VGP - Vietnam is the world's 57th largest economy based on GDP figures. After joining the World Trade Organization, franchising is on the rise and the number of franchises in Vietnam is predicted to increase.
Franchising is fairly new in Viet Nam (the way Vietnamese write their country name). In the 1990s, KFC entered the market. McDonald’s is just now entering the market. Foreign investment found Vietnam after they entered the WTO and signed a trade treaty with the United States in the mid 2000s.
On March 31, 2006, the Government of Vietnam issued Decree No 35/2006/ND-CP regulating franchises in Vietnam. The new decree provides key concepts in franchising, requirements for franchise agreements and State administration of franchises. According to industry experts, this decree is an important step in building the legal framework for this sector.
According to the Ministry of Industry and Trade, up to 70 foreign brands have registered franchising business in Vietnam. Most of them are consumer brands which target the youth and the middle class consumers.
US companies leading Vietnamese franchise market
A lot of the US brands have appeared on the Vietnamese market recently. Meanwhile, experts believe that the US franchised food chains would be much bigger than now.
Nguyen Thanh Nam, General Director of Blue Star Food, said that he plans to develop 50 Baskin Robbins in the next five years.
KFC of Yum Brands is still leading the fast food franchising chains in Vietnam. IN 1997, the first shop of the chain was opened. Meanwhile, by the end of 2011, the number of KFC in Vietnam had reached 1000. It expects to double the number of shops by 2015. The fast food chain now holds 60% of the fast food market in Vietnam with many shops located on advantageous positions.
Mark Mc Grath, Managing Director of Subway Vietnam, said that Subway plans to open 10 shops this year and 50 in the next five years.
KFC, Pizza Hut, Lotteria, Jollibee, the pioneers in the markets have successfully “changed waste lands into cultivated areas,” which has made the market ready to receive other brands.
Today’s franchising opportunities are best summarized in the February 2011 U.S. Commercial Service report on franchising for Viet Nam: “Best prospects for American franchisors include fast food, quick service restaurants, business services, health and nutrition, education services, healthcare, children’s services, cleaning and sanitation, hospitality, beauty and skincare, entertainment and convenience stores.”
Most existing franchise operations in Vietnam are in the fast food sector. Other franchising business opportunities are generally unexplored. Industry experts foresee that with the new franchise law and other pertinent regulations in place, the franchise market could grow an average 20% – 30% annually over the next several years.
There are several factors that will contribute to the growth of foreign franchises in Vietnam and that will attract foreign franchisors to participate in this market, not only in the food and beverages sector, but also other sectors such as fashion, health care services, children’s services, cleaning and sanitation, employment services, tourism, hotels and motels, home furnishing, education products and services, convenience stores, cosmetics, beauty care and many others.
The franchise market in Vietnam, still in an introductory stage, is quite open. Presently, most third-party franchising businesses are concentrated in the food and beverages sector.
Market conditions now more favorable
Franchising brands all say that the Vietnamese market has become more favorable than many years ago. Especially, the purchasing power has increased rapidly, while Vietnamese consumers have also got used to US fast food brands.
Franchising chains said it is now much easier to look for Vietnamese partners because they have become more professional. Analysts also said that in the past, seeking retail premises was a big obstacle, because there were not many trade centers, while the retail premises rents were sky high. Meanwhile, franchising chains now have many more choices.
Vietnam has become a target market for franchising chains also because of the rapid increase of the number of medium class consumers which is expected to double by 2015. Fast food shops now also target the youth and put high hopes on the growth of tourists.
Beth Solomon, Deputy Chair of the US Franchising Association, has also noted that it is now the right time for US companies to join the franchising market in Vietnam.
In the current economic period, the owners of franchising chains are under the pressure of pushing up the growth, and they tend to seek new markets. Therefore, Vietnam has emerged as one of the most attractive points in Asia.
By Thuy Dung