In one corner of Hanoi’s Old Quarter, characterised by narrow streets and French colonial architecture, a small shop carries a conspicuous sign reading VinMart+. Inside, processed foods, beverages, vegetables, stationery and toys fill up both sides of a narrow aisle. One customer, a 36-year-old company employee, said she likes the shop and visits it every day because she can easily pull over on her motorcycle to make a quick purchase.

The shop is run by Vingroup, a major Vietnamese real estate agency. The company bought a local supermarket in October 2014 to enter the retail industry and began opening VinMart+ convenience stores in the second half of 2015. It now operates 880 stores in Hanoi and Ho Chi Minh City and plans to add 10,000 more by the end of 2019.

Canifa, a clothing manufacturer set up in 2001, began retailing on a full-scale basis in 2014. The interior and product lineup of its outlets are quite similar to those of Uniqlo, a Japanese clothing retailer. Its products, though priced slightly lower than Uniqlo, are relatively expensive for the average Vietnamese consumer. But thanks to a growing middle class, the number of outlets has grown to more than 70.

The retailers are springing up thanks to a relaxation of regulations. In Vietnam, a business wishing to open a retail outlet must undergo a review by the authorities to examine what impact the new business might have on the local economy. However, the criteria used to be unclear, making it difficult for companies to set up retail chains.

Things began to change in 2007, when Vietnam joined the World Trade Organisation. Efforts got underway to create transparent markets, and the government relaxed the rules for new businesses. In May this year, the government announced a measure to exempt small shops with a floor space of 500m² or less from seeking approval. The rule may go into effect by the end of this year.

Vietnam’s growing middle class makes the retail market look increasingly attractive. An industry group estimated the market probably reached $109.8bn in 2015, up 2.4 times from five years earlier. The figure is projected to reach $179bn in 2020.

Foreign companies are also rushing in to grab a share of a market of 93m people. In 2014, Japan’s Aeon opened its first large shopping mall in Vietnam, in Ho Chi Minh City. It has since added three more in Hanoi and elsewhere in the country, the latest of which opened in July.

The first 7-Eleven convenience store in the Southeast Asian country will be opened by February 2018.

While overseas companies have advantages in terms of capital, shop design and product line-up, local operators are fighting back. Vingroup is taking advantage of its knowhow in the real estate business. Pham Nhat Vuong, its chairman, says it is important to secure good locations before foreign companies come in, and that it is acceptable if 30 per cent of new outlets are unprofitable for some time after opening. The company hopes to draw on its knowledge of local land ownership and development projects.

Vingroup also plans to open 400 shopping centres by the end of 2019, as well as home appliance shops. The company aims to increase retail sales as a share of overall revenue from 20 per cent now to 50 per cent within a few years, Mr Vuong said.

Existing local retailers are eager to compete with newcomers like Vingroup. Bac Tom, a grocery chain specialising in organic vegetables, is trying to tap middle-class consumers who are growing conscious of food safety. With its network of about 200 farmers and 27 outlets, the supermarket is attracting customers who usually shop at traditional food markets.

One problem is the country’s still underdeveloped logistics network. Narrow streets are filled with motorcycles and are chronically congested. Distribution is still inefficient, and refrigerated or chilled delivery is unavailable. While foreign operators have the knowledge and capacity to cope with such a vulnerable infrastructure, it poses a challenge for domestic new entrants seeking to thrive.

By Atsushi Tomiyama - The Financial Times /Nikkei _ August 15, 2016