BackStories » Vietnam » Enticed by Middle Class Wealth, Foreign Brands Flock to Vietnam Despite Reports of Slow Growth

Vietnam's growing affluence is attracting a plethora of foreign brands to set up shop in local metropolises in recent years.

International companies are predicting great growth potential in Vietnam as reflected by the Ministry of Investment Industry’s (MOIT) recent announcement that 183 foreign brands have been granted a franchise. The business model has been growing 15-20% per annum with more than 144 franchises having been licensed since 2007, according to Vietnam News.

Starting in the mid-nineties, foreign restaurants, cosmetic lines, hotels and fashion brands began arriving in Vietnam. Fast food joints make up the majority thanks to market leaders Lotteria (over 200 restaurants), KFC (over 140), Jollibee (over 40), and Pizza Hut (over 40), in addition to dozens of outlets by Baskin-Robbins and Domino’s Pizza. An increasing number of popular global franchises like Little Caesars, Jumbo Group and The Boiling Crab have all recently announced plans to join McDonald's, 7-Eleven and other recent arrivals to the country’s major cities.

Several factors contribute to the brands’ eagerness to expand, including Vietnam’s changing demographics. The nation has the fastest growing middle-class in Southeast Asia and the market is forecast to grow at nearly 12% a year to approximately US$179 billion by 2020. As purchasing-power rises, restaurants can expect an increase in revenue because nearly 50% of household expenditures go to food and beverages, according to Sean Ngo, director of VP Franchise Consulting.

These companies are also banking on the idea that foreign products and chains are often considered to be of higher quality and more reliable service, according to Fast food joints and coffee shops are particularly popular with young people in search of trendy places to hang out and meet friends. At the moment, 60% of Vietnam’s 90 million people are under age 20.

However, the foreign brands made the decision to expand to Vietnam in spite of stagnating sales reported by existing chains. International giants like McDonald's, Burger King, Coffee Bean and Subway have all fallen well short of their ambitious expansion plans and many have had to close locations.

Moreover, while certain stores, such as Starbucks, experienced massive early attention, once the novelty wore off, customers tended to return to their previous preferences. A variety of reasons for the failures include high price (a fast food meal costs four times as much as a bowl of phở) and a preference for local flavors and street food culture.

Analysts also caution that Vietnam may not prove to be the ideal environment for international franchises. A local businessman told VietnamNet that many owners are not wary enough of the high-risk, low-reward arrangement and the requirements for using imported materials and ingredients often proves too costly. Moreover, there are concerns that Vietnamese management styles and standards may not meet brand expectations.

[Photo via UQ in Vietnam]

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