Fast food in fight to win over locals

Foreign fast food companies are lagging behind their own expansion plans in Vietnam due to the fierce competition with major rivals in the same segment and local competitors.

Fast food in fight to win over locals


KFC entered the Vietnamese market in 1997, but McDonald’s late entry is showing how tough the competition is
Leaving Hanoi’s ­McDonald’s, Tamas Nguyen did not radiate the ­satisfied cheer that people have after finishing a ­delicious meal.

“I took my family to this restaurant because it is not far from where we live and my son was curious about the taste of a McDonald’s burger, but we were absolutely disappointed. It is an insult to real hamburgers,” he told VIR. “When I looked into my burger, I found a single teeny-weeny cucumber on the patty, and nothing else.”

For Nguyen, Vietnam has a wonderful culture of home cooking, with families taking the time to spend their dinners together. The local taste is also remarkably different in the amount of raw or cooked vegetables used, something very different from McDonald’s and other Western fast food franchises.

“If you open a banh mi at any street-side stall, the vegetables and toppings come falling out, whereas when you open your burger, you actually have to look for that one sad slice of gherkin hiding under the mayo,” he added.

As a foreigner living in Vietnam for several years now, he almost always opts to eat at Vietnamese food stalls and only goes to Western fast food joints when he gets a serious craving – and even then he leaves disappointed most of the time.

Competition in fast food

According to London-based market research firm Euromonitor International, McDonald’s in Vietnam has been performing well, registering double-digit growth in 2018, which nevertheless flew below expectations.

What has worked well for McDonald’s was the expansion of its product portfolio with chicken dishes that are especially popular among younger consumers in Vietnam, instead of just the burgers that the franchise is known for.

Deepika Chandrasekar, research analyst at Euromonitor International, said, “To stay alive in the fiercely competitive fast food scene here, McDonald’s has made attempts to incorporate Vietnamese tastes into its products, such as the crispy fried chicken released in November 2018.”

According to the researcher, McDonald’s has had a hard time differentiating its value from local outlets. The Vietnamese are spoilt for choice among numerous street stalls and local vendors who not only serve local delicacies like pho, but also serve faster and at a fraction of the cost of franchises.

“It is also relatively harder for a chain like McDonald’s to plan and execute the opening of a store in second- and third-tier cities in Vietnam compared to the nimbleness of traditional food stalls,” said Chandrasekar.

“Going forward, McDonald’s in Vietnam needs to do more than just refresh its menu: it needs to offer a wider localised menu, expand aggressively, roll out digital innovations, and enhance the in-store experience to merely stay afloat if not outsmart street vendors.”

In contrast to the fall in the demand for Western fast food, Vietnamese fast food joints have developed into imposing opponents to foreign names. By learning from their rivals to standardise the business model and by understanding the local taste, many Vietnamese fast food businesses have been capturing increasing market shares and increasingly expanded chains.

“Foreign competitors are strong in all aspects, but we have our own advantages,” said Nguyen Xuan Vu, representative of snackfood producer Tan Viet Sin Foods JSC. He highlighted the company’s tactic of avoiding going head-to-head with the fast food giants. While McDonald’s and KFC chose the mid- to upper-range segment, Tan Viet Sin Foods operates at a more affordable price level.

Another advantage of local fast food businesses is that they know what customers like. “Food is a big part of success, but the scale of a restaurant chain does not fully depend on it,” a fast food professional told VIR, saying that Vietnamese businesses can compete on an equal footing with foreign ones if they have good corporate governance and unique products, or services that suit the culture and consumption habits of natives.

According to Hoang Tung, CEO of Pizza Home, the products of foreign giants like McDonald’s and Burger King are a “swing and a miss” when it comes to local customers’ taste. “Burgers are popular in the west, but not in Vietnam. If there is no demand for their products, these brands will certainly face difficulties,” said Tung.

Regardless of the size of the restaurant chain or the strength of the brand, food is seen as the soul of any ­restaurant, satisfying the taste and habits of local customers.

In Tung’s opinion, this is the most important ­factor for the success of a franchise brand, and it is why burger joints have stopped expanding, while Vietnamese banh my has been so far developing rapidly.

Taking it step by step

 

The Fast Food in Vietnam report by Euromonitor International revealed that many major fast food brands in Vietnam declined in 2017, including Burger King, Popeyes, Subway, Carl’s Jr., Lotteria, and KFC which, despite maintaining their leading positions that year, recorded very low sales growth.

Lotteria and KFC are still the leading fast food brands with hundreds of stores across the country. However, the financial statement of Lotteria showed that the fast food chain recorded after-tax losses of VND118 billion ($5.13 million) and VND135 billion ($5.87 million) in 2015 and 2016, respectively.

