Big Mac vs. Banh Mi: The Economics of a Meal

Daily News - Vietnam: Aug. 31, 2017

When American fast food giants Burger King first arrived in Vietnam in 2012, they set aside an ambitious US$40 million investment plan to open 60 restaurants nationwide, as consumers “were excited to try the famous hamburger from the west.”

However, as of now, the chain has only 15 restaurants: seven in Hanoi and eight in Saigon.

Another American fast food chain, Subway, entered Vietnam in 2011 with a goal of 50 restaurants in Vietnam by 2015. However, at present there are only six outlets in Ho Chi Minh City.

fast foodImage source: yan.vn

Other establishments such as McDonald’s, Lotteria and KFC have also endured slow starts in Vietnam and have missed their initial projections. The question is, how did these chains fare so well in neighbouring countries but somehow seem to struggle in Vietnam?

Subway vs. Banh Mi

Vietnam is a country that has a strong food culture and a deep sense of pride for its own cuisine. It’s also a country that has a significant gap between the rich and the poor, and this is evident in the average annual income of Vietnam: US$2,200.

fast foodImage source: alps2ocean.com

Most Vietnamese get by on less than US$500 a month and things like fast food, with its heavy prices, comes across as more of a luxury, rather than a necessity. After all, why would anyone spend VND120,000 on a sandwich at Subway, when you can easily get a similarly sized banh mi for VND12,000?

fast foodImage source: foodpeopleplaces.com

Because of this, the idea of fast food restaurants turned into a novelty, a nice place to go “once in awhile” instead of an alternative option, which is what these chains had initially intended on becoming.

An Issue of Taste

One of the reasons fast food chains find it tough to break into the Vietnamese market is simply due to its misunderstanding of Vietnamese taste buds.

“Western places appeal to families, but the problem is once the novelty has worn off local people would prefer more Asian choices,” Katrin Roscher, a researcher at Decision Lab, said in a Forbes article. “This is because western-style food is seen as bland in comparison to local fare which is heavy on spice and herbs. Not to mention sugar, salt and MSG,” she added.

According to Nguyen Manh Tu, business development director of Blue Kite Food and Beverage Services Company Limited, the owner of Burger King’s local franchise, “In the short term, hamburgers cannot become a popular choice for Vietnamese consumers.”

fast foodImage source: time.com

In an exchange with broadcaster VTV, he also added such an initial drawback would require fast food chains to adjust their menus or strategies.

This is why KFC adopted combo meals with rice and fried chicken, an alien concept in the West. The inclusion of rice was followed by other fast food chains, including McDonald’s, which also started offering banh mi. Filipino fast food brand Jollibee went one step further and incorporated fish sauce in their chicken marinade.

The Asian Connection

Although Western fast-food giants are struggling in Vietnam, Jollibee, considered the biggest restaurant chain in Asia, is doing well in Vietnam, and have opened 80 outlets nationwide since they first arrived in 1996.

This growth is further proven as two thirds of its restaurants have been opened in the last five years, according to numbers from dantri.com.vn.

fast foodImage source: jollibee.com.vn

As far as food goes, their strategy is to appeal to the taste of locals, which is how they gained ground back in the Philippines. A larger part of their success, however, comes down to their business acumen.

As they did in countries like The Philippines and China, Jollibee buys already-popular local and international brands with the aim to improve them. At the end of 2016, Jollibee Foods entered a joint venture with Viet Thai International to create SuperFoods Group, which gained ownership of several other brands, such as Highlands Coffee, Pho 24 and Hard Rock Cafe.

South Korea’s Lotteria entered the fray in the late ‘90s. After a slow start, it managed to find its footing and saw a spike in sales only after 2013 and is now the leading chain with over 200 restaurants in more than 30 provinces and cities.

For both these chains, affordability worked in their favour. They were expensive, but not as expensive as a Western chain.

The Economics of a Meal

Jollibee, Lotteria and KFC were the pioneers of fast food in Vietnam. They also all suffered losses in their initial years and did not see any quick growth until 2012, according to Vietnamnet.

The period between 2012 and 2015 was seen as the golden era of fast food in Vietnam, when KFC opened 40 new stores and Lotteria opened 70. The market has cooled as the economic cycle dipped, and newer players like McDonald’s and Texas Chicken have been unable to resuscitate it.

fast foodImage source: vietdaily.vn

As long as a meal at a Western fast food chain sells for four times the price of a plate of cơm tấm, and as long as a street stall is a five minute walk away, the role of fast food restaurants in Vietnam will remain a novelty, playing second fiddle to what Vietnamese people really love: their local cuisine.

Banner image source: citypassguide

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