes issues on specific attitudes about supermarkets: how did people engage in shopping at supermarket and what do they like or dislike there This section also tries to discover the shoppers’ and non-shoppers’ expectations of the supermarket Section C includes a number of demographic questions used to both qualify and classify respondents Age and occupations are indicated through an open-ended format Income level are checked through ownership of some valuable assets Marital status, gender and family life cycle are assessed through categorical responses

3.2.3 Sampling procedure

Survey was conducted in Hanoi, in the last two week of December 1996 It happened to be the shopping season for new year holidays, both by international and Vietnamese traditional calendars A total of 176 qualified questionnaires were collected by convenience sampling combined with snowball method (N = 176) Respondents were stopped inside or outside the supermarkets in the city, which are often located in the affluent and crowded resident areas In cases people are in a hurry, they were asked for address for later in-house interviews Initial supermarket heavy-users1 were asked to

1 Heavy-user is considered a person who goes shopping in supermarkets at least once a week.

introduce their friends or relatives who also are frequent shoppers at supermarkets Maximum of 50 respondents were limited to get into the sample by snowball method to ensure having enough heavy users of supermarkets (nhu = 50) One-quarter of the sample were considered as non-supermarket-users since they did not go to supermarket for two week during our survey (nnu = 44).

Qualitative interviews: In addition to the quantitative survey of shoppers, in-depth

discussions with some biggest supermarkets’ owners and their staff will be conducted The purpose is to understand more deeply about these store marketing activities Through discussions, reasons for slow sales will be tried to discover as well as the ways to solve the problems

3.2.4 Sample characteristics

Respondents in our sample are mostly in the ages of 20 to 45 years old Particularly the range 31-35 accounted for the biggest group - more than one-quarter of the sample (figure 3.1) More than 85% of respondents were women, and 70% were married (App D, V14-15, p.72) This ratio of women is a little bit less than other shopping places and men are seen more often in supermarkets According to the male respondents, fixed prices, speed and atmosphere in supermarkets can reduce a lot of their reluctance to go shopping.

In our sample, most of the respondents are working people, for whom, time and convenience are important things in their lifestyle Nearly 40% have got professional job such as accountants, technicians, teachers, researchers, ect One-quarter are executive in offices and 14% engaged in family business There are only few workers, housewife and students in our sample (table 3.1) More than half of all respondents have university education level (table 4.16), while high school accounted for 40% Very few supermarkets shoppers has no high school education (table 3.2).