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McDonald's Faces Stagnant Growth in Vietnam As Local Fast Food Fad Cools Down

Back in 2014, during its first month in Vietnam, McDonald’s seemed set for success, as its first location in Saigon managed to attract some 400,000 curious patrons to sample its American dishes.

However, today things are not going as well as expected for the fast food giant, as sales growth has slowed down significantly. Two years after opening its first outlet, the US-based fast food giant only has nine restaurants, despite initial plans to expand to 100 stores in 10 years.

This sluggish growth is partly due to timing. Compared to the Philippines’ Jollibee, South Korea’s Lotteria and long-term American rival KFC, who have been around since the late 1990s, McDonald’s arrived with too little, too late.

These three pioneers who introduced fast food to Vietnam years ago are now the strongest competitors in the market, with 80, 140 and 211 outlets, respectively.

According toVietnamnet, Jollibee, KFC and Lotteria all suffered losses in their initial years and did not see quick growth until 2012.

Efforts to localize menus have also made these brands more attractive to locals. For example, KFC serves rice and vegetables with their signature fried chicken, while Jollibee ensures that their chicken tastes like a popular Vietnamese dish: cánh gà chiên nước mắm (fish sauce fried chicken).

“Localized products will draw attention and make customers step into the store. When customers are already in, there are many chances to sell other products,“ Robert Tran, CEO of Robenny Corps, a business advisory firm, told Thanh Nien regarding the global strategies of fast food companies.

Drawing from its international experience, McDonald’s has also attempted to tailor their meals to local palates by serving pork and Vietnamese robusta coffee.

However, due to its late arrival, McDonald’s has to compete with existing chains not only for brand acceptance, but also for prime locations.

As Richard Leech, executive director at the Vietnam office of CBRE, a Los Angeles-based real estate consulting firm, told the New York Times, monthly rent for premium sites can cost up to US$19 per square foot (0.093 square meters) in Hanoi and Ho Chi Minh City. However, fast food companies are usually only willing to pay around US$6 per square foot.

The Times further elaborated that these logistical challenges make competition between fast foods giants even more cut-throat in Vietnam.

Despite the above-mentioned setbacks, the timing of the debut of McDonald’s in Vietnam could also be a silver lining, as it didn't have to create a whole new market from scratch. In addition, the chain has been able to secure several “golden” sites for its restaurants, including a former colonial shop house on Nguyen Hue walking street and an outlet right next to the Saigon Central Post Office.

Furthermore, the company's entrance into the local market fell right in the middle of the golden era of fast food in Vietnam, which ran from 2012 to 2015.

According to Vietnamnet, Jollibee and KFC unveiled 50 and 40 new stores respectively during this period. Lotteria, meanwhile, picked up momentum in 2013, after which it added 70 new restaurants.

However, this year the fast food market has cooled down, as the economic cycle reached a dip.


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