The franchising model is popular and well-suited to a developing economy like Vietnam. The culture of entrepreneurship is ideally suited to franchising as it provides investors with a relatively rapid avenue of entering business with controlled levels of investment and at a reduced risk. Rising incomes and an emerging middle class are generating an increase in consumer-driven sectors.
Franchising began in Vietnam in the 1990’s with the introduction of well-known fast food chains like KFC, Lotteria, and Jollibee. As of April 2020, the Vietnamese Ministry of Industry and Trade (MOIT) reports that there are more than 262 foreign brands registered as franchising businesses in Vietnam. This includes fast food, bakery, coffee, drinks, and restaurants, accounting for over 50 percent of total franchise contracts signed. Most franchisors come from the U.S., Australia, South Korea, Singapore, Thailand, Japan, Hong Kong, Canada, and the Philippines.
Increasingly, Vietnamese businesses have been exploring opportunities available through franchising. Popular brands include Wrap and Roll, Café Cong (Plus Coffee), AQ Silk, Ong Hung (Mr. Hung) Pho, ThaiExpress, and The Gioi Di Dong (The World Mobile). Nationwide, Highland Coffee and Trung Nguyen Coffee are others that have gained traction in the last year. Mon Hue, Wrap and Roll, Kichi Kichi, Sumo BBQ, Vuvuzela, King BBQ Buffet, Pho 24, and Trung Nguyen Café are local brands that are expanding overseas.
There are also several challenges that new-to-market franchisors should consider:
- Many local companies may not have a full understanding of brand value/integrity and/or legal regulations relating to franchising, making it important to identify and conduct due diligence on potential partners to determine their suitability and financial capability.
- Local firms are wary of new concepts that require high investment despite improvements in the local real estate and securities markets in recent years. They are also reluctant to invest in a new brand that does not have a strong track-record in the region.
- Finding suitable and affordable locations despite rapidly emerging modern retail channels and retail development in Ho Chi Minh City and Hanoi.
- Respect for intellectual property. U.S. franchisors should register their intellectual property, including URLs and websites, and be prepared to take legal action against IP violators.
- Cultural differences require adjustments to market access strategies. U.S. franchisors should consider adapting to local culture, habits, and tastes to guarantee success in the market.
In the past, Vietnamese law did not provide a clear basis for franchising arrangements, but the passage of Decree 35/2006/ND-CP (amended by Decree 120/2011/ND-CP in January 2016), provided a legal framework for franchising.
According to these regulations, a foreign franchisor is permitted to franchise in Vietnam without establishing a business entity in Vietnam. However, a foreign franchisor is required to have been in business for one year prior to franchising in Vietnam. A Vietnamese primary franchisee must also have been in business under the foreign franchisor for one year prior to sub‐franchising in Vietnam. A foreign franchisor registers its activities with MOIT, while a local franchisor registers with the provincial Department of Industry and Trade. The franchise agreement must be in Vietnamese and may be translated into English.
The Vietnamese Government issued Decree No. 8/2018/ND-CP in January 2018 to amend some business conditions, including franchising, regulated by the MOIT. Under the decree No. 8/2018/ND-CP, Article 5 of Decree No. 35 was revised removing the requirement for foreign franchisors to register with MOIT. However, the registration requirements in other articles in Decree 35 were not revised, requiring additional clarity from MOIT on these requirements.
Vietnamese consumers often associate Western brands with quality, an affluent life-style, and product reliability. They are responsive to high-end, well-known, premium brands of products and services. At present, most franchised businesses in Vietnam are focused on fast food and retail, but a significant potential exists for a wide range of companies to enter the Vietnamese market. Franchise opportunities are gradually becoming available across the nation in a growing range of brands and sectors.
In the fast food sector, the market is currently competitive with several popular local and foreign brands. With strong consumer awareness of the U.S. food and beverages, U.S. franchise brands including McDonald’s, KFC, Subway, Starbucks Coffee, Burger King, Carl’s Jr, Pizza Hut, Hard Rock Café, Domino’s Pizza, Popeye’s Chicken, Texas Chicken, Dunkin’ Donuts, Z Pizza, Baskin Robbins, and Coffee Bean and Tea Leaf, have become key players in the market.
The MOIT estimates that annual Food & Beverages consumption accounts for 15% of GDP and will continue to rise in the future. According to Vietnam report, revenue in the Food & Beverages segment is expected to show an annual growth rate of 4.98 percent (CAGR 2021-2025), resulting in a projected market volume of USD 678 million by 2025. In addition, user penetration is expected to hit 17 million by 2025.
Besides the fast food segment, the franchise convenience store segment has also become a popular concept with various brands including Circle K, Family Mart, and Seven-Eleven expanding quickly in large cities. Seven-Eleven opened its first store in Ho Chi Minh City in 2017 and now it has expanded to 68 stores in Vietnam. With a growing interest in western-style food and beverage, there is a considerable demand for healthcare and lifestyle-oriented products and services. Education and training is also a growing franchise area, with brands Mathnasium, Crestcom, Cleverlearn, Dale Carnegie (U.S.), and Kumo (Japan) operating in Vietnam.
Retail, education, entertainment, healthcare, beauty-care, children’s services, and lifestyle-oriented businesses are other growing franchise segments.
There are several factors that have contributed to the growth of the franchise market:
- 60% of the population is under 35 years of age and 37% are living in urban areas, with a life expectancy of 76 years, the highest among countries in the region at similar income levels. Per capita GDP is around USD 3,600 and rising.
- A steady growing GDP has created an emerging middle-class of consumers, currently accounting for 13% of the population, and expected to reach 26% by 2026, who now have disposable income to spend on their desired lifestyle. Ho Chi Minh City and Hanoi have the largest middle-class populations, but second-tier cities like Danang, Hai Phong, and Can Tho also have growing middle classes. Rural consumers have also developed a penchant for new and diverse brand offerings. According to the Vietnam Retailers Association, 77% of rural consumers want to try new products and 95% appreciate having a wide range of products to choose from.
- The U.S. brands enjoy a reputation for quality, especially in the southern region of Vietnam. Best prospects for the U.S. franchisors include fast food, business services, health and nutrition, education services, health care, children’s services, cleaning and sanitation, hospitality, fashion, entertainment, and convenience stores.
- Franchising Update Media
- World bank
- International Franchise Association
- Ministry of Industry and Trade
For more information about Vietnam’s franchising sector, please contact:
Mr. Thao Nguyen, Commercial Specialist
U.S. Consulate General in Ho Chi Minh City