At a Glance

Vietnam is projected to continue to benefit from recovering global and domestic demand with

GDP growth expected to increase modestly, but steadily, to reach 5.8% by 2016.

Franchise Glance

For us, the Vietnam market is a huge opportunity, and we’re taking a long-term view on how we

build our business there the right way,” said John Culver: Starbucks, President for China and

Asia-Pacific.

Vietnam is most often in the shadow of its Bigger Asian Brothers. But it is emerging into the

light, and it is because Vietnam is in early growth stage and lags behind certain Asian

neighbours that such a great franchise opportunity exists.

The country represents a period of growth similar to China in the early 2000s and given the

increasing competitiveness and costs in other Asian countries it would be a mistake for

franchisors not to see this as prime entry time.

GDP has been strong at around 5% even through the global financial crisis and the 2014 outlook

is one of the best in Asia: Q1 2014 GDP was at its best for 3 years and the year forecast is 5.5%.

The government has laid out a specific 5 year plan with on-track GDP targets until 2015.

Domestic consumption accounts for 68% of GDP and retail sales were up 10.2% in Q1 2014 and

are forecast to increase by around 26% from 2014 to 2016.

Vietnam’s 87.8 million population will reach approximately 96 million people in 2020, with an

urban population of around 37%. Vietnam’s rate of urbanisation 2010-2015 will be 3% higher

than Thailand, the Philippines, China; Korea and Singapore, (Savills). It is a population of eager,

young consumers, whose lifestyles and living standards are becoming more prosperous.

 |   FRANCHISE Key Point   |  Vietnam has been touted as one of the five most lucrative retail markets

in the world (“Vietnam Retail Market Forecast to 2014”:Research and Markets). It is a country

with indicators of a very viable market and should be on all franchisor’s radars.

This is understandable as:

The growth curve is following China.

There are more favourable policies for foreign entities now in place.

It continues to be the fastest growing franchise market in ASEAN (VIR survey:Vietnam

Franchises).

The retail market fully opens to foreign investment in 2015.

There are rapidly emerging modern retailing channels.

There is a developing of consumer attitudes and sound consumer economics.

 |   FRANCHISE Key Point   |  Vietnam has significantly lower labour costs than its Asian

neighbours.

Vietnam's rent and utilities are amongst the lowest in Southeast Asia.

Sustained good GDP growth has created a new middle-class consumer who now make up 25% of

the workforce and they have money to spend. Moreover, Vietnam has the fastest growing

middle-class demographic in Southeast Asia and is expected to have 30 million middle-class and

above consumers by 2020 (BCG). Consumers are very responsive to foreign brands and the

newly affluent will fuel demand for higher-end products and services. Although this segment is

embryonic, this should be taken as a positive, as they are still experiencing and trying so have

yet to commit to a particular product or service.

The normal consumer factors we are seeing across Asia: increased spending power, changing

lifestyles led by media, the availability of a wider range of global products and the rising middle-

class with associated rising sophistication of tastes and attitudes, are driving demand for foreign

brands. When these factors are combined with the opening of the retail market and rapid

development of modern retailing, it is not surprising other international retailers are keen to

enter the Vietnam and join the big name entities who got in early and are now looking to solidify

their position in the market.

At present there are about 120 international franchising systems mainly from the US, Australia,

South Korea; Singapore, Thailand, Japan; Hong Kong, Canada and the Philippines; average

growth rate is 30% and annual sales are over US$30 million (Ministry of Industry and Trade, as of

April, 2014).

This does not mean the landscape is competitive-pretty much the opposite. Modern retailing is

still in its infancy (modern retailing only accounts for 4% of total retail: Euromonitor 2013) but

foreign operators are significantly stimulating development, plus the Vietnam’s Ministry of

Industry and Trade wants modern retailing to account for 40% of the total retail trade by 2020.

Big names such as Starbucks, Burger King and McDonalds have only recently entered the market

and there are still many brands, prevalent across the rest of Asia and the world, surprisingly

absent.

