With rapidly growing consumer demands for food and beverage (F&B) products, Vietnam – a market of more than 95 million people with rising income – is offering ample space for global franchisors to expand in the sector.
The Ministry of Industry and Trade (MoIT) estimated Vietnam’s annual consumption of F&B products accounts for about 15 percent of GDP and the country is expected to enter the top three Asian countries posting the highest growth rate of the F&B industry by 2020.
The Business Monitor International also forecasts that the sector will be one of the strongest growers in Asia and will expand by 16.1 percent between 2016 and 2019 thanks to increasing income and a trend of using high-value products.
As Vietnam’s food and beverage industry grows, so do the number of franchises. Figures from MoIT showed that 203 brands have so far registered as foreign franchises to Vietnam. The majority of franchisers is from the US, the UK, France, Australia, South Korea, Singapore, Thailand, Japan, Hong Kong, Taiwan (China), Canada and the Philippines.
However, the aforementioned data do not seem to fully reflect the vibrancy of franchise market over the last period. In fact, though some brands have operated in the market, they are not included in the list.
The secondary franchise operation (reselling commercial rights to retail partners) after receiving exclusive franchise from a foreign brand is also taking place very vibrantly, causing the number of branches in each chain to increase quite rapidly.
Nguyen Phi Van, chairwoman of Retail & Franchise Asia, founder and manager of World Franchise Associated, said that Vietnam ranked eighth of the top 12 markets identified by the International Franchise Association as the most valuable markets for international expansion.
Vietnam has become something of a “magnet” for foreign brands seeking franchise opportunities, Van said, adding that the food industry is one of the leading sectors in terms of growth in Vietnam.
A study by market researchers at Decision Lab also shows that Vietnamese people spend around US$440 million a month eating out, or more than US$35 per capita. Many restaurants, shops, supermarkets, convenience stores, and food courts have sprung up in cities and coastal areas to meet soaring demand.
Investments for high return
According to industry insiders, the restaurant chain model possesses advantages that will see franchises grow.
Le Vu Minh, vice president of franchising, R&D and international relations of Redsun ITI, which manages and operates 15 restaurant brands nationwide including King BBQ, King BBQ Buffet, ThaiExpress, Seoul Garden, Khao Lao, Hotpot Story, Sushi Kei and Capricciosa, said that his company has maintained an upward trajectory with annual growth rates between 40 and 60 percent since 2015.
Redsun ITI has also set a target to have 450 restaurants by 2021, 40 percent of which will be franchised. It means the company will add one to two franchise chains and 60-70 restaurants to the market each year.
According to experts, international brand names are more attractive to franchisees than domestic names as they have been in existence for longer and have standardized working procedures. The majority of Vietnamese companies, meanwhile, are of small and medium scale can are yet to have standardized procedures.
However, experts said, franchisees need thorough local knowledge wherever they open. In addition to choosing the right partner, the high cost of supply chains and rentals continue to be key problems, especially if they are franchises that need prime locations and/or need to import significant amounts of ingredients and other materials.