Burger behemoths in a street fight

McDonald’s, the world’s leading fast food brand, has entered a local market already crowded with other brands, and a local bias toward often cheaper and faster street food, Photo: Dung Minh

McDonald’s making a foray into the northern market

Last month, part of the walking street near Hoan Kiem Lake in the centre of Hanoi was full of young people queuing in long lines. They were standing in front of the newly-launched first location of American fast food giant McDonald’s in the capital, also the first one in the northern region of Vietnam, as they wanted to be the first northern customers to sample the company’s tasty products.

The first McDonald’s location in Hanoi is situated in an advantageous position on the intersection of two central streets, Hang Bai and Hang Khay, and overlooking Hoan Kiem Lake.

Taking up more than 400 square metres of space and accommodating nearly 200 customers, the McDonald’s restaurant features a distinct design reflecting Hanoian culture.

Its prominent position promises to help the outlet court customers, as Hoan Kiem Lake often draws large numbers of domestic and international visitors, especially on the weekends, when the streets around it are turned into a pedestrian zone.

McDonald’s was reported to have spent between one and two years on preparations before opening the restaurant. The long delay is said to have been caused by the search for a suitable location and the extensive employee training needed to match the brand’s strict global standards.

In Ho Chi Minh City, another tourist hotspot and home to many foreigners, McDonald’s has already opened 16 locations, with three being launched in its first year in Vietnam (2014) alone.

McDonald’s Vietnam’s managing director Nguyen Huy Thinh said the goal of opening three outlets in Hanoi in the company’s first year in the capital would depend heavily on customers’ acceptance of the brand.

In addition, finding suitable locations meeting the brand’s strict standards proves a dilemma in a crowded food scene like Hanoi, which is already home to several international fast food brands.

The burger wars

For more than 60 years, McDonald’s has been acting as a trailblazer on a global scale, with a noticeable impact on the business strategy of its rivals in the fast food segment.

Burger King has proven to be a fierce rival to McDonald’s. At certain times, Burger King’s strong performance has forced McDonald’s into a reactive role.

It is now expected that the presence of McDonald’s in Hanoi will have an impact on its rivals’ performance in the city, and Burger King is no exception.

Nguyen Hong Thuy Tien, CEO of Blue Kite Food and Beverage Co., Ltd. (BKV) – the franchisee of Burger King Asia Pacific in Vietnam – said on the occasion of entering the market in 2012 that the brand aimed to spread quickly across many of Vietnam’s areas and dominate well-placed locations to boost brand recognition.

After five years, Burger King has changed its strategy, focusing on investment efficiency. Currently, the number of its locations is 13 (five in Hanoi and eight in Ho Chi Minh City), down from 18 in 2012. In Hanoi, the brand has opened well-placed locations in areas such as Hang Buom Street in the city centre or in shopping malls like Aeon Mall Long Bien and Ho Guom Plaza.

A source at Burger King said the firm has faced difficulties in finding suitable locations matching its business model. While McDonald’s is reported to prefer spacious areas for its restaurants, Burger King seems to be interested in medium-sized spaces.

Burger King’s recent downsizing of activities in the Vietnamese market was reported to be a directive from its parent company, Restaurant Brands International (RBI), which is undergoing a radical restructuring process after acquiring a number of fast food chains, including a $1.8 billion deal with Popeye’s and a $12.5 billion deal with Canadian fast food group Tim Hortons, which took place three years ago. These deals have turned RBI into the third-largest fast food restaurant chain worldwide.

According to BKV business director Nguyen Manh Tu, owning strong brands is a way to boost stock value in the securities market, but after these M&A deals, changes in the parent company RBI’s structure and restructuring in Burger King’s franchised markets have had an impact on franchisees in the Asia Pacific region, including those in Indonesia, Thailand, Taiwan, and Vietnam.

Tu said that Burger King Vietnam’s future performance depends heavily on RBI’s restructuring and merger process with these other fast food brands. The company’s further expansion will depend on support measures from RBI.

As RBI is a financial investment group, but not a specialised fast food chain developer, its support for the Vietnamese market expansion might not come as quickly as expected. Burger King Vietnam may open more shops based on market needs, but might not be bound to strictly follow contract terms with the franchiser as has previously been the case.

Race with street food

The presence of new and renowned franchised brands in the Vietnamese market coincides with the fact that several other brands have had to downsize their business with restaurant closures. This has made investors more prudent in their decision making.

In Vietnam, fast food is vying for customers with street food’s great diversity, competitive pricing, and ever-increasing popularity among young people.

According to a Burger King source, fast food used to occupy the second position in the domestic food market, trailing the restaurant business, but ahead of street food. It has now fallen to the third position due to a decline in customers.

The Vietnamese market is a mixture of diverse European and Asian cultures, but companies which cater to authentic Vietnamese tastes often gain the upper hand. Foreign brands like South Korean Lotteria or American KFC are favoured by local customers due to their efforts to diversify their offerings to meet Vietnamese customers’ tastes.

For Burger King or McDonald’s, menu diversification to match local preferences seems a much harder and more time-consuming process due to the global standards these brands must follow. In particular, finding suitable suppliers always remains a challenge for these brands.

Their caution about imminent Vietnamese market expansion plans notwithstanding, both Burger King and McDonald’s are confident in their business outlook, as the Vietnamese food market is growing strongly. This is in addition to other advantages of the market, such as the country’s demographics and stable economic growth.