With a growing franchise market and consumers regarding foreign brands as having an air of

quality and safety that they perceive is lacking in domestic brands, local companies are

struggling for survival. They do not have the resources nor experience to drive sales and a

number of these brands will fold unless they innovate or seek to partner with foreign brands.

Having realised this risk, domestic companies are extending their product ranges, improving

levels of service and offering higher quality items in order to keep up with consumer needs, but,

to their advantage, foreign franchisors are arriving with that model already in place. Domestic

companies are also seeking to partner with more experienced overseas companies and as the

franchising system has developed rapidly in recent years, the process of finding a partner has

become easier and more professional for both international looking in and domestic seeking

overseas partners.

Breaking down the market you will find food and beverages as the main franchise sector. The

globalisation of diet is creating a boom in this sector and Euromonitor (2012) predicts Vietnam’s

food service industry will grow to US$670 million by 2015.

To give you an idea of the acceptance of Western foods, a study of students in Ho chi Min city

found the most popular fast food dishes in descending order were Fried chicken (73%), French

fries (58.8%), Hamburger (49.2%) and Pizza (42.5%); with 11 out of the top 13 visited places

being foreign brands (Factors influencing intention to consume fast food of student in Ho Chi

Minh city: Mr: Dang Hai Dang).

Snapshots highlighting growth sectors:

As of May 2013 FMCG was the 3rd highest FDI sector (CECI,HSBC).

A survey conducted by Japanese advertising agency Hakuhodo during August 2013 found

that over 50% of young 18-34-year-old female respondents in Ho Chi Minh City Vietnam

expressed a preference for luxury brands.

The premium segment is either stable or increasing its share across categories (Nielsen

2012).

RNCOS state emerging industry trends are in internet retailing, mobile retailing, private

labels and luxury retailing.

The chained full-service restaurants are set to strongly outperform independent full-

service restaurants. This category is expected to see the fastest growth at a constant

CAGR of 59% (Euromonitor 2014).

"And yet, despite the healthy growth in male grooming sales, which are strongest in

Vietnam, Thailand and Taiwan, only three of those seven grooming products are “for men”

variants" (Kantar Worldpanel 2014).

The cosmetics sector in Vietnam, a young country where the average person is in his or

her late 20s, is still small. But such major international players as Unilever and L'Oreal are

taking the offensive before the market explodes (Nikkei Asia).

Vietnam consumer

Top 5 consumer trends:

1. Rising middle-class drives consumer spending.

2. Consumers seek out foreign products.

3. Concerns over health and food safety are high.

4. Spending on children grows despite the economic slowdown.

5. The Internet becomes an integral part of life.

The majority of Vietnamese consumers are optimistic and believe the economy is doing well.

They are generally open to new experiences and enjoy trying new products and services. In the

Nomura Consumer Shopping Behaviour survey 2011, an all Asian low of 28% replied that they

would try to buy domestic products as much as possible.

They are more family orientated than their Asian neighbours and word of mouth

recommendations are highly respected-92% of Vietnamese consumers are more likely to trust

recommendations from people they know (Global Trust in Advertising). They are price conscious

and love a bargain but they also recognise the power of the brand and are willing to pay more

for quality and image.

The new middles-class consumers are globally aware and their needs are reflected in their

changing purchase patterns. This group is spreading across Vietnam but still dominate within the

Ho Chi Minh and Hanoi provinces and a company can reach half of this demographic by locating

within these areas (BCG). Rural consumers also have aspirations and 77% want to try new

products and 95% appreciate having a wide range of products to choose from (Nielsen 2014).

Though traditional retailing still has a strong grasp on the market, modern retailing is briskly

gathering pace with foreign retail giants using their resources to fuel new shopping complexes.

Seen as an important distribution channel, new developments are competing to attract overseas

brands so there is great opportunity for franchisors to open within these malls as terms will be

negotiable.

The bottom line

To conclude: Fast paced growth, fantastic economic potential and a great time for early stage

entry.

Franchise Meets reckons: 8/10.