Why McDonald’s Flopped In Vietnam

Why McDonald’s Flopped In Vietnam

August 14, 2019 100 By Stanley Isaacs


Fast-food restaurants dominate markets all over the world Burger King has more than 16,000 locations in over 100 nations And McDonald’s has over 36,000 There’s one in a decommissioned airplane in New Zealand And there’s even one in Vatican City Fast food is a more than half a trillion a year business But there is one place where these chains can’t seem to take off And that place is Vietnam Here’s why McDonald’s and Burger King are failing to find a mass following in Vietnam There was a lot of hype with McDonald’s first opened its doors in Vietnam in 2014 The launch drew crowds of locals who waited hours to get their hands on a Big Mac But fast-forward to today and the hype has slowed way down McDonald’s which launched in Vietnam in 2014 has only 17 stores there And Burger King which entered the market in 2011 has only 13 as of 2018 Failure to capture the attention of the Vietnamese market was odd given that these burger chains had previously been met with success when expanding into Asian countries McDonald’s has seen tremendous growth in countries like China and Japan Where it has thousands of storefronts in both countries And Burger King has grown its franchise in Japan from 12 restaurants in 2008 to 98 last year McDonald’s has ranked second out of all foreign fast food in mainland China behind KFC And Burger King is ranked fourth But Vietnam was a different story When McDonald’s finally entered the Vietnamese market in 2014 it planned to open a hundred stores in Vietnam within 10 years But so far today it’s only launched 17 The same thing happened at Burger King The company invested 40 million dollars in Vietnam in 2012 with the goal of opening 60 restaurants by 2016 according to Vietnam Business Review And as of 2018 they’re just 13 Burger Kings in Vietnam Both McDonald’s and Burger King did not respond to CNBC’s questions about why they face such trouble breaking into the Vietnamese market Fast-food in the States is popular because you can get it now Vietnamese food is the same thing, if you go to street vendors you can get your bowl of pho or your bahn mi also maybe even faster than McDonald’s So that kind of defeats the the value proposition of fast-food in Vietnam But part of the problem seems to be that fast food giant’s underestimated their local rivals Vietnamese diners are spoiled for choice in top-tier cities like Hanoi or Ho Chi Minh City which has made it tough for international fast food chains to compete For the Vietnamese we have our banh mi sandwiches and those sandwiches are sold on the streets at rock-bottom prices compared to McDonald’s and Burger King According to the European Commission, Vietnamese consumers dedicate a sizable portion of their income to food and of that money spent on food, 78% of that cash went to local vendors street stalls and kiosks Just 1% went towards fast-food restaurants in Vietnam Vietnam’s food service sector has over 540,000 outlets Over 430,000 outlets are local vendors and food kiosks There’s nearly 80,000 full service Vietnamese restaurants and almost 22,000 bars and cafes But as for fast-food chains, they account for just over 7,000 outlets in Vietnam Fast-food chains are so outnumbered in Vietnam partly because of the severed diplomatic ties between the US and Vietnam After the United States withdrew forces from Vietnam following the war in 1973 all diplomatic relations were severed between the two countries in 1975 It wasn’t until 1995 that the United States and Vietnam mended fences and opened the door for trade If you know anything about like the history of Vietnam like the last 30 to 40 years There was a lot of growth, but only really in the last 20 A lot of storefronts are literally just people’s homes They’ll live upstairs and they’ll just convert the downstairs into any sort of street vending option In 1997 KFC was one of the first American brands to open up shop in Vietnam But it was entering an already crowded food market It took seven years for KFC to open just 10 restaurants So KFC changed course and updated its menu to better fit local tastes The brand introduced the KFC chicken rice and the KFC shrimp burger for Vietnamese customers And today the company has a 130 KFC stores in 21 Vietnamese cities But the hefty price tag for KFC meals seem to be worth it for customers The comparatively high prices weren’t unique to KFC McDonald’s and Burger Kings prices are also considered be at a premium compared to local vendors Local vendors can feed twice as many people as a single meal does at Burger King and McDonald’s, at half the cost Average people would say, about 2-3 dollars for their lunch That’s about it, you know And 2-3 dollars is quite a lot Average people tend to go out in groups, then once in a while they would probably use McDonald’s and then all the other days its Vietnamese food on the street But these high prices are only part of the problem for McDonald’s and Burger King The way food is served in Vietnam has a lot to do with it When Americans go to a restaurant they normally find something on the menu that they like and order for themselves In Vietnam, it’s more of a family-style serving experience Burgers have a tough sell in Vietnam because they’re not really a food you want to share And it doesn’t look like things will be getting better fast food chains any time soon More Vietnamese customers are retreating from fast food chains each year Traffic to fast food chains dropped 31% from 2016 to 2018 While visits to street food vendors were up 70% during that two year span But not all fast food chains have failed to appeal to locals Just take KFC and PizzaHut McDonald’s and Burger King make up 2.8% of the total share of foreign fast food chains in Vietnam But KFC makes up 11.4% and Pizza Hut makes up 21.3% McDonald’s and Burger King aren’t giving up just yet The companies have made efforts to adapt their menus to reflect the cultural influences of Vietnamese cuisines like the grilled pork rice with egg from McDonald’s and the fish rice combo from Burger King Experts say that’s gonna take a lot more than revamping a menu to compete with so many local foods crowding the market space With the popularity of fast-food in Vietnam on the decline McDonald’s and Burger King have a hard future ahead when it comes to satisfying the Vietnamese tastes