VF Franchise Consulting

Would you like pho with that? Vietnamese fast-food chains tackle foreign rivals

Mar 26, 2014


HANOI — Vietnam’s local fast-food chains are increasingly taking the fight to foreign rivals such as McDonald’s and KFC of the U.S. They are trying to capitalize on their momentum by making their own leap overseas.

     The Vietnamese capital has three dozen KFC outlets and three Burger Kings, but tour guide Nguyen Tuyet Nhung and homemaker Tran Khanh Thu prefer local fast food. “I don’t really like Western fast food,” said Nguyen, as she and Tran dug into a plate of rice paper-wrapped pork spring rolls at a Wrap & Roll restaurant in central Hoan Kiem District. “It’s too heavy for me. I’d rather eat Vietnamese food.”

     Hundreds of people lined up in Ho Chi Minh City Feb. 8 for the opening of Vietnam’s first McDonald’s. Yet while the maker of the Big Mac hopes to follow in the footsteps of American rivals such as KFC in tapping Southeast Asian interest in Western fast food, local chains present a formidable challenge.

     Wrap & Roll’s restaurants evoke cleanliness and convenience, with smooth wooden furniture and chopsticks wrapped in paper sleeves. Founder Nguyen Thi Kim Oanh, a third-generation restaurateur from the northern port city of Haiphong, hopes the chain’s 40-item menu of spring rolls and noodle dishes will set it apart from Western competitors. She describes the chain’s target customer as a young professional looking for “something quick and casual, but also healthy and authentic.”

     The first Wrap & Roll opened in 2006 in Ho Chi Minh City, now home to six outlets. Along with two in Hanoi, Wrap & Roll serves about 1,500 Vietnamese customers per day.

     Wrap & Roll isn’t cheap. A meal costs about 150,000 dong. That’s about three times more than traditional street food. It is also more expensive than Western fast foods. In Vietnam, a Whopper from U.S. chain Burger King costs 109,000 dong and a Big Mac costs 60,000 dong.

     “It’s got a pretty reasonable price point, a menu catered toward the local audience, a clear and distinctive brand identity, and a number of good locations in highly visible areas,” said Chris Elkin, managing director of red brand builders, a marketing agency in Ho Chi Minh City.

Besting the West

Wrap & Roll isn’t the only homegrown alternative to McDonald’s. Nem Gion, which serves crunchy, northern-style fried spring rolls has 15 restaurants in Hanoi and three in nearby provinces.

     “My goal is to turn Vietnamese food into modern fast food, but still preserve its traditional features,” said founder Bui Ngoc. This year, she plans to open branches in Ho Chi Minh City, Danang and Nha Trang.

     Vietnam’s fast-food sector expanded rapidly after the 2005 Commercial Law and other changes linked to the country’s entry to the World Trade Organization eased the way for franchises. KFC arrived in 2006, followed by Lotteria of South Korea, Jollibee of the Philippines and Burger King.

     “The youth market has more disposable income,” said Vaughan Ryan, managing director at marketing research company Nielsen Vietnam. Annual per capita income has nearly tripled over the past decade to more than $1,550, and the average consumer is 25 years old.

     “There’s a growing middle class that watches a lot of TV,” he said. “They see brands like McDonald’s and want to see what all the fuss is about.”

     Sean T. Ngo, managing director at Vietnam Franchises, a local consulting company, said, “We think of McDonald’s as cheap fast food in the U.S., but in an emerging economy like Vietnam, it’s very aspirational.”

     Yet Vietnamese consumers prefer familiar flavors for day-to-day meals. “McDonald’s is a novelty,” Ryan said. “People want to try it but the biggest challenge for them is to get repeat customers. The Vietnamese are quite patriotic when it comes to their food. They’re willing to try other foods, but they always go back to traditional food.”

Overseas push

Vietnamese fast-food companies are now expanding their operations service outside the country. Wrap & Roll in 2012 opened its first overseas outlet in Singapore and will have three in the city-state as of May. Later this year, the restaurant chain plans to open its first shop in Malaysia, with the Philippines and Taiwan next in line, taking advantage of the established image of Vietnamese cuisine as healthy and light.

     Nguyen said she has gotten “a lot of requests” about franchises from U.S. entrepreneurs. Nem Gion is also looking for locations in countries with a high population of Vietnamese immigrants, such as Australia.

     Pho24, a Vietnamese company that serves the country’s signature noodle soup in a clean, modern setting, has 70 outlets in Indonesia, the Philippines, Cambodia, Hong Kong and Japan as well as Vietnam. It opened eight new outlets in 2013, following its takeover by a joint venture of Viet Thai International and Philippine fast-food group Jollibee.

     The brand will continue expanding overseas in “select markets,” according to Dan Thai, Pho24’s managing director. “We believe Vietnamese pho will be a massive global success that has only just started being noticed.”

     “Vietnamese (fast) food is seen as light and healthy, especially in Western markets where a lot of people are anti fast food,” said Elkin of red brand builders.

Source: ELISABETH ROSEN – asia.nikkei.com

See full article here: http://asia.nikkei.com/Business/Consumers/Would-you-like-pho-with-that-Vietnamese-fastfood-chains-tackle-foreign-rivals

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