Inflation and the good life

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Restaurants flourish as eating out remains top priority among middle and upper income classes


Customers check out the menu of a dining outlet in a shopping mall downtown Ho Chi Minh City. Vietnam is a potential market for restaurants, industry insiders say.

It has been months since Le Thi Nu has had breakfast.

A street vendor who travels around Hanoi on a bicycle selling plastic slippers, high prices have forced her to cut spending on eating, even though a baguette would cost as little as VND3,000, or around 15 US cents.

Standing outside a crowded restaurant on Quan Su Street, where a bowl of soup would cost more than half her monthly income, she finds it difficult to come to terms with the spending of the rich.

"The money they spend on a meal here may be enough for my family live on for a month," she said.

Cao Huy Binh and his friends, on the other hand, are unfazed by the high prices as they enter the crowded restaurant.

They order beer, grilled shrimp, fried cuttlefish, and chicken hotpot after finding the only empty table near the window.

In the hot and crowded kitchen, a chef pours more sauce into a big wok full of appetizing beef chunks.

Binh, who has made it to the restaurant after being stuck for nearly an hour in a traffic jam in light drizzle, says he meets and eats with his friends at such restaurants every Friday evening.

"It is a way of relaxing after a week of hard work. If I do not dine out with them, I would do it with my wife and children," he said.

Binh, the director of a trading company, also often invites his business partners to restaurants to enjoy a meal and discuss work. "I could not cut back on dining out, even if everything is more expensive," he said.

With a basic monthly salary of US$1,000 in a country where the annual per capita income is $1,200, Binh and his friends do not mind that their dinner costs about VND4 million, or nearly $200.

This is good news for restaurants, and shows why they have been able to take inflation and recession very lightly, especially in big cities like Hanoi and Ho Chi Minh.

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According to the General Statistics Office, consumer prices, which increased 18.58 percent in 2011, climbed 16.44 percent in February from a year earlier.

However, there are no signs of gloom in the food and beverage market in Vietnam. Luxury restaurants serving choice French baguettes, Italian pizza and pasta, Japanese sushi or Thai curries are crowded with customers, especially during weekends or other holidays.

The representative of a five-star hotel in Hanoi said, "We are not finding that people are spending less. They are spending more.

"Vietnamese people are very rich. It is nothing for them to splurge $1,000-2,000 for a feast for several people," she said. "On Valentine's Day, all of our restaurants were full, and most of the customers were Vietnamese."

Over half of her hotel's food and beverage customers are Vietnamese, who are often businesspeople or those with well-paid jobs in foreign companies or powerful state-owned enterprises in banking, finance, information technology and insurance sectors.

Foreign customers often come here to work and they don't want to spend much money on food, she said.

The higher earnings from food and beverage helps offset the reduction of room bookings because of lower number of foreign visitors amidst the global economic recession. Food and beverage revenues account for 30 percent of her hotel's turnover, she said.

Not affected

Explaining big spending on dining out amidst high inflation, economist Nguyen Minh Phong of the Hanoi Socioeconomic Research Institute, said whether it is inflation, war or some other crisis, there are still people, who are not affected and even earn much money in such situations. These people still have a demand for consumption, and particularly for dining out.

"The state does not ban it, so their spending is legal," he said. "This is also a sign of the expanding middle class."

Nguyen Thuy Hoa, manager for the Korean restaurant chain Sochu, which has two outlets in Hanoi, said inflation only affects common and poor people, not the middle and higher income ones like her customers. "The number of customers has not gone down. We still receive 300-500 customers every day."

Dining out has become an indispensable activity for many urban middle-income people.

"I like to escape from cooking and washing up at least once a week. Dining out with family helps me really relax," said Le Thu Trang, staff of a Hanoi-based commercial bank, as she waited to be served at another upscale restaurant in Hanoi.

"We don't want to save money by giving up the habit of dining out. If necessary, we would cut spending on some luxurious consumer products."

According to results of the Nielsen Global Online Survey done for the fourth quarter of 2011, 6.7 percent of consumers' total monthly budget is allocated for dining out.

"Like other industries, we would expect consumers to react and adjust their budget accordingly to inflation. Similar to other developing markets, inflation would impact the lower class segment or laborers much more relative to the upper middle class group who have more flexibility with their budgets," the Nielsen report said.

The survey also found that consumers would slightly cut back on dining out if their monthly budget decreased by 10 percent.

Big potential

It is clear that the restaurant industry has managed to avoid the worst of the tough economic situation, which has hit most businesses hard.

Instead many new restaurants are springing up and existing ones are expanding.

"It's a trend the food and beverage industry is hoping continues for some time to come," said one industry insider who did not want to be named.

Baskin-Robbins, the world's largest chain of ice cream specialty shops, recently opened three shops in Ho Chi Minh City through its Vietnamese partner, Blue Star Foods.

Since its first store opened in Vietnam in 1997, the number of KFC restaurants in the country increased to 100 late last year, and is expected to double by 2015.

Many other restaurant chains, including famous foreign brands like Pizza Hut, Lotteria, Subway and Domino's Pizza have also expanded operations in Vietnam.

"With a young population, Vietnam in general and HCMC in particular, presents a big potential for brands like Domino's and we target the younger crowd," said Di Nguyen, marketing manager for Domino's Pizza in Vietnam.

"Currently we have five shops in HCMC and anticipate rapid growth to over 25 nationwide in the next five years."

Said economist Phong, "With a population of nearly 90 million and an expanding middle class, Vietnam is a consumption market with large potential, especially in restaurants and luxurious products."

Le Bich Diep, marketing and communication manager of Golden Gate, which owns over 40 dining outlets nationwide, including the Kichi Kichi hotpot restaurants, said the market is very big and people are ready to spend a lot on eating out.

"Demand for dining out is very large. I myself see no restaurants shutting down due to having no customers," she said.

Late last year, her company opened one more restaurant in Hanoi, and is seeking sites to open more in the near future, Diep said.

Widening gap

While plastic slipper vendor Nu ruminates over her plight and wonders how others have so much to spend, economist Phong says the gap between the rich and the poor is rising in the country.

"The rich can spend millions of dollars on a car, while it is difficult for the poor to afford a bicycle. This is an issue not only in Vietnam, but worldwide."

"However, the big gap is a matter of concern in a tough economic situation," he said. "The government should implement more social welfare policies for the poor, strengthen anti-corruption measures, and levy special consumption taxes on some luxurious items to ensure a measure of fairness in the society."

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