Solutions to enhance the effectiveness of G7mart operations

MINISTRY OF EDUCATION & TRAINING UNIVERSITÉ LIBRE DE BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BUSINESS SCHOOL MBMM PROGRAM LÊ KIM ĐẰNG SOLUTIONS TO ENHANCE THE EFFECTIVENESS OF G7MART OPERATIONS FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT Tutor: Dr. Nguyễn Ngọc Hoà Ho Chi Minh City 2007 This is my original work. Any data and result in this writing is clearly identified. LEÂ KIM ÑAÈNG Acknowledgements I would like to state that nothing ever happens if this work is only made without any precious help and support from so many people. This writing is the result of such help and support. My special thanks are due to Dr. Trần Anh Tuấn and Professor Jean Pierre Baeyens – the co-Directors of the MBMM program for the establishment of this program. I am particularly indebted to all the professors of Solvay Business School and of Hochiminh city Open University who were so devoted to deliver their knowledge, experience, ideas and suggestions during our courses (15 quizzes). Also many thanks to the coordinators of the program: Ms. Bùi Phan Bảo Trân and Mr. Serge Bywalski, who have stimulated and advised us during the two years of the course. I also owe a great deal to my tutor – Dr. Nguyễn Ngọc Hoà – the CEO of Saigon Union of Trading Cooperatives, who has worked so hard to help me to write and to finish this final project. I am so grateful to the G7 Mart Company for permission to use their company’s data to write my final project. Special thanks also to my mentor – MBA Nguyễn Ngọc Châu – Regional Business Development manager of G7 Mart Company who has helped and supported me to complete my final duty. Sincerely thanks to my family who gave me lots of material and moral support. Without the love and support, I cannot complete this useful program. INDEX EXECUTIVE SUMMARY 1 INTRODUCTION 2 CHAPTER 1: THE OVERALL STRATEGY OF G7 MART PROJECT 3 CHAPTER 2: ANALYSIS OF VIETNAMESE RETAIL MARKET AND G7 MART OPERATION 8 2.1 Analysis of Vietnamese retail market 8 2.1.1 Consumer behavior trends 8 2.1.2 Governmental policy and foreign investment 10 2.1.3 The trends of international economic integration 10 2.2 G7 Mart business philosophy and methodology 11 2.2.1 Preliminary current status of the traditional stores 11 2.2.2 Marco Aspect 12 2.2.3 The benefits from micro point of view 14 2.3 The practicability of G7 Mart convenience store’s project 15 2.3.1 Suitable business concept that can get the stores’ support 15 2.3.2 The advantages of the stores that make the G7Mart project feasible 16 2.3.3 The real capacity of the company for doing the G7Mart project 16 CHAPTER 3: CAUSES OF CHALLENGES THAT G7 MART FACES TO RUN THEIR BUSINESS SUCCESSFULLY 17 3.1 Unfavorable governmental regulations cause many difficult for G7 Mart to develop its project: Tax policies, Land Laws and Competition Laws 17 3.2 The shortage of professional employees and the uninteresting human resources policies of the company 18 3.3 Disadvantages from business partners 19 3.3.1. Disadvantages of the stores 19 3.3.2. Problems coped with Suppliers and producers 20 3.4. Some articles in the Pilot contracts and agreements that impossible to achieve in real life at the moment 21 CHAPTER 4: SOLUTIONS TO BE DEVELOPED IN 2007 AND THE COMING YEARS 22 4.1 Petition the Government for amending 22 4.2 Recruitment, training and re-structured organization plan 22 4.3 More co-operating with the Stores and strengthening the relationship with the suppliers and producers 23 4.4. Revised the Pilot contracts and agreements 25 CONCLUSION 25 APPENDIX 26 Appendix 1: Pilot Assessment Sheet 27 Appendix 2: List of Pilots in Hochiminh city 30 Appendix 3: Pilot Agreement (in Vietnamese) 36 Appendix 4: Distribution Contract (in Vietnamese) and annex 1, 2, 3 38 Appendix 5: Pilot Contract (Franchising) 50 REFERENCE 59 P age 1 EXECUTIVE SUMMARY The current retail system in Vietnam needs to re-organize to be stores in chain in order to create the united strength as well as to share the irresistible risks. Trung Nguyeân Coffee Group – now a famous and successful Coffee group in Vietnamese market wants to build up G7Mart convenience stores ( http://www.g7mart.com/ ) to become the leading group of the Vietnam retail industry. Based on the existing and available factors and opportunities, such as: Vietnam retailing market starts being growth and is highly evaluated at the international level; the supports of the government, of the suppliers, as well as of the store-owners; the Group’s experience and the ability of market understanding for years; the quite stable support of financial sources; and experienced, dynamic and skilled Marketing and sales experts of the Group that create the belief for G7Mart convenience stores to be born and develop to achieve their target. The overview of G7Mart strategy together with the analysis of the Vietnamese retail market and G7Mart operation can give us a landscape of an increased demand of retail industry and practicability the G7 mart project. However, the reality of developing this system at the beginning phase somehow reveals some problems that are not as per G7Mart Company’s desire. The system’s image in the market is badly influenced by these problems. The following project investigates some basic causes that make G7Mart developed unsuccessfully in order to recommend the solutions in the expectation that it can contribute a little to refresh the G7Mart convenience stores’ system in their operation at the first steps of their long-term project. P age 2 INTRODUCTION