Foreign Franchises in Vietnam: Departures, Successes, and the In Between

Franchising can be very lucrative in Vietnam but it can also be a challenging market for foreign firms. Here, we present significant examples of both successful and unsuccessful ventures for foreign franchises in Vietnam.

International foreign chains are a rapidly expanding segment in the food service sector in Vietnam.

The Ministry of Industry and Trade has issued 183 foreign brands franchise licenses. These are mainly for firms from the US, Australia, South Korea, and the European Union. For foreign franchises, however, Vietnam can be a challenging market.

Keeping this in mind, we explore some prominent franchises that have achieved success in the country, some that have encountered challenges, and others that fall somewhere in between. By examining these real-world case studies, foreign investors can gain valuable insights into the complex dynamics at play within Vietnam’s F&B industry for franchises, and make better, more informed decisions.

See also: Vietnam’s F&B Industry: Market Trends and Consumer Preferences 

Franchises that have left the Vietnamese market

Auntie Anne’s

In July 2019, Auntie Anne’s made its official entry into Vietnam. At the beginning, the brand received a warm reception from consumers, with most of the brand’s stores in Vietnam experiencing high sales during the initial months after opening.

Earlier this year, however, Auntie Anne’s announced that all of its stores in Vietnam would cease operations as of June 1, 2023. The brand originated in the United States and has a presence in more than 30 countries through a network of nearly 2000 stores. Vietnam, however, proved too challenging.

Auntie Anne’s entry into Vietnam coincided with the beginning of the COVID-19 pandemic. The global health crisis caused unprecedented disruptions to Vietnam’s economy, consumer behavior, and the food and beverage industry as a whole.

During the pandemic, strict lockdown measures, social distancing regulations, and reduced consumer spending adversely affected the operations and profitability of many businesses, including Auntie Anne’s.

Auntie Anne’s also faced a significant challenge in Vietnam’s unique street food culture. The very popular and low-cost foods sold streetside were in stark contrast to Auntie Anne’s pricier baked goods and, as a result, it was never able to gain a strong foothold.

New York Dessert Cafe (NYDC)

In July 2016, the famous NYDC chain officially closed, leaving well before realizing its ambitious plans.

NYDC was brought to Vietnam in 2019 by SUTL Group and opened a string of coffee shops in Ho Chi Minh City. Ambitiously, the firm intended to open 20 stores in five years at a cost of roughly US$300,000 each.

However, in May 2016, NYDC had to close three branches, and six months later it closed its fourth and last.

NYDC’s problems stemmed from fierce competition from domestic coffee chains, such as The Coffee House, Phuc Long, and Trung Nguyen. Vietnam has a well-developed coffee culture that offers local-style Vietnamese coffee at a fraction of the cost of big international brands and NYDC struggled to compete.

Subway

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In 2010, Subway made its official entry into the Vietnamese market, inaugurating its first store in Ho Chi Minh City. Drawing upon a successful marketing strategy implemented in numerous countries, the brand aspired to establish a chain of 50 stores within five years in Vietnam.

Subway maintained its standardized marketing approach in Vietnam, offering a menu featuring low-calorie, non-fried, baked goods that were perceived as healthy and energizing.

But despite the addition of Vietnamese-style bread to the menu, the business fell short of expectations. By 2020, the brand closed down five locations in Vietnam, leaving only one store operational in Da Nang. Shortly thereafter it withdrew altogether.

Key among its challenges was that its product didn’t resonate with local consumers. Whereas Subway stayed true to its international menu, Vietnamese consumers found the combination of European-style ingredients, such as ham, bacon, and chicken breast, paired with grain and oat-based crusts, unfamiliar and challenging to embrace.

Furthermore, Subway encountered a significant obstacle with regard to product pricing. Customers were required to pay up to 160,000 VND (US$6.80) for a sandwich, relatively high in comparison to the average Vietnamese income. Furthermore, it was far more expensive than traditional banh mi bought from a street vendor, which can cost as little as 30,000 VND (US$1.28).

See also: Registering a Franchise in Vietnam 

Franchises with an uncertain future in Vietnam

McDonald’s and Burger King

McDonald’s and Burger King have become widely recognized in Vietnam and globally, but have struggled to achieve broad success and market coverage in Vietnam. McDonald’s has reported continuous financial losses in year-on-year business reports, and this raises questions as to why they have been unable to replicate their early success in the Vietnamese market.

Unlike in the United States, where McDonald’s and Burger King contend with competitors such as KFC and Wendy’s with similar products, in Vietnam they face competition from an entirely different cuisine, particularly local food vendors that are deeply ingrained in Vietnamese culinary culture.

Pricing has also been a challenge for both burger chains. Most common Vietnamese meals typically cost between US$1 and US$2 while a meal at McDonald’s can cost quadruple that, reaching up to US$8-US$10.

But there is also a cultural aspect too. Vietnamese culture emphasizes communal dining and the sharing of meals whereas Burger King and McDonalds focus on individual meals consumed quickly. Vietnamese prefer to dine in restaurants and buffets where they can eat at a leisurely pace.

