Potential for regional names

13:00 | 23/05/2019
Vietnam’s franchising market is brimming with tremendous opportunities, attracting more regional brands to enter the scene to tap into the robust growth of 2019. Vy Nguyen reports.
potential for regional names
Vietnamese cities are already brimming with regional brands from Singapore, South Korea, and Taiwan Photo: Le Toan

Ted Tan, deputy chief executive of Enterprise Singapore, a statutory board under the Ministry of Trade and Industry in Singapore, told VIR that franchising and licensing are one of easier ways for foreign brands to make an entrance into new markets. At present, many Singaporean companies are ­looking for franchising opportunities in Vietnam. For example, Tung Lok Group, Singapore's leading restaurant group has recently started a licensing agreement in the country. “Singapore has a small domestic market so most companies expand globally and regionally,” said Tan. “Singapore has many good concepts for franchises overseas such as BreadTalk. The chain is successful in bringing its concept to Vietnam and around the region.”

Many Singaporean food and beverage (F&B) players have entered the Vietnamese market through the franchising route like Ya Kun Kaya Toast, Jumbo Group, and Xiao Ban. Last week, a delegation of 14 companies led by Enterprise Singapore paid a working visit to Vietnam to explore the potential for retail and F&B businesses.

Commenting on the interest of Singaporean brands in the Vietnamese market, Tan noted that the growing affluent middle class with its increasing disposable income in Vietnam opens up opportunities for enterprises. Vietnam also has a high percentage of young citizens, so there is a lot of potential for young people to try new food and concepts from Singapore.

Hawker Chan is one of the world’s cheapest Michelin-starred restaurants. The restaurant’s CEO, Angel Chong, told VIR that the firm joined the delegation to Vietnam to understand the market and consumer preferences. “Street food culture is strong in Vietnam. Hawker Chan also comes from a street food background. However, we hope we can come here to offer Singaporean food for locals to try, compare, and have an alternative,” she said, noting that the restaurant is open for all franchise partners or joint venture opportunities.

Global flavours

In addition, Taiwanese franchisors are also active in the Vietnamese market trying to cash in on Vietnam’s bubble tea craze. Taiwan is already popular for its pearl milk tea in Vietnam, with the north especially consisting of a large tea-drinking population. Ho Chi Minh City’s lively Nguyen Hue street is coined by some as “Pearl Milk Tea Street”. Although pearl milk tea costs more than coffee, young people still enjoy it.

Many Taiwanese milk tea brands have stirred up Vietnam’s franchising market like The Alley, Gong Cha, Bobapop, Sharetea, and R&B Tea. Among them, Ding Tea is one of the largest milk tea franchises in the country in terms of locations, with around 200 outlets. To facilitate more Taiwansese brands into the market, Taiwan will host an expo titled Franchise, Retail & Hospitality Vietnam in Hanoi next year.

South Korean F&B companies are aggressively seeking new opportunities in overseas markets through franchising, as the local F&B industry is now saturated. According to a report by Korea Agro-Fisheries & Food Trade Corporation, Vietnam is the most popular destination chosen by 43 per cent of the South Korean companies. As for presence, the total number of South Korean F&B outlets reached 360 stores in Vietnam. Tous Les Jours, a South Korean bakery franchise owned by CJ Foodville Vietnam, is another popular outlet in this country.

Nguyen Phi Van, chairwoman of Retail & Franchise Asia, said Vietnam ranked eighth out of the top 12 markets identified by the International Franchise Association as the most valuable for global expansion. The potential sectors for franchising businesses include F&B, education, health and nutrition, business services, hospitality, fashion, beauty and skincare, entertainment, children’s services, and convenience stores.

“Vietnam would continue to be a destination for international brands, especially regional brands,” Van said, forecasting that the trend would continue over the next three years.

Indeed, the chain franchise market in Vietnam has been open for a decade now, and overseas companies can own 100 per cent equity, with future development looking promising. Data from the Ministry of Industry and Trade (MoIT) last year showed that 203 franchise chains have entered the Vietnamese market, with 36 per cent in catering, 28 per cent in educational services, and 18 per cent in fashion makeup apparel, all consisting of major brands from Europe, North America, and Asia. In this regard, shop equipment, hardware, and software markets are growing in parallel.

According to franchising consultancy VF Franchise Consulting, it typically takes from nine months to a year to fully register a foreign brand barring any complications, so there are likely more brands in the process of achieving final approval. The growth of new franchises entering Vietnam however, while robust, is expectedly slowing. The consulting firm anticipated a 10-15 per cent growth rate annually for the foreseeable future.

Unlocking challenges

Despite the huge potential, franchise players also face obstacles in the Vietnamese market. CEO of lingerie brand iBasic, Calvin Lam, said that one of the most significant challenges for Vietnamese franchisees is the cost of rent, which is even higher than production expenses. However, as a number of shopping malls and supermarkets open, the cost of rent will decline thereby contributing to the overall success of franchise businesses.

As the market becomes more competitive, Lam urged franchisees to look for partners to implement business rather than carrying out everything alone. Furthermore, they should position themselves more accurately in the market. Some mother and baby retail chains such as Concung and Bibomart are gaining traction as they target the younger population in Vietnam, especially parents and newly-married couples.

According to Eckart Dutz, general director of Pacific Partners, specialised in fast moving consumer goods from Asia, there is a rising trend of omnichannels to improve the consumer experience. Franchisees should adapt to this trend to satisfy the requirements of users via all methods at all times.

In addition, Vietnamese consumer needs are increasingly evolving, in terms of growing health awareness, work-life balance and social security, and they are willing to spend more for quality and healthy products. Therefore, if franchisees can adapt to these sophisticated needs, they are likely to gain a slice of the market.

On the same note, Van from the Retail & Franchise Asia pointed out that Vietnamese enterprises lack experience in the franchising industry. It takes time for local enterprises to catch up with related knowledge before they can fully understand and apply franchising into their business development strategies and plans, starting with a change in mindset. “Some local businesses still look at franchising as a way to make a quick buck by utilising other people’s money,” Van said. “This is the entirely wrong approach and will create a crisis for franchise systems as they grow. The right mindset is the sharing of prosperity. When franchisors do well, they share the opportunities with their franchise partners and grow together.”

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