By the end of 2016, Lotteria’s accumulated losses were more than VND413 billion ($18 million), while its charter capital reached only VND433 billion ($18.83 million), as reported by local media.

In the meantime, Lotteria’s competitor KFC also reported losses, with a low 15 per cent profit margin in 2016. This was even lower than in the previous year. As a result, KFC lost VND25 billion ($1.1 million) in 2015 and made a profit of VND15 billion ($652,000) in 2016.

US fast food chain Burger King entered Vietnam in 2012, initially opening in Ho Chi Minh City’s Tan Son Nhat International Airport before progressively moving into suburban locations in the city.

At the time, the company set the target to open 60 stores within five years, but in reality the group has fallen well short, with only 14 being opened. Five of those were subsequently forced to close, giving rise to speculation that the brand may exit the market altogether.

Grace Chia, senior research analyst at Euromonitor International, told VIR, “As Vietnamese people prefer healthy food and are presented with many affordable options at local street stalls, the demand for fast food is low. Sales growth at leading fast food chains KFC and Lotteria has slowed down as the market reaches a point of saturation.”

“Full-service Asian restaurants are expected to be the fastest-growing food ­service category over the next five years, especially ­Japanese and South Korean cuisine,” added Chia. “While Japanese ­cuisine attracts customers with its freshness and healthy image, South Korean food is ­popular for its spicy and ­indulgent flavours.”

In 2014, McDonald’s made a lot of noise in announcing its plan to launch 100 shops within 10 years in Vietnam, but halfway to the deadline only one-fifth of the plan has been reached.

Nguyen Huy Thinh, general director of McDonald’s Vietnam, told VIR that it took the company 10 years to study the market before deciding to open the first store in Vietnam, and the company has built a long-term development plan with numerous different investment periods.

Accordingly, in the early years, the company would focus on investing in training staff team to meet the company’s international standards. In the next five years, McDonald’s will focus on studying dishes which both meet its standards and suit Vietnamese taste, in collaboration with expanding the store system.

However, according to Chia, the demand for McDonald’s has been low as it faces fierce competition from leading player KFC. As KFC has been in the market since 1997, the brand has enjoyed first-mover advantage and reports strong brand familiarity.

KFC’s chicken buckets and family-friendly dining experience resonate with the Vietnamese culture of sharing meals. On the other hand, the core menu burger offering of McDonald’s do not encapsulate the sharing element that Vietnamese customers are accustomed to.

“Since I’ve been living in Vietnam, I’ve only ever gone for fast food when I had the cravings for it,” concluded Nguyen as he stood in front of the McDonald’s restaurant.

“I suppose this is one market segment, expats looking for a binge of fast food once a month, but it looks like a tiny market to me.” VIR

Kim Huong

KFC, Lotteria battle for market share at street corners, supermarkets, malls

KFC, Lotteria battle for market share at street corners, supermarkets, malls

KFC, Lotteria and McDonald’s are the three biggest players in the fast food market.

Vietnamese market can be tough for foreign food & coffee brands

Vietnamese market can be tough for foreign food & coffee brands

For the last half month, visitors to Coffee Bean and Tea Leaf at Dong Khoi Street located near the Metropolitan building in the central district 1 of HCMC can see only closed green doors.

Fierce race in Vietnam’s food delivery market: The game really ends?

Fierce race in Vietnam’s food delivery market: The game really ends?

Newcomers have shaken up Vietnam’s food delivery sector with intensified competition in which only strong contenders can withstand the challenges.  

 
 

Other News

.
American intelligence officer: a special witness to National Day 1945
American intelligence officer: a special witness to National Day 1945
FEATUREicon  05/09/2020 

Archimedes Patti was a special witness as he was invited to a historic event: President Ho Chi Minh's reading of the Declaration of Independence on September 2, 1945.

Young people look to live streaming as source of high income
Young people look to live streaming as source of high income
FEATUREicon  06/09/2020 

Fame and high incomes have prompted many young people to offer streaming content on internet platforms.

Notable achievements during Vietnam’s 75 years
Notable achievements during Vietnam’s 75 years
FEATUREicon  05/09/2020 

This September marks 75 years since the Vietnamese people, under the leadership of the Communist Party of Vietnam (CPV), overthrew 80 years of French colonial rule.

The dangers of vaccine nationalism
The dangers of vaccine nationalism
FEATUREicon  07/09/2020 

Success in developing a vaccine is one thing, but giving it to everyone in need is a completely different matter.

Vaccine nationalism and challenges for developing countries
Vaccine nationalism and challenges for developing countries
FEATUREicon  08/09/2020 

Poorer countries have to face four major challenges in the fight against coronavirus: vaccine funding, domestic structural bottlenecks, overloaded medical forces, and identifying the people who need a vaccine.

