Vietnam - Franchising Industry Sector Vietnam - Franchising
This is a best prospect industry sector for this country. Includes a market overview and trade data.
Overview
The franchising model is popular and well-suited to a developing economy like Vietnam. The culture of entrepreneurship is ideally suited to franchising as it provides investors with a relatively rapid avenue of entering business with controlled levels of investment and at a reduced risk. Rising incomes and an emerging middle class are generating an increase in consumer-driven sectors.Franchising began in Vietnam in the 1990’s with the introduction of well-known fast food chains like KFC, Lotteria, and Jollibee. As of 2017, the Vietnamese Ministry of Industry and Trade (MOIT) reports that there are more than 170 foreign brands registered as franchising businesses in Vietnam. This includes fast food, bakery, coffee, drinks, and restaurants, accounting for over 50 percent of total franchise contracts signed. Most franchisors come from the U.S., Australia, South Korea, Singapore, Thailand, Japan, Hong Kong, Canada, and the Philippines.
Increasingly, Vietnamese businesses have been exploring opportunities available through franchising. Popular brands include: Wrap and Roll, Café Cong (Plus Coffee), AQ Silk, Ong Hung (Mr. Hung) Pho, ThaiExpress, The Gioi Di Dong (The World Mobile), and Shop and Go. Nationwide, Highland Coffee and Trung Nguyen Coffee are others that have gained traction in the last year. Mon Hue, Wrap and Roll, Kichi Kichi, Sumo BBQ, Vuvuzela, King BBQ Buffet, Pho 24, and Trung Nguyen Café are local brands that are expanding overseas.
There are also several challenges that new-to-market franchisors should consider:
- Many local companies may not have a full understanding of brand value/integrity and/or legal regulations relating to franchising, making it important to identify and conduct due diligence on potential partners to determine their suitability and financial capability.
- Local firms are wary of new concepts that require high investment despite improvements in the local real estate and securities markets in recent years. They are also reluctant to invest in a new brand that does not have a strong track-record in the region.
- Finding suitable and affordable locations despite rapidly emerging modern retail channels and retail development in Ho Chi Minh City and Hanoi.
- Respect for intellectual property. U.S. franchisors should register their intellectual property, including URLs and websites, and be prepared to take legal action against IP violators.
- Cultural differences require adjustments to market access strategies. U.S. franchisors should consider adapting to local culture, habits, and tastes to guarantee success in the market.
According to these regulations, a foreign franchisor is permitted to franchise in Vietnam without establishing a business entity in Vietnam. However, a foreign franchisor is required to have been in business for one year prior to franchising in Vietnam. A Vietnamese primary franchisee must also have been in business under the foreign franchisor for one year prior to sub‐franchising in Vietnam. A foreign franchisor registers its activities with MOIT, while a local franchisor registers with the provincial Department of Industry and Trade. The franchise agreement must be in Vietnamese and may be translated into English.
The Vietnamese Government issued Decree No. 8/2018/ND-CP in January 2018 to amend some business conditions, including franchising, regulated by the MOIT. Decree No. 8/2018/ND-CP, Article 5 of Decree No. 35 was revised removing the requirement for foreign franchisors to register with MOIT. However, the registration requirements in other articles in Decree 25 were not revised, requiring additional clarity from MOIT on these requirements.
Leading Sub-Sectors
Vietnamese consumers often associate Western brands with quality, an affluent life-style, and product reliability. They are responsive to high-end, well-known, premium brands of products and services. At present, most franchised businesses in Vietnam are focused on fast food and retail, but a significant potential exists for a wide range of companies to enter the Vietnamese market. Franchise opportunities are gradually becoming available across the nation in a growing range of brands and sectors.In the fast food sector, the market is currently competitive with several popular local and foreign brands. With strong consumer awareness of American food and beverages, U.S. franchise brands including McDonald’s, KFC, Subway, Starbucks Coffee, Burger King, Carl’s Jr, Pizza Hut, Hard Rock Café, Domino’s Pizza, Popeye’s Chicken, Texas Chicken, Dunkin’ Donuts, Z Pizza, Baskin Robbins, and Coffee Bean and Tea Leaf, have become key players in the market.
The MOIT estimates that annual food and beverage consumption accounts for 15 percent of GDP and will continue to rise in the future. Business Monitor International notes that the sector will see some of the strongest growth in Asia, anticipated at 16.1% between 2016 and 2019, due to rising incomes and demand for high-value products.
Besides the fast food segment, the franchise convenience store segment has also become a popular concept with various brands including Circle K, Family Mart, and Shop & Go expanding quickly in large cities. Seven-Eleven opened its first store in Ho Chi Minh City in 2017. With a growing interest in western-style food and beverage, there is a considerable demand for healthcare and lifestyle-oriented products and services. Education and training is also a growing franchise area, with brands Mathnasium, Crestcom, Cleverlearn, Dale Carnegie (U.S.), and Kumo (Japan) operating in Vietnam.
Retail, education, entertainment, healthcare, beauty-care, children’s services, and lifestyle-oriented businesses are other growing franchise segments.
Opportunities
There are several factors that have contributed to the growth of the franchise market:- 65 percent of the population is under 30 years old and 37 percent are living in urban areas. Per capita GDP is around $2,150 and rising.
- A steady growing GDP has created a new middle-class of consumers, estimated to grow to 33 million by 2020, who now have disposable income to spend on their desired lifestyle. Ho Chi Minh City and Hanoi have the largest middle-class populations, but second tier cities like Danang, Hai Phong, and Can Tho also have growing middle classes. Rural consumers have also developed a penchant for new and diverse brand offerings. According to the Vietnam Retailers association, 77 percent of rural consumers want to try new products and 95 percent appreciate having a wide range of products to choose from.
- American brands enjoy a reputation for quality, especially in the southern region of Vietnam. Best prospects for American franchisors include: fast food, business services, health and nutrition, education services, health care, children’s services, cleaning and sanitation, hospitality, fashion, entertainment, and convenience stores.
Web Resources
International Franchise Association: www.franchise.org
Ministry of Industry and Trade: http://www.moit.gov.vn
For more information about Vietnam’s franchising sector, please contact:
Ms. Huong Nguyen, Commercial Assistant
U.S. Consulate General in Ho Chi Minh City
E-mail: Huong.Nguyen@trade.gov