McDonald’s to Expand Operations in Vietnam

May 27, 2014 Posted by Vietnam Briefing Reading Time: 4 minutes

HANOI – In a clear sign of the strength of Vietnam’s growing consumer market, McDonald’s has announced plans to open a total of 4-5 restaurants in Ho Chi Minh City this year, as part of an ambitious goal for around 100 restaurants in Vietnam in the next decade.

Nguyen Bao Hoang, founder of Good Day Hospitality, the franchise holder of the McDonald’s brand in Vietnam, said this was feasible based on the success that McDonald’s has had around Asia: 400 restaurants in the Philippines, 260 in Malaysia, and 195 in Thailand. The managing director of McDonald’s Vietnam, Nguyen Huy Thinh, said that the initial strategy would be to focus on the Ho Chi Minh City market before reaching out to Hanoi.

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McDonald’s has proven to be wildly popular with the Vietnamese people. The first location opened on February 8, 2014 in Ho Chi Minh City – in its first month open for business the restaurant served more than 400,000 customers. It’s the first restaurant in Vietnam that is open 24 hours, 7 days a week.

Nearly three months after McDonald’s opened its first hugely popular restaurant in Ho Chi Minh City, the restaurant opened a second location on May 16, on Tran Hung Dao Street in Ho Chi Minh City, adjacent to the landmark Ben Thanh Market. This restaurant is known as McDonald’s Ben Thanh and can serve 260 guests at a time, 90 seats fewer than the first. The new restaurant offers a To-Go booth where customers can order food without having to go into the restaurant; this is instead of a drive-thru service. McDonald’s Ben Thanh also has a McCafe. According to the McDonald’s Vietnam website, this location will soon implement a 24/7-delivery service.

Speaking of the customers to the restaurant, Mr. Nguyen described them as mostly young, but the number of senior guests and family members were on the rise.

While McDonald’s has made efforts to create menu offerings to reflect local Vietnamese tastes, such as the McPork sandwich, the Big Mac has proven to be the favorite.

Improvement needed in Vietnam

Foreign fast food chains, such as McDonald’s, are still forced to import much of their ingredients due to what many see as the lack of quality and consistency of the Vietnamese products. McDonald’s only uses two ingredients that are grown locally in Vietnam: lettuce and tomatoes from Da Lat. All of the restaurant’s beef is imported from Australia, pork and potatoes from the U.S., and paper boxes and cups from China or Malaysia.

According to Mr. Nguyen, McDonald’s uses a quality control procedure that local providers are currently unable to cope with. He went on to explain that “McDonald’s has many different quality control states from the farm to the dining table, so it’s very hard for us to find a suitable local provider at this moment.”

Despite these difficulties, Mr Nguyen has said that the long-term plan for McDonald’s in Vietnam is to use mainly Vietnamese resources. He said that they are already working with local providers, who will be trained in managing product quality according to McDonald’s global standards.

Kao Sieu Luc, general director of A Chau Bakery Company, which is the sole local producer of buns for KFC, Lotteria and Burger King, said the foreign chains impose very strict requirements. His company has had to invest in different product chains for each brand and they must provide 50,000 buns every day. Mr. Luc says that it is quite easy to become a supplier for the foreign chains, but the key difficulties are in understanding and sticking to the required regulations and maintaining product quality.

However, representatives from local suppliers have also said quality is only part of the story, the chains are also very concerned about prices. Nguyen Hai Binh, director of Dalat G.A.P. Store, which provides fruits and vegetables, stated: “Domestic firms have met strict regulations of picky markets like Japan and EU, so meeting the requirements of fast food chains is not a problem. The chains, however, want to maximize their profits and thus tend to choose providers with the cheapest prices.”

Mr. Binh also urged local suppliers to popularize their names better at home, as some have been exporting their products properly but are not able to enter the domestic market yet.

Van Duc Muoi, general director of Vissan, a firm that used to provide ground beef to fast food chains, has said that local providers face tough competition in prices, quality, services and supply volume in order to win contracts with the foreign chains. The need for stable and quality supply will force local companies to raise their prices, and they will become less competitive compared to foreign suppliers.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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