Distribution Models in Vietnam: Primary, Secondary, and Last-mile Distribution

January 9, 2019

Vietnam has over 150 shopping centers, 800 supermarkets, 9,000 traditional markets and 2.2 million household-run stalls by 2018 as reported by the Vietnamese Ministry of Industry and Trade [1]. There are 3 common models regarding distribution in Vietnam: Primary distribution, Secondary distribution, and Last-mile distribution. How are those different from each other?

 

1. Primary Distribution

 

Primary distribution is the allocation of finished salable goods from original vendor supply points (manufacturers/factories/assembly plants) to distribution centers (DCs) or distributors.

 

Source: Department for Transport [DfT] (2007). Key Performance Indicators for Food and Drink Supply Chains. Benchmarking Guide. London: Freight Best Practice. (p.3)

 

Instead of selling directly to customers, which is now challenging, manufacturers usually transport goods to intermediaries and delegate the right to distribute products to them. Therefore, distributors dominate the flow of products from the very beginning - the original supply spot. This is an indispensable stage in our market economy since it contains many small and micro-scaled manufacturing enterprises. In such an economy, manufacturers are not able to connect directly with retailers, which leads to the current average buying power through intermediaries accounting for only 4% [2]. That’s why distributors play a significant part in this stage by picking up goods then deliver them to the right recipients. Distributors are in charge of connecting manufacturers with retailers, they market products through different channels and handle the logistics requirements that manufacturers are not able or do not want to conduct in-house.

 

2. Secondary Distribution

 

Secondary distribution is the flow of products being transported from the primary distributors to smaller distribution centers, supermarkets, retailers, or customers (delivery points). Sometimes this term equals Last-mile Distribution if the delivery points are the final buyers. This is known as a conventional stage of goods distribution where goods transfer to one intermediary or more before reaching any customers.

 

Source

 

This stage emphasizes the fact that distributors influence immensely the whole distribution system, which lessens the distribution burden of the manufacturer since the finished products are picked up from their depot and distributed to their convenience store chains by distributors or retailers. Supermarkets are thus mushrooming as the favorite distributor in Vietnam. Some leading local distributors are MESA Group, Phu Thai, Thuan Hung Co., and DKSH, while Vinmart, Citimart, Intimex are the most popular supermarkets. Vietnam has 1,765 convenience stores in total up to now, which means one store serves roughly 54,400 people [3]. There are several famous convenience stores in operations such as Vinmart+, Circle K, Shop & Go, and G7 Mart.

 

3. Last-mile Distribution

 

In the logistics network, last-mile distribution is the final segment where finished goods are transported to the consumer or business that ordered and purchased them. This stage includes logistics delivery activities from stores/ smaller distribution centers to customers/end-users.

 

 

Mr. Vaughan Ryan, Managing Director at Nielsen Vietnam remarked: “In a market with over 1.3 million traditional trade stores, the challenge to get your products into stores is incredibly difficult”. According to a research by Datexcorp, transportation costs in last-mile delivery accounts for approximately 28% of the total goods transportation costs [4]. Along with the acceleration of Vietnam e-commerce and retail sector, last-mile delivery has huge potentials to become a critical component in Vietnam logistics scenario.

 

However, come opportunities, challenges await. Asia Plus Inc reported that around 36% of consumers easily reconsider their decision even after ordering, which contributes to 78% of users worry about the return policy. Almost one-fourth of online buyers are prone to receiving products as soon as possible even if they must pay an extra amount (showed by McKinsey). As stated in DI Marketing survey, 85% of Vietnamese consumers prefer COD (Cash On Delivery), reflecting their need for touching products before making a payment [4]. As a result, enterprises are urged to manage their cash flow in the last mile. That's why it is crucial to have an optimal road transport solution, which guarantees that products are shipped to the right place and time and at the most optimum costs of resources. Abivin vRoute is designed specifically for solving these problems in ASEAN and enabling the full visibility over multiple legs of distribution. Whether it is Primary, Secondary or Last-mile Distribution, Abivin vRoute TMS got it covered.

 

Get a free consultation here if you want to manage and optimize your multi-layer distribution process!

 

References:

  1. https://english.vietnamnet.vn/fms/business/194267/the-rise-of-convenience-stores--minimart-chains.html

  2. http://www.sggp.org.vn/doanh-nghiep-noi-gap-kho-khau-phan-phoi-hang-73450.html

  3. https://www.nordeatrade.com/en/explore-new-market/vietnam/distribution

  4. https://vilas.edu.vn/infographic-last-mile-delivery-giao-hang-chang-cuoi.html

  5. http://wiki4city.ieis.tue.nl/index.php?title=Primary_distribution

  6. http://wiki4city.ieis.tue.nl/index.php?title=Secondary_distribution

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