The retail in Vietnam has been slowly but surely changing over the past five years, as the number of supermarkets and modern retail outlets have been gradually increasing, eating into the market share of traditional open-air markets in cities. Nowadays, Vietnamese people in general and especially Hochiminh city are familiar with foreign invested key retail players: Metro Cash & Carry of Deutschland, Big C of Bourbon Group – France, Parkson of Lion Group – Malaysia as well as the domestic ones such as: Saigon Co-op marts, city marts… Basing on the available factors, opportunities, G7Mart convenience stores start to boom in Vietnam; determine to push to build the system to become one of the biggest domestic retailers. Up to now, the company has started the business for 10 months within its three year plan is to develop and to standardize the system that is the top priority; difficulties are rising that require the company to find quick solutions for them in order to be able to develop in the right direction and continually grow. The objective of this project is to analyze some basic causes that trouble the G7Mart project and to recommend the solutions to be developed. Structure of the Project: - Introduction - Chapter 1: The overall strategy of G7 Mart project - Chapter 2: Analysis of Vietnamese retail market and G7Mart operation - Chapter 3: Causes of challenges that G7Mart faces - Chapter 4: Solutions to be developed in 2007 and the coming years - Conclusion P age 3 CHAPTER 1: THE OVERALL STRATEGY OF G7 MART PROJECT 1.1 Vision and Missions: Setting up the biggest modern distribution system in Vietnam by associating, upgrading the traditional distribution network in order to create opportunities for the domestic enterprises to offer their products, brands to customers more efficiently. Substantially support the business’s growth and brand building to become the local counterbalance to foreign retailer groups. Cooperating with domestic producers to build up the Viet town to the world and contribute to the development of the Vietnam economy. 1.2 Project’s investment capitals: at the first stage at 395 millions USD 1.3 Planning: three stages: The first stage: Fast developing the distribution system by gathering and joining the successful and existing stores and agents. The G7 Mart Company upgrades them into the modern and professional distribution system at high level from the available street shops to be G7 mart convenience stores; from agents, distributors to be efficient distribution centers at large volume and then linking the domestic producers together stably. The first 500 G7 Mart convenience stores have been launched on August 5 th , 2006 selling a variety of foodstuffs, beverages, cosmetics and consumer products such as: newspapers, phone cards, etc. This was the initial step of the 2006 year plan with 500 pilots, 9,500 member-shops, and 70 distribution centers. After 5 years, G7 Mart Company will develop 10,000 stores, 7 department stores… P age 4 • 2006 – 2007: 1,500 G7 Mart Pilots 7,000 member shops and 100 distribution centers should be officially run and developed. • 2007 – 2010: 7,000 pilots, 200 distribution centers, 7 commercial centers and 7 supermarkets at 65 provinces and cities in Vietnam. The second stage: Joint & cooperation with the big, successful and existing wholesalers/retailers/partners to build and develop the biggest modern distribution centers, supermarkets, hypermarkets at 65 provinces and cities in Vietnam by 100% investment, joint-venture, licensing or franchising. The third stage: Building Viet town to the world – the strong cooperation between the domestic producers and distributors supported by the Government, Vietnamese and Vietnamese overseas customers. 1.4 The model of G7 Mart modern distribution system: includes G7 Mart convenience stores (Pilot), G7 Mart member shops and distribution centers. • Pilot G7 Mart: is the store that meets the G7 Mart’s selection criteria and is officially run in the G7 Mart distribution system. The criteria should be: + Good location: accessibility to major roads, area of dense population + Space: at least 4x7m and good infrastructure: nice built and having the ownership or long term leaseholder + Consumption goods and many customers; experienced retailing. + Capital: 50 – 100million VND; sales turnover at least 10 millions VND/day Pilot G7 Mart’s benefits 1 : a. G7 Mart’s supports: + G7 investment/no franchise fees by end of 2007; Designing the store and good display according to G7 mart standards. 1 Appendix No.3: Pilot Aggreement and Appendix No.5: Pilot Contract (Article 3.2) P age 5 + Benefits from the advertising in the store + Training course on sales, customer service; Participating in G7 congresses +Provided software of financial management, goods display, inventory control…; Transferring the technology of modern and professional retail + Benefits from promotions that G7 mart deal with the suppliers + Link to the bank for loan if needed; Good and exact payment. b. Opportunity to expand business through: Good products of all kinds; professional service and modern and convenient service G7 Mart does not create the well equipped expensive stores (air conditioner, expensive interior decoration) that make the investment cost high, unsuitable to lifestyle, consumer behavior and that can impact on the sales revenues. G7 mart only upgrade the available and existing stores themselves, people (store owners and their family), adjust some unsuitable operations. The all in package of investment cost is at 100 – 150 million VND/store