Byravee Iyer
Jul 17, 2013

McDonald’s faces challenges in late entry to Vietnam

HO CHI MINH CITY - The world’s largest restaurant chain plans to open its first restaurant in Vietnam next year, where it will compete in a crowded fast-food market that includes earlier entrants Burger King, KFC, Pizza Hut, Subway and Korean chain Lotteria.

McDonald's will open its first restaurant in Ho Chi Minh City in 2014
McDonald's will open its first restaurant in Ho Chi Minh City in 2014

McDonald's sees a big opportunity in Vietnam's growing young population. According to a Zacks Equity Research report, higher disposable income in the country, coupled with a consuming class that is spending more on branded food, will benefit the fast-food giant. 

“We will continue to evaluate our growth strategy in Vietnam after the first restaurant is established, but our plan is to pursue growth in a way that allows us to best serve as many of our potential customers as soon as we reasonably can,” Liam Jeory, McDonald’s vice-president of corporate relations, APAC & MEA, told Campaign Asia-Pacific.

Interestingly, McDonald’s has awarded the franchise to Henry Nguyen, the influential son-in-law of the country’s prime minister. McDonald’s said the contract with Nguyen was the result of a “rigorous” selection process.

“The emergence of Western culture in Vietnam generates increasing consumer demand for foreign brands, and young teenagers and working adults are willing to pay money to eat at international chains such as Pizza Hut or KFC,” said Trang Nguyen, a research analyst for Euromonitor.

According to Euromonitor data, the $543.6 million fast-food market in Vietnam saw growth of 13.9 per cent in 2012 and is expected to grow by 15 per cent in 2014. At present, KFC leads market share in the category, with 16 per cent of the market, followed by Lotteria with 5.8 per cent and Jollibee at 1.6 per cent. Burger King, which launched in 2011, has about 0.4 per cent of the market.

Several challenges lie ahead for McDonald’s, not the least of which is its late entry into the market. Generating critical mass at an affordable price point is a key challenge it will face, said a source on condition of anonymity. He pointed out that it took KFC more than a decade to achieve its level of success, because consumers in Vietnam view fast food as “an occasion”.

“Road-side vendors and cafés offer cheaper alternatives to burger chains,” the source said. Many are also aware of the notorious health risks of fast food.

Another problem for McDonald’s would be quality control, given the nation’s restrictions on importing meat. In most markets, McDonald’s imports its meat. For instance, it is understood that in Asia, McDonald’s only uses Australian beef in its beef burgers. McDonald’s association with Nguyen might ease some of these problems, the source added.

He also observed that size is key to success in the category. Lotteria, for example, has been able to price its products competitively by cutting down the size of its burgers. “Cheaper, entry-level products sold at three quarters of a regular burger’s size will help them compete better,” the source said.

Brand experts recommend that McDonald’s localise its menu. Typically, McDonald’s uses a strong ‘made for Asia’ strategy of creating dishes that cater to local tastes. McDonald's has said its menu in Vietnam will include the Big Mac sandwich, cheeseburgers and fries.

“If it employs a similar [localised] strategy, coupled with the fact that it is still one of the few global fast-food burger joints (KFC specialises mainly in chicken burgers), and Vietnamese love beef as much as their chicken, and it still stands, like other fast food joints, for international food safety and hygiene, it should still be able to catch up,” Tara Hirebet, head of APAC at trendwatching.com, commented via email.

However, Hirebat warned that competitors are already employing this strategy in Vietnam. KFC in October 2011 launched a Lime Chilli Fried Chicken that uses Kefir lime leaves, a spice commonly used in Vietnamese dishes. Pizza hut has rice with chicken or rice with baked ribs, while Domino’s has created a pizza with Vietnamese-style sausage instead of Italian sausage. “The challenge will be to come up with new, fresh localised dishes to cater to local tastes," Hirebet added. 

Source:
Campaign Asia

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