McDonald’s faces space test

McDonald’s may suffer problems in acquiring large enough properties
for its franchise chain according to the fast-food giant’s rivals

“Space could be McDonald’s’ main difficulty. There’s a lack of locations for a fast-food giant such as MacDonald’s to operate in,” said CEO of Vietnamese fast-food brand VietMac Rice Burger, Nguyen Thanh Duong.

At Duong’s estimation, there are about 2,000 good corner spaces in Hanoi and Ho Chi Minh City that were already rented by other competitors such KFC and Lotteria Vietnam and other retailers.

“McDonald’s might offer a higher price for good spaces to compete with other fast-food makers,” Duong said.

International fast-food chain Burger King, for example, paid a higher price to take over KFC’s location opposite AB Tower in Le Lai street in Ho Chi Minh City, according to Duong.

“The average price for a 300-400 square metre-space of a KFC or Lotteria restaurant in Ho Chi Minh City is around $10,000-$20,000 per month. Very good corners can cost up to $25,000. You have to have a very strong company to compete over good space with existing rivals such as KFC, Lotteria and Burger King,” he added. 

At present, there are a lot of spaces in some trading centres with cheaper prices, however, good spaces in streets are most wanted due to traffic convenience as well as better branding identification, Duong said.

Ho Chi Minh City-based GoodDay Hospitality, founded by IDG head Nguyen Bao Hoang, in mid-July announced its master franchise deal with McDonald’s to launch the first McDonald’s outlet in the country’s second city in early 2014. Meanwhile, competitors such as KFC, Lotteria and BBG entered the market 10 or 15 years ago.

Sales manager Do My Hanh of South Korean fastfood brand BBQ Chicken said if McDonald’s wanted to expand in Hanoi in the future it would face difficulties in finding a 300 square metre-space for less than $10,000 in the city centre. “Not to mention that such places are almost all owned by the state.”

In addition, Hanh said McDonald’s would find it difficult to seek local ingredient suppliers which could meet its demand, so it might push McDonald’s prices higher compared to their rivals that have already built domestic supply chains.

This is might be true as vice president of corporate relations for McDonald’s Asia Pacific, Middle East and Africa Jeory Liam, told VIR that as a start, most of the company’s food ingredients would be sourced through McDonald’s existing network of global supply partners.

McDonald’s Vietnam refused to  comment on its competitors’ arguments when contacted by VIR’s reporter last week.  

Vietnam currently lacks standard ingredient suppliers, hence BBQ Chicken has to import supplies from its mother company in South Korea. The Thai-backed CP Group in Vietnam is the main chicken supplier for KFC, Lotteria and BBQ Chicken in Vietnam, according to Hanh of BBQ Vietnam.

“Due to imports, ingredient costs account for up to 35-55 per cent of the price of BBQ Vietnam’s product. We almost gain no profits at all from chips because we have to import them,” said Hanh.

Meanwhile, Lotteria Vietnam’s business development director Nguyen Thanh Tam said that McDonald’s Vietnam would encounter challenges when breaking into a market with long-operating competitors such as KFC, Lotteria and Jollibee. 

“KFC Vietnam and Lotteria Vietnam continue to be leaders in Vietnam’s fast-food with a total market share 40 per cent. When a new comer like McDonald’s enters the market, other existing players in Vietnam’s fast food will try to provide improved products and services, hence creating obstacles for the company to win Vietnamese consumers,” he said.

At present, Lotteria Vietnam has the biggest chain of 162 restaurants across 25 cities and provinces nationwide. The company planned to raise the number of restaurants up to 180 by the end of 2013, Tam from Lotteria Vietnam said.

KFC Vietnam currently owns a chain of 135 outlets in 19 cities and provinces with the growth of 20-30 restaurants per year, said KFC Vietnam’s marketing director Le

Hoai Nam.

Meanwhile BBQ Vietnam opened its 16th outlet at Vincom Mega Mall Royal City in Hanoi last week. Its two new restaurants in the northern province of Thai Nguyen and Ho Chi Minh City will be open soon.

McDonald’s is the world’s leading global foodservice retailer with over 34,500 locations serving more than 69 million customers in more than 100 countries each day.