including: re-design the store, display shelves, sign board, training courses, management and control system software … • G7 Mart member shops: are the ones in the stage to become standardized Pilots. Their benefits are: + Candidate to be G7 Mart convenience store; Good consumption + Good products of all kinds; Buying (Cash & Carry) from G7 Mart distribution center at reasonable price/benefits; Consulting about modern retails. The developing of G7 Mart convenience stores is based on 5 competitive criteria: The stores will be equipped to be well identified in order to attract the customers’ attention to visit and buy at the stores; Being polite to create customers satisfaction; Diversified merchandises, competitive price in comparison with the other system; Convenient and professional service; Well merchandise display, easy to select. [...]... existing customers They want to develop best service of their stores to increase profit and create new competitive advantage when being in the large system They accept to apply the new modern retailing methods to help to push the business development, generate the advantages and create the links to communicate between stores and the store and its customers and to be a member in a chain of strong and top retailers... development, especially as soon as Vietnam officially becomes the WTO member G7 Mart itself has realized these influences and it is in the progress to self perfect to meet the demands that are getting higher– offering the model of convenience stores to link the stores into the one large system, to link the producers/suppliers with the stores and to benefit the support from the Government 2.2 G7 Mart business... causes the system unprofessional Furthermore, because of lacking good people, the G7 Mart staffs have to hold more than one of their functional positions and duties Taking example of sales forces: they have to follow up the achieved pilots to take care their customers, but they also have to develop the new generation stores as their sales targets So the selection and development of new stores have not been... thoroughly exploit the store advantages to bring the benefits for the pilots: advertising, display - Promote an emulation movement in selling for the pilots in the same region to push the sales turnover 4.3.3 Persuading Stores out of the system through the activities to strengthen develop the pilots efficiently; the company will have strong evidence to persuade them to join the system 4.3.4 Strengthening relationship... Although the Competition Laws have been approved by the National Assembly, they still need the Governmental decrees, circulars of the Ministry of Trade, interministerial circulars, and instructions of the Provincial People’s committee 3.2 The shortage of professional employees and the uninteresting human resources policies of the company: - the important factors to run down the project 3.2.1 The shortage of. .. retailers 2.3.3 The real capacity of the company for doing the G7Mart project: What G7Mart is doing now is to bring the benefits for all community and the country in general, and for the company itself in particular so it has received the high support of the Government, other economic departments and services, enterprises and the majority of the stores nationwide The ability of investment capital at the first... convenient retail They misunderstand that the company want to develop this model is only to go to their store to make an advertising board They do not want to invest, but prefer to receive money to upgrade the stores 3.3.2 Problems coped with Suppliers and producers: The other difficulty of the company is to supply goods for its convenience stores At present, G7 Mart has 70 distribution centers to supply goods,... mentioned above, the duty in 2007 is to achieve 4.000 pilots and 6.000 member-shops and to meet operation requirements The analyzed causes require the solutions in order to refresh the whole system of G7Mart convenience stores and to avoid the bad influence for the store image The following solutions can be considered to solve their current difficulties and to continually grow 4.1 Petition the Government... person in charge of taking care of pilots and of developing the new ones, it should have the specific positions: Store Development Executives to select stores to invest and Store Care Executives to consult the stores - Store Care Executives: specialized in consulting the stores on product display in order to catch customers’ eyes, impulse their buying, product and inventory management, what they should... supported by the 4 banks together with experienced staffs that help the company feels self confident to develop The company believes in the developing opportunity, integration of the country into the global economy that helps to offer many potential immediate chances Besides that, consumption liking and needs of the customers increases more and more, the availability of infrastructure of the present stores . experts of the Group that create the belief for G7Mart convenience stores to be born and develop to achieve their target. The overview of G7Mart strategy together with the analysis of the Vietnamese. progress to self perfect to meet the demands that are getting higher– offering the model of convenience stores to link the stores into the one large system, to link the producers/suppliers with the. point of view that it can bring to the stores: - Large strong competition: it offers to the G7 Mart convenience stores the ability to compete against with the stores that are outside of the G7