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Weak consumption keeps prices from surging after fuel hike
Retailers and producers say they have to keep prices stable after a fuel price hike last week because they don’t want to risk losing customers.
Bui Hanh Thu, Deputy Director of Saigon Co.op, which owns the Co.opMart supermarket chain, said despite higher fuel costs, retailers cannot raise prices because spending is still weak.
She said retailers even have to lower prices to boost consumption because customers are tightening their belts.
Although sales at the chain increased 30 percent in the first six months from a year ago, it is only because the retailer has opened several new outlets this year, Thu said.
“Expansion is the only option for us to offset the decline in profits.”
Fuel traders raised retail prices by over 5 percent on July 1. The popular 92-octane gasoline is now priced at VND14,200 (US$0.79) per liter, up from VND13,500. Diesel and kerosene prices have risen to VND12,100 and VND13,650 per liter from VND11,500 and VND13,000 respectively.
An external affairs manager at a foreign retail chain, who wished to be unnamed, said even if distributors have to raise prices due to the fuel price hike, the chain will keep their price tags unchanged.
“Consumers are now very cautious about spending. Raising prices means forcing them to turn their back on us,” the manager said.
Small retailers at traditional markets said their businesses are also affected by the increased fuel costs, especially if they have free delivery service.
My Phuong, a rice seller at Bau Cat Market in Ho Chi Minh City’s Tan Binh District, said after seeing profits drop 5 percent she wanted to raise prices.
“But other sellers just keep the same prices, so I have to follow suit,” she said.
A survey released by market research firm TNS Vietnam in March, said about 52 percent of consumers plan to save money to deal with the ongoing global recession this year.
Significant reduction in spending will be seen in several sectors including entertainment, dining out, communications and transportation, food and beverages and healthcare. Meanwhile, business which deal in essential products and services, will see a mild impact on sales and growth this year, the research firm said.
Family spending is expected to grow a modest 3 percent this year compared to last year’s 7 percent, Sai Gon Tiep Thi newspaper reported Monday, citing a forecast by HSBC.
Retail sales in the country grew 20 percent year-on-year in the first six months of 2009 to VND547 trillion ($32 billion), the Ministry of Planning and Investment said late last month. But if price changes were excluded, the growth rate was only 8.8 percent.
According to many businesses, sales will remain weak until the end of October. The situation will get better at the year-end holiday season, as long as the economy has recovered by then, businesses said.
Like retailers, producers said they have to accept lower profit margins to retain customers.
Bui Duy Duc, General Director of leading food processor Vissan, said although production costs have surged since the fuel price hike, businesses can’t pass the increases on to consumers.
Nguyen Dang Hien, General Director of domestic beverage company Bidrico, said total input costs have surged 22-25 percent this year but his company had to keep prices stable.
Many beverage makers can’t raise their prices as Pepsi and Coca-Cola have launched large promotion campaigns, Hien noted.
Vu Thi Hau, Deputy Director of Hanoi-based Fivimart, said prices at her supermarket chain will remain stable in the next few weeks and expected any price increases later to be small.
Hau said distributors and producers are required to inform the chain of any price increases two weeks in advance but none of them have done so yet.
She said as the competition in the market is harsh, producers have to “look around before they want to raise prices” or they would lose their market share.
Meanwhile, transportation companies are planning to raise prices between 7 and 12 percent after the government increased gasoline and diesel prices. New prices are expected to come into effect no sooner than mid-July.
Domestic gasoline prices have risen about 30 percent and 20 percent for diesel in the last four months, Nguyen Manh Hung, chairman of the Vietnam Automobile Transportation Association said, noting that fuel accounts for 40-45 percent of the total costs at transport companies.
Vietnam’s consumer price index rose 3.9 percent from a year earlier in June, the smallest increase in more than five years. The inflation rate has declined every month since reaching 28 percent in August, which was the highest since at least 1992, and the government last week set an inflation ceiling of 10 percent for this year.
The General Statistics Office in Hanoi said the government should take measures to achieve growth of around 5.9 percent in the second half to meet the annual target of 5 percent.
The steps included restructuring the economy to raise the efficiency and competitiveness, preventing a return of high inflation in the second half, and accurate targeting of fiscal stimulus, the office said.
thanhnien, agencies
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