Fast food giants are still betting big on the Vietnamese market, despite ongoing losses and sluggish performance.

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In the red

In Vietnam giới, Lotteria và KFC are considered the leading fast food brands. However, the financial statement of Lotteria showed that the fast food chain recorded after-tax losses were VND118 billion ($5.22 million) & VND135 billion ($6 million) in 2015 & năm nhâm thìn respectively. By the end of 2016, Lotteria’s accumulated losses were more than VND413 billion ($18.27 million), while its charter capital reached only VND433 billion ($19.16 million), as reported by local truyền thông media.In the meantime, Lotteria’s competitor, KFC also reported losses with a low-profit-margin at around 15 percent in năm nhâm thìn. This was even lower in the previous year, at only 10 percent. As a result, KFC lost VND25 billion ($1.1 million) in 2015 & made a profit of VND15 billion ($664,000) in năm 2016.The Fast Food in Vietphái nam report by Euromonitor International reveals that many international fast food brands in Vietnam have declined in 2017, including Burger King, Popeyes, Subway, & Carl’s Jr. Lotteria và KFC, despite maintaining their leading positions in 2017, only recorded very low-value sales growth.When VIR contacted Vietphái nam Lotteria Co., Ltd., marketing manager Truong Ham Liem did not deny these above-mentioned losses. He said that Lotteria’s market development plan focuses on the expansion of outlets. Lotteria invested heavily in developing & advertising its chain of outlets between 2014 & năm 2016.“It is only when Lotteria achieves its intended scale that the company will consider profitability,” Liem said, adding that the Vietnamese market is growing rapidly, so Lotteria continues lớn invest in the market to achieve the company’s original goals despite the losses.“The scale of Vietnam’s fast food market has yet lớn hit the profitable point, so the chain is committed lớn ongoing investment,” Liem said. “In 2017, Lotteria continued to increase the number of its outlets, which will lead lớn revenue growth và shrinking losses. The fast-food chain is expected khổng lồ generate profits this year.”According khổng lồ Sean T. Ngo, CEO of VF Franchise Consulting, there are many reasons for ongoing losses amuốn foreign fast-food chains, despite having been present in Vietnam for years. It is a combination of increasing competition for both local và foreign companies, high rental costs, & a limited supply of affordable premises.Other reasons include a supply chain that needs significant improvement and depth in terms of the number of qualified suppliers in Vietnam, fast-rising labor costs as evidenced by nearly annual increases in minimum wages throughout the country, và generally lower disposable incomes as compared to many regional neighbors.“The good news is that many of these areas are improving over the medium lớn long-term,” Ngo said.Indeed, Vietnam’s fast food market’s kích cỡ has almost doubled in the last five sầu years, from VND11.84 trillion ($524 million) in 2012 lớn VNDđôi mươi.22 trillion ($894.7 million) in 2017, at a compound annual growth rate of 11.3 percent. Moving forward, the market is expected to hit VND24.99 trillion ($1.11 billion) by 20đôi mươi, according lớn Euromonitor.

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New growth

Over the last 10 years, fast food brands have sprung up across Vietnam. It is very easy to lớn find a fast food store with modern furniture, glass doors, và cool air conditioning. The density of fast food outlets is increasing, not only in the commercial centers and big cities but also in other provinces. Fast food companies have proactively conducted franchising lớn open more và more new stores in lucrative sites.Currently, Lotteria and KFC have sầu the largest number of stores in Vietnam giới. Lotteria opened in Vietnam in 1998 and leads the fast food industry with 222 stores nationwide now. It had 140 stores by late 2012, which rose to lớn 207 in 2015, meaning Lotteria increased the number of its locations by 150 percent between 2013 và năm ngoái, & over 20 stores were launched each year.Meanwhile, KFC, the world’s most popular chicken restaurant chain, has been present in Vietphái mạnh since 1997, when Vietnamese customers were still unfamiliar with the concept of fast food. KFC suffered losses for seven consecutive years. The increase in the number of stores was very slow, reaching 17 stores after seven years. KFC then adjusted its strategy, and the number of stores rose to 100 in 2011.During the most exciting phase for fast food, 2012-năm ngoái, the number of KFC outlets rose to lớn 140 across 18 cities & provinces. The number remains unchanged now.Another brand developing well in Vietnam is the Philippines’ Jollibee, which has taken part in the Vietnamese market since 1996 và marked the milestone of 100 stores in 2017. Jollibee Food Corporation (JFC) has recently gained a controlling stake in SuperFoods Group, which owns and operates Highlands Coffee và PHO24.Erneslớn Tanmantiong, JFC’s president, is upbeat about the outlook in Vietphái nam. “Vietnam giới is growing fast and has a young population, and both Jollibee & Highlands Coffee are growing very well. We are very excited about Vietphái nam, because it will be a large consumer country due khổng lồ its population, and there is a lot more room lớn grow,” Tanmantiong said.Meanwhile, McDonald’s, which began operations in Vietnam giới in năm trước, has launched only 17 outlets so far. Explaining this modest figure, Nguyen Huy Thinch, CEO of McDonald’s Vietnam, told VIR that the McDonald’s strategy is lớn ensure good performance in every outlet.“The speed of opening will become faster & the target of 100 stores within 10 years is possible,” he said, noting that the business results of McDonald’s are very positive sầu, with annual growth rates of 30-40 percent.According lớn Euromonitor, Lotteria maintained the leadership position on the market in 2017 with 17.9 percent of market giới thiệu, followed by KFC (11.4 per cent), Jollibee (8.3 percent), and McDonald (1.7 percent).

Moving forward

Fast food brands are urged to lớn switch their development strategies khổng lồ reverse the slump. Ngo noted that some fast food chains are already making profits, while others are still struggling và a few have clearly failed and exited the market.Fast food chains that are open to the localization of thực đơn items và sourcing while maintaining their chất lượng and service standards are more likely khổng lồ succeed than those that have sầu lớn import nearly every raw material inkhổng lồ the country, thereby facing higher costs.“Some chains are also realizing that smaller footprints are critical to lớn success as they cost less and, if the location is chosen correctly, can generate more returns & thus revenue for the company. KFC and Lotteria are slowly, but surely heading in the right direction and towards better profitability, as branding power and economies of scale become ever more important in an increasingly competitive sầu market,” he said.