The 'special guest' and PM Abe's letter to the Vietnamese Ambassador
The 'special guest' and PM Abe's letter to the Vietnamese Ambassador
FEATUREicon  03/09/2020 

When Party General Secretary Nguyen Phu Trong paid an official visit to Japan in September 2015, the Japanese Government and PM Abe personally gave a very respectful and cordial welcome, considering Mr. Trong as a "national guest".

Vietnam’s 'soft power' in diplomacy
Vietnam’s 'soft power' in diplomacy
FEATUREicon  02/09/2020 

The traditional cultural values of Vietnamese people are spread widely, winning the hearts of many people around the world. This is the "soft" index that contributes to building Vietnam’s image, prestige, and position in the world arena.

The flight with half of passengers suspected of carrying Covid-19
The flight with half of passengers suspected of carrying Covid-19
FEATUREicon  02/09/2020 

The policy of putting people at the highest position, ensuring safety for all Vietnamese citizens returning from the epidemic zone, has helped people believe and understand that "the fatherland never abandons us".

Stories about a special flight
Stories about a special flight
FEATUREicon  01/09/2020 

Ms. Nguyen Thi Huong Lan - Deputy Director of the Ministry of Foreign Affairs’ Department of Consular Affairs – talks to VietNamNet about behind-the-scenes stories about Vietnam’s measures to protect its citizens during the Covid-19 pandemic.

Vietnam chooses national benefits, international laws
Vietnam chooses national benefits, international laws
FEATUREicon  04/09/2020 

Some countries may say Vietnam chooses this or that side. But we affirm that we choose national benefits, the general principles of the UN Charter, and international law to build our stance.

Vietnamese artists talk about live streaming performances
Vietnamese artists talk about live streaming performances
FEATUREicon  30/08/2020 

Many notable artists discuss the advantages and disadvantages of the online theater trend with VietNamNet.

Veteran diplomats remember Vietnam’s 75 years of diplomacy
Veteran diplomats remember Vietnam’s 75 years of diplomacy
FEATUREicon  29/08/2020 

Senior diplomats who have directly contributed to many milestones of the diplomatic sector shared valuable industry lessons at a recent seminar "75 years of Vietnamese diplomacy: Lessons and direction”.

Why are so many businesses appealing for help from the PM?
Why are so many businesses appealing for help from the PM?
FEATUREicon  07/09/2020 

Businesses and citizens appeal to the Prime Minister for help as a last resort. However, should this be done?

Vietnam’s position in the eyes of a Japanese scholar
Vietnam’s position in the eyes of a Japanese scholar
FEATUREicon  30/08/2020 

Vietnam’s upper class, whose net worth is invested in more than $30 million, has increased to 13 percent in the past five years, surpassing 10,000 people.

It is impossible to impose human rights criteria of one country on another: NA member
It is impossible to impose human rights criteria of one country on another: NA member
FEATUREicon  31/08/2020 

Major General Nguyen Thanh Hong, standing member of the National Assembly's National Defense and Security Committee, told VietNamNet that the Law on Cyber Security was created to ensure human rights and citizenship.

Freedom on the Internet must ensure human rights in cyberspace
Freedom on the Internet must ensure human rights in cyberspace
FEATUREicon  28/08/2020 

Vietnam’s consistent view is not to prohibit the development of Internet, but its 'reverse side', which is contrary to cultural identity, national customs and traditions, and hinders social development.

Korean woman impressed with free Internet services in Vietnam
Korean woman impressed with free Internet services in Vietnam
FEATUREicon  27/08/2020 

On Youtube, Kim Hye Ri, a former student at the Vietnamese studies faculty, Korea University of Foreign Languages said that she used to think South Korea was paradise for Internet and wifi, but she changed her thinking after a visit to Vietnam.

Meeting with PM Phan Van Khai opens way for Internet to enter Vietnam
Meeting with PM Phan Van Khai opens way for Internet to enter Vietnam
FEATUREicon  26/08/2020 

The Internet was introduced to Vietnam quite late compared to other countries in Southeast Asia. 

Breaking the monopoly: key to the power industry development
Breaking the monopoly: key to the power industry development
FEATUREicon  25/08/2020 

Vietnam needs an electricity power policy under which the market rules, investors make a profit, and the poor can afford electricity.

Aviation traditions crumble as airlines take on new restructuring approaches
Aviation traditions crumble as airlines take on new restructuring approaches
FEATUREicon  29/08/2020 

It is undeniable that the aviation industry has contributed greatly to the development of the global economy, accounting for roughly 3.6 per cent of total global GDP. 

 
 
 
Leave your comment on an article

OR QUICK LOGIN