Franchise market warms up, to boom in near future

VietNamNet Bridge – Newly emerging and potential--Vietnam has become a lucrative market for foreign franchisors. However, the high retail premises rents would challenge them.

Foreign food groups have been flocking to Vietnam to seek business opportunities through franchising contracts.

The US fast food Burger King has set up its first shop on Pham Hong Thai Street in district 1 of HCM City. Elias Diaz Sede, President of Burger King Asia Pacific, said Burger King plans to open 12 shops by the end of the year in three big cities of HCM City, Hanoi and Da Nang.

Its Vietnamese partner is BKV, a food and drink service company, a subsidiary of IPP Group.

In August 2012, McDonald’s senior executive arrived in Vietnam and had a working session with the Ministry of Planning and Investment on some potential partners, a preparation step for the setting up its first shop in HCM City.

The giant reportedly plans to be present in Vietnam in the next two years under the 100 percent franchising mode, hoping that 100 shops bearing McDonald’s brand would turn up in big cities.

Starbucks Coffee has confirmed that it would be present in Vietnam in 2013. Meanwhile, Johnny Rockets has joined hands with CBRE, a real estate service provider, revealing the intention to give franchise on the development of a fast food chain in Vietnam.

A lot of other US big enterprises also arrived in Vietnam to seek business opportunities, including Pollo Tropical, Dennys, Applebees, The Melting Pot, Great American Cookies.

The franchise boom has been seen not only in the food sector, but in other sectors as well, such as education, fashion and healthcare.

A senior executive of a consultancy firm, which has advices in many franchise deals, has noted that the franchise market in Vietnam remains below the potentials. However, he said the market would be bustling in the near future, since more and more foreigners have been eyeing Vietnam.

The expert explained that franchising would be the choice of many foreign groups, because the method allows them to save time and lower the investment costs. If making direct investment, they would have to spend time and money to develop the market. Meanwhile, they would be able to reduce the costs and avoid legal risks.

However, he has warned that foreign franchisors would face a big difficulty – the high retail premises rents.

The retail premises located on advantageous positions which can easily catch up the attention of passers are believed to decide the success of retailers. Meanwhile, the rents of retail premises in Vietnam are the highest in the world, which have been increasing steadily by 20-30 percent per annum.

The rents account for 25-30 percent of the total revenue of franchise shops, which makes it very difficult to make profit.

Dr Dinh The Hien, a well-known economist, affirmed that franchising will be a growing tendency in Vietnam.

When asked when he thinks the franchise boom period would begins, Hien said that by 2014, all the market barriers would be removed in accordance with the WTO’s commitments, which means that foreign investors would be easily penetrating the Vietnamese market. By that time, when the national economy recovers, the youth income increases and the family spending rises, the franchise market would boisterous.

Huan Tu