11:52 (GMT +7) - Wednesday 15/08/2018

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Franchises acting upon F&B growth

Released at: 14:43, 05/08/2018

Franchises acting upon F&B growth

Photo: Viet Tuan

As Vietnam's food and beverage industry grows, so do the number of franchises.

by Hong Nhung

Chilli Crab, one of the world’s 50 Best Foods according to CNN, has become a favored dish of many Vietnamese people who are fond of Singaporean cuisine. It’s been among the main courses at Lion City restaurants in their 12 years in Vietnam. The owner of Lion City, Vietnam’s Multi Trust Company, two months ago announced the launch of a franchised restaurant in Malaysia’s capital Kuala Lumpur; its first foray into an overseas market. Franchise analysts said that Vietnam’s restaurant franchising market has been particularly active over recent years given that the country’s continued rapid development and rising incomes equate to even greater potential for food and beverage (F&B) franchising activities. 

Doors opening

Multi Trust now operates four restaurants in Ho Chi Minh City and its first franchising deal in Malaysia brings its total to seven, together with two other franchises in the Mekong Delta’s Can Tho city, which opened last December, and in Hanoi, to be re-opened in August. Lion City is the first five-star Singaporean restaurant chain in Vietnam, serving famous Singaporean fare to an average of around 60-80 customers at each outlet every day. “We import about 70 per cent of ingredients and materials for the Lion City chain in order to ensure quality and authentic taste,” Founder Mr. Harry Ang told VET.

The company has also set strict criteria for its franchising partners, who must have strategic and prime locations with a minimum dining area of 200 sq m and investment capital of $200,000. Lion City’s venture into the franchising playground overseas is a strategic move after more than a decade of development in Vietnam. “We are considering franchising in Da Nang and Nha Trang and our next target country after Malaysia is Thailand,” Mr. Ang said.

With a wide variety of offerings, long-term Vietnamese restaurant chain operator the Redsun International Trading Investment Corporation (Redsun ITI) now has 14 renowned brands with nearly 200 restaurants throughout the country after being founded in 2008, in which 31 are franchises. The company affirms its leading brand in Vietnam’s F&B sector in serving more than 5 million customers per year. According to Mr. Le Vu Minh, Deputy General Director of Redsun ITI, the company will open and franchise more restaurant brands in Vietnam as well as in other countries this year and the years to come. “We have franchised with King BBQ and Hotpot Story and are now proceeding with Buk Buk and Khao Lao,” he said.

The company has set a target of 450 restaurants, including 200 franchises, locally and in overseas markets by 2021. Last year it invested $11 million in building a plant in Ho Chi Minh City processing and supplying ingredients and other materials for its entire restaurant chain and franchising system. 

With its franchise model doing handsomely, Redsun ITI now wants to take its restaurants to the world, and recently introduced its Truly Viet brand in Australia under the franchise model. It has also negotiated with partners in Laos to open a chain of King BBQ. 

Another active restaurant franchisor, Redwok, earlier this year announced its second franchised Wrap&Roll restaurant in Shanghai, China, raising the total number in Asia to six. This is part of the company’s expansion plans in five foreign countries from now to 2021. It now has three Vietnamese restaurant brands with 25 outlets nationwide and six franchises in Singapore and Shanghai. The company will open 10-12 new franchising stores overseas this year.

Apart from local brands, foreign F&B giants have been looking at different ways to franchise their brands in Vietnam. Popular instant noodle maker Acecook Vietnam two months ago signed a commercial franchise agreement with Japanese restaurant brand Ringer Hut to operate a restaurant chain in Vietnam. It is preparing to launch the first noodle restaurant this year.

Lucrative potential

Not only are global F&B franchisors viewing Vietnam as a market of huge potential, Vietnamese restaurateurs have also stepped up their franchising efforts in the local market and elsewhere. 

According to figures from the Ministry of Industry and Trade, there are now over 200 foreign brands registered in Vietnam and the number has been growing rapidly, by 10-15 per cent per year and over the last five years. 

Ms. Nguyen Phi Van, President of Retail & Franchise Asia, told the international “Shop & Store Vietnam 2018” exhibition that Amcham ranks Vietnam’s franchise market eighth among the 12 with the most potential in the world, and Vietnam has become something of a “magnet” for foreign brands seeking franchise opportunities.

The food industry is one of the leading sectors in terms of growth in Vietnam. A study by market researchers Decision Lab shows that Vietnamese people spend around $440 million a month eating out, or more than $35 per capita. Many restaurants, shops, supermarkets, convenience stores, and food courts have sprung up in cities and coastal areas to meet soaring demand.
The local food market still has a lot of room for growth, especially Ho Chi Minh City, according to Mr. Ang. He revealed ambitious plans for this year, with Lion City to continue being franchised overseas and raising the number of outlets to 20. “After reaching this target we will buy some local farms to develop our own supply chain,” he said. “The firm’s initial plan was to break even after three years of operation, but this was actually done earlier.”

In 2017 alone, Redsun ITI opened 79 restaurants and still maintains annual growth of around 60-70 per cent. “Our franchising restaurants have been developing stably since 2014,” said Mr. Minh. “Some franchising partners have opened more than one outlet and been negotiating to franchise other brands. We are in the process of improving other brands to seek more franchising opportunities.”

Harsh race

Despite the overwhelming number of success stories in Vietnam, the fact is that many brands have been forced out the market in recent years. Industry insiders said that not many Vietnamese franchisees have experience in running a restaurant on a large scale. International names are more attractive to franchisees than domestic names as they have been in existence for longer and have standardized working procedures. The majority of Vietnamese companies, meanwhile, are of small and medium scale can are yet to have standardized procedures.

The restaurant chain model possesses advantages that will see franchises grow, but it will depend on the characteristics of each business model and the ability of the owners, according to Mr. Dao The Vinh, CEO of the Golden Gate Group (GGG). “Vietnam is relatively new in terms of franchising, and awareness is low and the legal framework is still being built, so limitations remain,” he said. “The more strict criteria a restaurant model has, the more difficult it will find expanding through franchising. GGG has therefore not franchised as yet, so we can better manage product quality and services.”

Franchisees need thorough local knowledge wherever they open. In addition to choosing the right partner, the high cost of supply chains and rentals continue to be key problems, especially if they are franchises that need prime locations and/or need to import significant amounts of ingredients and other materials.

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