Differing dining options
Apr 19, 2021
Fast-food has maintained its potential in Vietnam but players need to adjust to the changing circumstances.
Habits surrounding fast food have changed significantly over the last 10 or 15 years. It was not that long ago that the choice almost entirely consisted of Vietnamese food like “pho”, “banh mi”, and other noodle and rice dishes. “Today, the younger generation enjoys brands such McDonald’s, Burger King, KFC, Texas Chicken, Pizza Hut, Domino’s, Starbucks, Coﬀee Bean & Tea Leaf, and many more,” Mr. Sean T. Ngo, CEO and Co-Founder of VF Franchise Consulting, told VET. “As incomes rise so will demand for better and more sophisticated oﬀerings in the restaurant industry overall and fast-food in particular.”
The fast-food businesses come in many forms, including pizza, burgers, culinary services, bakery, and ice cream. Experts said that of these, restaurant chains specializing in chicken are one of the largest segments in terms of revenue. KFC is by some distance the most frequently visited fast-food chain in Vietnam, with 45 percent of respondents visiting often, according to a survey conducted by Ho Chi Minh City-based market researchers Q&Me in 2020. Following is South Korea’s Lotteria, with 17 percent of the 600 respondents, then US chains Pizza Hut and McDonald’s, both with 6 percent. The leading reasons cited for favoring KFC were delicious food (66 percent), convenient location (63 percent), suitability with families and young people (60 percent), and menu variety (56 percent). In terms of outlet numbers, Lotteria leads with 151, followed by Jollibee with 115, according to a Statista Research Department study released in late 2020. Upon opening its ﬁrst outlet in Vietnam in 2014, McDonald’s attracted 20,000 customers and earned VND1.5 billion ($70,000) in revenue in the ﬁrst two days. At that time, it had an ambitious plan to open 100 outlets within a decade. Six years on, though, it has just 23.
Market observers have said that fast-food chains are now experiencing slower growth. Three years ago, there were 7,000 fast-food outlets around Vietnam; a relatively insigniﬁcant number given the country has some 540,000 food and beverage businesses, including 430,000 street vendors, 80,000 restaurants, and 22,000 cafés and bars, according to Dcorp R-Keeper, a global company that provides technological solutions to food and beverage businesses. The number has not improved signiﬁcantly in the last three years. Mr. Ngo said that one of the key challenges remains securing the right location at the right price. “This is no easy feat in Vietnam, where real estate rentals have not eased as much as hoped and will likely climb once again as we proceed further into 2021,” he explained. A recent report from real estate consultants Savills on the retail market noted that average ground ﬂoor rentals were $40 per sqm per month in Hanoi in 2020 and $50 in Ho Chi Minh City.
Mr. Ngo also pointed out that fast-food brands relying on a signiﬁcant amount of imported raw materials will continue to face signiﬁcant challenges, as this drives up the end-price for consumers, and consumers in Vietnam, as with many parts of Asia, are price sensitive. “The key challenge, though, will be to recruit, train, and retain employees in an industry that is renowned for having a very high attrition rate,” he added. “When employees leave, there are signiﬁcant costs for companies to recruit and retrain new employees. While there are many more challenges, these are among the key concerns for fast-food brands.”
Speciﬁcally, consumers are increasingly paying more attention to nutritious food, organic food, and healthy and convenient ingredients. A quick survey conducted by Vietnam Report at the end of last year revealed that amid the Covid-19 pandemic, 50 per cent of customers spent more on food that enhances the immune system as well as clean, healthy choices. Food businesses in general have had to increase their operating capacity by about 30 percent compared to before the pandemic.
And market researchers Euromonitor noted in a recent report that international players dominate the limited-service restaurant market in Vietnam, since local independent chains are mostly small family-based businesses with insuﬃcient resources to take on the big players.
LEADING FAST-FOOD BRANDS IN VIETNAM, BASED ON STORE NUMBERS, 2020
To keep up with changing customer demand and to boost sales, many fast-food brands adopted their own development strategies. For example, KFC strives to “localize” its menu to meet the tastes of local customers, with typical sauces or lunch sets for oﬃce workers. Lotteria chose to focus on key items like hamburgers instead of competing directly with KFC’s fried chicken, diversifying its menu with diﬀerent combos depending on the time of day.
Vietnam’s fast-food market has shown signs of stronger development in recent times thanks to the rise of food delivery apps. The Q&Me survey noted that, in 2020, “Now” was the most popular app for online fast-food orders, with 24 per cent of respondents opting for it, followed by Grab Food (20 per cent). Eighty-seven percent of respondents order online from fast-food chains, with KFC being the most popular, with 52 percent, followed by Lotteria (30 percent) and Pizza Hut (21 percent). The pandemic also had a signiﬁcant impact on online orders from fast-food chains, with Mr. Ngo saying it presented diﬃcult ﬁnancial challenges for businesses and consumers, as people spent more time at home and ate at home more frequently, but not all food and beverage businesses suﬀered the same fate. “Fast-food chains, especially the type of fast-food that can be ordered online and delivered to the workplace or home, have been less aﬀected in some countries, and sales actually increased as they were considered ‘essential’ businesses,” he added. “Businesses that survive this pandemic will be stronger and more resilient to future external shocks like pandemics and economic recessions.”
MOST FREQUENTLY VISITED FAST-FOOD CHAINS IN VIETNAM (2020)
Generally speaking, fast-food is still a segment of potential in Vietnam. According to VF Franchise Consulting’s ﬁgures, the fast-food sector in Vietnam has only really begun to develop and grow in the past few years. In neighboring countries like Thailand, the Philippines, and Indonesia, there are as many as three to four-times more fast-food brands than in Vietnam, so the long-term prospects are quite good. Many international franchisors have taken note and are impressed with how Vietnam managed the economic and health crises created by Covid-19, and are keen to enter the market. Brands from the US, the UK, South Korea, Thailand, and Japan continue to express interest, including Little Caesars Pizza, the third-largest US pizza chain in the world, Donor Shack from the UK, Mango Tree and COCA Hotpot from Thailand, and many others. “With the economy expected to bounce back from a challenging 2020, Vietnam will continue to beneﬁt from global conﬁdence in its performance during the pandemic,” said Mr. Ngo.