The restaurant chain business model or F&B cafes, although experiencing rapid growth, has never been easy for insiders. Even giants like McDonald's and Burger King have not succeeded as expected in Vietnam. So what is the main reason for this situation? And what is the decisive factor for the success of this chain business model in the Vietnamese market? In this article, DPS will answer the above question in detail.
I. The current state of the chain business model in the F&B industry in Vietnam.
1. Forecast
Food and Beverage (F&B) is one of the most “vibrant” sectors in Vietnam. It accounted for up to 15% of GDP in 2018 and has maintained a stable annual growth rate of 7% (Wang, 2020).
Vietnam's F&B sector in the period 2014 – 2019 had a growth rate of approximately 18% per year according to Euromonitor. This figure is forecast to continue increasing as economic and social development leads to improved living standards. Especially as the middle class in Vietnam is growing.
Indeed, according to calculations by Nielsen, Vietnam had about 33 million people classified as middle class in 2022 and this will increase to about 95 million people by 2030.
What are the criteria that Nielsen uses to define the middle class? There are 2 criteria to identify this class. First, households with consumption spending over 15 USD/person/day. The other criterion is that their total spending on food and beverages accounts for 30% to 40% of total income.
Meanwhile, the projected revenue of the F&B sector is about US$665 million before 2024 with an average growth rate of 8% per year during 2020-2024 (Statista, 2020).
2. Major “giants” in the F&B industry in the Vietnamese market
Also because of the enormous development potential of the F&B sector, the battle for market share has never cooled down. From Golden Gate, Redsun, Huy Viet Nam company and IPP Group.
2.1. Golden Gate
Golden Gate Trading Joint Stock Company – Golden Gate is the company that holds a dominant market share in the Vietnamese F&B market. Currently, Golden Gate operates and owns nearly 300 stores nationwide, including many famous and youth-favorite brands: Kichi-Kichi, Sumo BBQ, and Vuvuzela, etc. The spectacular “transformation” of Golden Gate has been assessed by many economic experts as thanks to massive capital injections combined with support from relationships with culinary experts from Standard Chartered and Mekong Capital.
2.2. Redsun
Considered Golden Gate's competitor in this segment is none other than Red Sun Trading Management Joint Stock Company – Redsun. Currently, Redsun owns more than 200 stores in 26 provinces and cities nationwide. However, Redsun's operational efficiency is not highly rated. In 2018, revenue reached over 620 billion VND, up 14% compared to 2017; however, Redsun's pre-tax profit was only 1.4 billion VND.
2.3. Huy Vietnam Company
The beginning of Q4 2019 witnessed the “departure” of the chain business model of Huy Viet Nam Company (Mon Hue Restaurant) after more than 12 years of existence and development in the market. In addition, the company had previously succeeded with many Vietnamese culinary brands such as: Pho Ong Hung, Com Tho Chay, Pho 99, etc. However, strategic missteps in business orientation caused the company to lose ground in the market share battle.
2.4. Franchising
It would truly be an omission not to mention a new but rapidly developing trend: franchising brands. A typical example is IPP Group with brands including: Burger King, Domino’s Pizza, or Popeyes… who are also striving to win over Vietnamese tastes.
3. Covid19 – the major “shockwave” for the chain restaurant business model.
All of the above data was very promising until the “earthquake” named COVID19 cast its shadow over almost every sector. But perhaps the most affected must be the F&B industry.
When the revenue of the restaurant chain business model dropped significantly compared to pre-pandemic times. However, large companies like Golden Gate had already prepared scenarios for when “storms” arose. In terms of raw materials, the company was not greatly affected because from the start they had diversified import markets. In addition to updating information about the epidemic, Golden Gate's chain stores also implemented disease prevention measures to build customer trust when coming to the restaurant, such as:
- 100% of employees are required to wear masks when serving customers.
- Hand sanitization.
- Continuous cleaning and sanitizing in the restaurant, etc.
In addition, Golden Gate's quick response ability was shown by implementing a home delivery program while still ensuring the same standards as dining in. This program helped them partially secure revenue and provided new directions to develop this service if demand for at-home dining continues to rise. This is a concrete example of “opportunity in crisis” that many people mention.