That said, both brands are slowly making inroads.

Starbucks

Traditional Vietnamese iced coffee is very popular locally. It also utilizes Robusta coffee beans, which give it a distinct taste when compared with traditional Western Arabica beans. Robusta beans also possess a significantly higher proportion of caffeine.

Currently, coffee production and export play a crucial role in the country’s economy. Vietnam is the second largest coffee producer globally, producing 1.6 million tons of coffee in 2016.

As such, local coffee shops do not encounter intricate procedures for importing coffee, as they have ample supplies of Robusta coffee available locally. Conversely, Arabica coffee beans often need to be imported and this can sometimes be challenging.

The Starbucks menu in Vietnam is mostly the same as in other countries. This means that local consumers cannot find at Starbucks the coffee products they are familiar with. This can be off-putting for Vietnamese coffee drinkers.

As one would expect, the average price of coffee at Starbucks in Vietnam exceeds that of local coffee shops. Despite this, customers continue to visit Starbucks, although with less frequency. Vietnamese customers, particularly those with higher incomes, may visit Starbucks to deviate from their usual routines or for the status that buying products from Starbucks often provides.

See also: Understanding Franchise Agreements in Vietnam

Successful franchises in Vietnam

ToCoToCo

ToCoToCo is a renowned bubble tea brand in Vietnam’s F&B industry for nearly a decade now. ToCoToCo’s marketing strategy involves amplifying its use of Vietnamese agricultural products alongside a relatively low price point for a franchise. At only VND 368 million (US$16,000) this is far below the much larger franchising fees of big Western brands, which can run into the hundreds of thousands of dollars.

Furthermore, ToCoToCo’s product prices range from 25,000 VND (US$1.06) to 54,000 VND (US$2.30). This is well within a comfortable range for most young Vietnamese consumers.

ToCoToCo regularly runs promotions and offers discounts too. Additionally, exclusive offers are integrated into the membership card system for loyal ToCoToCo customers. These promotional initiatives are aimed at driving customer engagement and ensuring customer loyalty.

Investors who attend a franchising workshop or watch the ToCoToCo bubble tea franchise live stream receive an instant five percent discount.

It is these initiatives that have seen the brand become a household name in Vietnam. It’s not just in Vietnam, either. ToCoToCo is popular throughout Asia with 600 stores and counting.

Kentucky Fried Chicken (KFC)

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KFC had a slow start in Vietnam, opening just 17 stores after its first seven years. However, KFC currently holds the dominant position in Vietnam’s fast food industry, boasting a 79 percent market share.

What changed?

KFC adapted its taste, portion sizes, and product designs to cater to Vietnamese consumers. It also introduced a range of items infused with Vietnamese flavors, including crispy lemon leaf chicken, boneless crispy chicken, and soft bread. It also adopted a reasonable and cautious pricing strategy to establish a foothold in the Vietnamese market.

As a result, KFC has expanded its network to all of the major cities, such as Hanoi, Saigon, Da Nang, Hue, and stores now appear in commercial centers, shopping malls, and amusement parks.

KFC’s strategic initiatives have enabled it to achieve stellar business outcomes. It is, however, facing increasing competition from brands like South Korea’s Lotteria and McDonald’s. To maintain its market position, KFC will need to continue to innovate and adapt to the dynamic Vietnamese market’s needs.

Mixue Ice Cream & Tea (Mixue)

Mixue Ice Cream & Tea is a beverage chain founded in 1997 in China. In 2008, Mixue started selling ice cream and boba milk tea at extremely low prices and eventually became the popular brand that it is today.

Mixue’s success in Vietnam has come as a result of a number of factors. It is reasonably priced with basic ice cream costing just 10,000 VND (US$0.45). More expensive items like milk tea start at 25,000 VND (US$1.06), still well within an affordable range for the average Vietnamese.

Mixue’s success has largely been a part of a marketing strategy focused on smaller, more cost-effective locations, with a focus on takeaway services and limited in-store dining. This has allowed for more stores to proliferate at a lower price point.

Market entry lessons for foreign franchises in Vietnam

Various F&B franchises have entered the Vietnamese market over the past two decades. Some have not fared well and have packed up and left, some have been very successful, whereas others sit somewhere in the middle.

By understanding the diverse experiences of these franchises, investors can grasp the nuances and intricacies that define the Vietnamese F&B landscape. This can make market entry much easier and success much more likely.

Foreign franchises need to carefully consider their pricing strategies in Vietnam, taking into account the average income levels and local market expectations. Offering competitive prices that align with the local market can attract more customers. Incorporating local agricultural products into franchise offerings can also be a successful marketing strategy.

Overall, franchises need to be aware of the changes across the F&B landscape in Vietnam and continuously assess and manage competition from both domestic and international brands. Staying updated with market trends and consumer preferences is essential for maintaining a competitive edge.

For support establishing your franchise in Vietnam, contact the business advisory specialists at Dezan Shira and Associates.

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