Sector Insight... Vietnam braces itself for a fast-food explosion

The world’s fast-food giants are descending upon Vietnam following the country’s ascension to the World Trade Organisation two years ago. 

International missions in Ho Chi Minh City (HCMC) and Hanoi are hosting matchmaking fairs in the hope of wedding foreign franchisers to local franchisees. These fast- food marriages may well bring an influx of new accounts to Vietnam’s ad agencies. 

“Vietnam is the most attractive retail destination on Earth,” says Vikas Mehta, MD of Lowe Worldwide in HCMC. “Global retail players, including quick-service restaurants, are planning entry strategies. There will be explosive year-on-year growth.”

Two agencies - Bates141 and BBDO - are already working with the sector’s pioneers. BBDO recently won KFC, which arrived in 1997 and quietly spread across HCMC before entering the more conservative capital Hanoi in May 2006. Bates141, meanwhile, works with Jollibee, which has been in the country since 1996 and pursuing a similar strategy. 

KFC, which parted ways with Ogilvy when selecting BBDO, is a big spender, completely dominating Vietnam’s fast-food advertising. In anticipation of post-WTO competition, KFC expanded from 17 stores in 2006 to its current 55, supporting them with Vietnam’s first fast-food ad campaign.

The blitz kicked off in 2006 with KFC airing TVCs - a fast-food first - on HCMC’s HTV7 and HTV9 and Hanoi’s VTV1, VTV3 and HN1. Last year, TV accounted for 98 per cent of KFC’s total media outlay of US$514,000, which likewise represented a 98 per cent share of all Vietnam’s fast-food advertising of $526,000. Low as this sum is compared to regional adspend levels, it marks a 17.5-fold jump from 2006. “The absolute spends are negligible compared to mobile service, infant nutrition, haircare or other top 20 categories,” says Lowe’s Mehta. “But we are optimistic.” 

Global franchises soon to open include Burger King, Popeye’s, Round Table Pizza, Melting Pot, Carl’s Jr from the US, and Bread Talk, Cavana and Koufu from Singapore, to list a few appearing in HCMC’s business press.

Aside from KFC and Jollibee, they will battle Lotteria and Pizza Hut, both already in-country and targeting the best real estate at HCMC and Hanoi’s malls.

Euromonitor counted 6,579 fast-food outlets, with sales of VND5.5 trillion last year. The vast majority are local operations. But these are a small fraction of the 528,812 foodservice outlets - the majority being owner-operated food stalls - that generated VND411 trillion.

Vietnamese entrepreneurs have experimented with franchising. Two local success stories - Trung Nguyen Coffee and Pho 24 - have matured enough to venture offshore. At home, Trung Nguyen boasts more than 1,000 outlets. Pho 24, founded by Australian-educated Ly Quy Trung, has 65 locations and adheres to the franchise formula based on four pillars - system, brand name, product and trade secret. But emulating this model is difficult in Vietnam, a country with a per capita income of $832.

Potential franchisees lack start-up funds, and homegrown franchises often license their business piecemeal as a result.

Despite their deep pockets, global franchises will encounter problems. “The whole notion of fast food already exists in Vietnam, and it is readily available on the street,” says Alison Dexter, research director at TNS Vietnam.

McDonald’s absence in Vietnam is conspicuous. The country is the world’s 12th most populous, and McDonald’s usually moves in step with rivals KFC and Pizza Hut.Yet Liam Jeory, regional VP of corporate relations at McDonald’s, insists: “We have no plans currently to set up in Vietnam.” 

One challenge is the low level of development of supply-chain infrastructure, and the lack of locally produced ingredients. KFC can testify to the importance of supply chain. During the bird flu crisis, it was forced to switch to fish. But with the global fast-food industry training its sights on the market, Vietnam may soon be home to a far more modern fast food sector.

Got a view?
E-mail [email protected]