Franchises flood retail sector

Vietnam’s retail market is attracting the biggest names in the world, as foreign giants seek franchise partnersPhoto: Le Toan

Sean T. Ngo, managing director of Vietnam Franchises (VF), a leading franchising and licensing consulting company with offices in Vietnam and Singapore revealed to VIR last week that VF now were in discussions with multiple franchisees in several countries including Vietnam who were interested in brands including Ace Hardware, Denny’s, Rocky Mountain Chocolate Factory, The Vitamin Shoppe, Round Table Pizza, Texas Chicken, Rita’s Italian Ice, Kenny Roger’s Roasters, and the Manhattan Fish Market. 

Denny’s is the number one family restaurant brand in the world and in the top 10 US franchises according to Entrepreneur magazine. So far, the brand has over 2,100 branches internationally and attracts about 26 million customers every month.

The Vitamin Shoppe, nutrition food product retail chain, listed on the New York Stock Exchange has over 500 stores worldwide.

Round Table Pizza, the number one pizza chain in California, has 500 stores in the US, Middle East and Asia.

Texas chicken, one of the world biggest fast food outlets attracts more than three million customers every week with 1,700 stores in 45 nations and territories.

Rita’s Italian Ice, was voted the leading trans-fat free speciality ice cream franchise in the US by Entrepreneur Magazine and in the top 25 franchises by the Wall Street Journal.

Ngo added that the key to acquiring good foreign franchises was having a successful track record in business and the infrastructure to leverage into franchising, including talented people, thorough an understanding of local market conditions, and good communication skills.

“All of our franchise brands offer only master or area franchise rights and expect franchisees to develop from 10 to 50 units, depending on the franchise. This means having financial capital of $1 to $10 million,” said Ngo.      

Many established foreign brands have great potential in markets like Vietnam. Foreign brands such as KFC, Lotteria, Pizza Hut, Coffee Bean & Tea Leaf, and Domino’s Pizza have done well. This is where careful selection of franchisees is critical to ensure long-term success.

Ngo believed that the most common reasons why franchises failed was often due to an inefficient supply chains, the difficulties in finding affordable great locations and limited unit growth due to under-capitalisation. Many franchisees have a history of selecting poor locations for their stores and implement ineffective or insufficient marketing. Attracting and keeping good people has also been a major problem for many franchisees, resulting in abnormally high employee turnover, decreased productivity and morale, and increased training and recruitment costs.

The latest figures from the Ministry of Industry and Trade reported that there were just over 100 foreign franchise systems registered in Vietnam as of December 2013. These franchise chains mainly originated from the US, Australia, South Korea, Singapore, Thailand, Japan, Hong Kong, Canada and the Philippines.

According to VF, franchising in Vietnam continues to grow by leaps and bounds when compared to the region, with 30 per cent growth average annual growth in terms of the number of new brands entering the market. While the franchising market is still quite small compared to regional markets, for example, the Philippines has over 1,500 franchise chains, Vietnam continues to be the fastest growing franchise market in ASEAN.