South Korea’s largest supermarket chain operator Emart Inc. is pulling out of Vietnam, the second major Asian market after China, in the face of regulatory hurdles.
The retailer opened its first outlet in Vietnam’s Go Vap district in 2015 and had procured a site at Ho Chi Minh City for a second opening last year. But the project has been delayed due to licensing setbacks, disrupting its plans to open five to six more outposts.
Emart’s direct foray has proven difficult as Vietnam, like China, prioritizes joint ventures in permitting a foreign business. Emart started operation in Vietnam in 2014 after setting up a wholly-owned local entity.
A retail industry source said a hypermarket needs at least 10 outlets to have bargaining power with vendors and maintain logistics efficiency. Unable to meet this number, Emart may have concluded it was better to fold the business, the source added.
The retailer has been rolling back investments in the country. In its 2019 semiannual report, it had vowed to invest 460 billion won ($424.3 million) in its Vietnamese entity through 2022. But it had slashed that amount to 247.8 billion won in the third-quarter report.
An Emart representative, however, denied the exit rumors and said it was studying other options such as strategic alliance or business partnership.
Industry observers believe Emart is wary of making the same mistake as in its Chinese operation.
Emart entered China in 1997 and aggressively expanded its operations, running at one point 26 outlets across the country. But it failed to overcome Beijing’s stiff regulations and saw losses snowball to 150 billion won over four years from 2013.
In 2016, it found itself caught in the crosshairs of a diplomatic feud over Korea’s decision to build an anti-missile system, a move China vehemently opposed on national security grounds. Emart, along with many other Korean brands, suffered the brunt of Beijing’s retaliatory nationwide boycott on all things Korean. After suffering steep losses, the retail chain in 2017 sold off its remaining five outlets in China to a Thai company and pulled out of the country altogether.
After scaling back its Asian operations, Emart is expected to focus more on the U.S. market, where Korean brands have been making rapid grounds. According to its regulatory filings, Emart generated 1.28 trillion won in the first three quarters of this year from overseas, up 122 percent from the same period last year and topping last year’s full annual sales of 778.5 billion won.
Emarts’ robust overseas performance owes largely to its U.S. subsidiary Good Food Holdings, which the Korean retail conglomerate acquired for $275 million in 2018. The Los Angeles-based company owns five upscale food retailing brands, including Bristol Farms, Lazy Acres Natural Market, Metropolitan Market, New Seasons Market, and New Leaf Community Markets, operating mostly in the West Coast.
Good Food Holdings raked in sales of 1.2 trillion won in the January-September period, up 136 percent from a year ago, on explosive demand for food products among people sheltering at home during the coronavirus outbreak. The company alone was responsible for nearly 93 percent of Emart’s total global sales in the period.
Emart plans to invest 83.7 billion won through 2022 to expand its U.S. footprint. It is scheduled to launch PK Market, a shop specializing in Asian goods including Korean food, as early as next year in downtown Los Angeles.