Vietnam – the next franchising frontier?

Vietnam is an emerging market with a strong mix of the traditional and the modern. The effects of private enterprise and stronger consumer power are spreading throughout the country and paving the way for new business growth.

With average GDP growth rates of around 8 per cent, Vietnam is the world’s fastest growing Asian economy after China and India. This growth, combined with a potential market in excess of 82 million people (65 per cent of which are under 35 years old), and a consumer spend of around $21 billion per year (2005), Vietnam is understandably generating huge interest from Western businesses looking for new business opportunities.

In Australia, earlier this year, presenting a series of Asian franchise seminars with colleagues from China and Korea, James Meyers, Trade Commissioner, Ho Chi Minh City, said there’s no going back on the market and legal reforms currently underway in Vietnam.

Although still a developing economy, Vietnam has a new emerging consumer class with a strong preference for foreign brands. This is especially so in the commercial centres of Hanoi and Ho Chi Minh City and also in regional, tourism-driven centres such as Hue and Da Nang. Popular retail strips like Hoan Kiem in Hanoi, or District 1 in Ho Chi Minh, are well represented by international brands like L’OCCITANE and CHANEL.

Not surprisingly, Vietnam is ranked third in the world in terms of global retail attractiveness. Early movers in retail have recognised the power of brand and quality. Elsewhere, there is a heavy emphasis on price and, in the main, Vietnam is still a cash dominated society.

There is a prevailing culture of enterprise in Vietnam in which independent businesses flourish. Last year, the Vietnamese franchise sector surged 30 per cent with 530 new brand names (local and foreign) being franchised.

Key local players like Trung Nguyen Coffee Company, Pho24 (noodle soup fast food chain) and Kinh Do Bakery now have a strong foothold in the market, but the sector is set to boom – especially with the influx of foreign concepts.

American fast food chain, the KFC franchise , already has 17 restaurants with plans for 100 by 2010. Philippine hamburger chain, Jollibee, and Singaporean brands, such as Charles & Keith, Celia Loe and chapter 2 also have a market presence, while fast food brands like BreadTalk, CAVANA and Koufu have surveyed the market and are looking for franchisees. The McDonald’s franchise and other icons such as Starbucks and the Pizza Hut franchise have plans to enter after Vietnam’s accession to the World Trade Organisation (WTO) – likely to be next year.

Australian systems too are beginning to explore the market, although they tend to be the more experienced players. Cartridge World already has a presence on the ground, and Gloria Jean’s Coffees recently appointed a local master franchisee.

To date, franchising in Vietnam has not been subject to specific regulation. From July this year, however, new franchise-specific laws came into effect, drawing heavily on the Australian franchising code. The new regulations focus on:

1. The conditions under which franchising activities can be conducted – for example, sub-franchising can only be granted after the franchise business has been operated by the Vietnamese entity for at least one year;

2. Requirements around the franchise contract – for example, must be written in the Vietnamese language; and

3. Registration requirements – for example, franchising activities must be registered with the appropriate authority.

While Vietnam has all the hallmarks of a future ‘franchise haven’, there are still a number of hurdles for Australian franchisors wanting to enter the market.

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.