Vietnamese firms yet to cash in on fast food boom

By Thuy Vi, Thanh Nien News

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Vietnam’s fast food market has been growing at a fair clip, but local suppliers are missing out on the action
 Customers queue outside the first branch of McDonald’s Corp. in Ho Chi Minh City on the opening day of February 8. Photo courtesy of Diep Duc Minh


McDonald’s said it attracted 20,000 customers and earned around VND1.5 billion (US$71,130) on its first two days in Vietnam in early February.
The US fast food giant said it plans to open more outlets this year, to catch up with chains including Burger King Worldwide which opened its first restaurant in Vietnam in 2011.
Industry insiders say it is time for Vietnamese firms to find ways to enter the fast food market, which according to the Ministry of Industry and Trade earned VND870 billion in 2011 and is growing at 26 percent a year.
Local suppliers have not made their presence felt for nearly two decades that the fast food market has been growing in Vietnam.
Foreign fast food chains still rely on importing materials, blaming Vietnamese products for lack of quality and consistency.
McDonald’s has said it only uses two Vietnamese ingredients – tomato and lettuce from Da Lat. All beef is imported from Australia, pork and potatoes from the US, and paper boxes and cups from China or Malaysia.
Nguyen Huy Thinh, managing director of McDonald’s Vietnam, told Thoi bao Kinh te Saigon (Saigon Times) Online that the chain adopts a quality control procedure that local providers are unable to cope with.
“McDonald’s has many different quality control stages from the farm to the dining table, so it’s very hard for us to find a suitable local provider at this moment,” Thinh said, without elaborating.
South Korea’s Lotteria, which arrived here 15 years ago and accounts for 40 percent of the fast food revenues from local market, sources 80 percent of its materials from Vietnam, but mostly from joint ventures with foreign companies.
KFC, which opened the first fast food restaurant in Vietnam in 1997, uses local ingredients for 30 percent of its production and Dunkin’ Donuts, which entered late last year, 20 percent.
The managing director of a chain who wished to remain unnamed said they had a hard time during the first five years in Vietnam finding enough supplies.
“We had to constantly change the providers as the quality was not consistent as guaranteed in contracts.”
He said one lettuce and tomato provider made a proper delivery in the first month, but the quality dropped significantly the very next month as it could not produce enough and make up the required quantity by buying from other producers.
“That’s why we have to change suppliers and always have to prepare some imports in case the local supply is not enough,” he said.
Kao Sieu Luc, general director of A Chau Bakery Company (ABC) which is the sole local producer of buns for KFC, Lotteria and Burger King, said the foreign chains impose very strict requirements.
Luc said the company has to invest in different production chains for each brand, and is now providing around 50,000 buns every day.
He said it’s not very difficult to become a supplier for the foreign chains, but one needs to understand and stick to their regulations and maintain their quality.
“Like the buns for example, the chains have strict requirements for their crispness and thickness.”
But representatives from local providers said quality is only part of the story, and the chains are also very concerned about prices.
Nguyen Hai Binh, director of Dalat G.A.P Store which provides fruits and vegetables, said: “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.
“But the chains want to maximize their profits and thus tend to choose providers with the cheapest prices.”
Binh also urged local providers 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.
Leading animal products provider Vissan used to provide ground beef for several fast food chains in Vietnam, but its partners have come down to only Jollibee.
Other chains are seeking cheaper providers or investing in their own factories to control cost, said Vissan general director Van Duc Muoi.
Muoi said local providers face tough competition in prices, quality, services and supply volume in order to win contracts with the foreign chains.
Muoi said the need for stable and quality supply will force local companies to raise their prices, and they will become less competitive than foreign providers.
Lotteria has built a processing factory in Binh Duong Province outside Ho Chi Minh City to support its 185 outlets across the country.
Nguyen Thanh Tam, a representative of Lotteria Vietnam, said local providers are small and cannot guarantee stable quality and quantity of their supplies.
“The strength of large joint ventures that are providing for Lotteria is they have a professional distribution system with stable supply, which is very important as otherwise, there will be big impact on our brand name,” Tam said.
But he said finding local partners is always the priority if they want to stay long, as import ingredients can be cheaper but they raise transport and storage costs.
“Increasing local resources is a win-win solution.”
Thinh of McDonald’s also said it plans to use mainly Vietnamese resources.
“We are working with local providers. They will be trained for managing product quality according to McDonald’s global standards,” he said.
The chain is looking for suppliers of vegetables, milk and eggs.
It is expected to start using locally-produced buns after a production chain following its standards is completed by the end of March.

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