II. Three core challenges of the chain business model that the F&B industry is facing.
In the above section, DPS has provided an overview of the F&B industry's situation in recent years and forecasts for the next 5 years. As well as the impact of Covid-19 on the “health status of the industry”.
In the next section, DPS will address the three main challenges that food and beverage business owners will face when pursuing the chain business model.
1. Management mindset – The soul of the chain business model
Once you decide to develop a chain business model in the F&B sector, the first barrier you face is the mindset in management. Two key issues in developing a chain model are managing product quality and simultaneously implementing appropriate management methods to maintain quality when expanding the model.
This is actually a difficult problem for business owners aiming to develop a chain store business. In reality, not every model in the F&B sector can be developed into a chain. The issue is that some products in the food and beverage business are very difficult to scale up while maintaining product and service quality.
Mr. Ly Quy Trung the founder of Pho 24, objectively assessed the business model in his autobiography. Mr. Trung stated that when expanding the system too quickly, they faced a huge challenge: how to maintain consistent quality across the entire chain of stores.
On the other hand, even within a chain, the quality of products and services varies greatly between stores. If business owners do not seek solutions to address this, when crises occur such as the COVID-19 pandemic, it will be a test of the “resilience” of your business model.
Why does inconsistency in quality appear when expanding a chain of stores?
There are quite a few reasons to answer this question. DPS would like to use the Mon Hue restaurant chain business model as an example for easier visualization.
In the restaurant chain business, the less dependent on the head chef, the better. This means the process must be standardized and the dishes must be simple and not overly complicated to prepare. Meanwhile, when it comes to Hue cuisine, customers imagine dishes with the royal Hue style, which are already elaborate and sophisticated. Therefore, preparing these dishes requires very strict quality management.
Expanding the chain model while still ensuring consistent quality for Hue dishes seems to be an impossible task. This is one of the reasons many people notice that when there were only one or two stores, the quality at Mon Hue was quite good. However, when it expanded into a restaurant chain, the quality of the dishes gradually declined.
DPS can conclude that this is one of the fatal weaknesses of the Mon Hue business model.
2. The value of “sacrifice” in the restaurant chain business model
The next challenge for the chain business model lies in eliminating redundant factors in products and services.
“Sacrificing” things that do not bring high economic value to the store. This is considered a solution to adjust the business model to be suitable for development and to control service quality when scaling up.
In other words, all redundant factors must be eliminated, processes standardized; continuous training organized and technology applied to be able to create products consistently.
So what factors are considered redundant? There are two main factors for businesses to determine this:
- Products that do not bring high revenue or high economic value.
- Products that are difficult or impossible to standardize when expanding.
DPS will use a classic example in the F&B industry when accepting to “sacrifice” redundant things for outstanding development. That is Highlands Coffee. When it was first “born”, Highlands' drink menu had up to 50 items. However, by 2019, with more than 240 stores nationwide (Cafef.vn, 2019); Highlands' menu was reduced to only 18 items (Highlands Coffee, 2020).
You see, in fact, if you sacrifice correctly and appropriately, the value it brings is truly “sweet”!
3. Training people suitable for the chain business model.
The final factor that DPS wants to mention is training a workforce capable of managing and maintaining product and service quality during expansion.
3.1. The importance of preparing Human Resources when expanding a chain of stores
Besides the ability to standardize processes to maintain quality, which is extremely important, your customers also experience the service through their connection with people; in this case, it is the store staff. Therefore, standardizing processes from service style to problem-solving for all employees also needs to be standardized and thoroughly trained.
In case you develop a restaurant chain business model too quickly; but the system for standardizing product quality processes is not tight enough, causing shortcomings. This will cause the Domino effect. This means the management apparatus and company workforce are “forced” to expand to handle the enormous workload. In the long run, failure is hard to avoid if timely remedies are not implemented.
3.2. Difficulties and solutions for Business Owners in selecting personnel when wanting to expand the business chain.
In addition, business owners who choose to operate under a chain model also face difficulties due to a shortage of management-level personnel. Because at this time, the workforce must increase by 2 to 3 times to ensure the operation of the restaurant chain.
If the business owner blindly trusts and does not have appropriate control measures, dishonest managers can cause losses and damage to the restaurant.
On the other hand, if the restaurant owner is a micromanagement-style manager, it is very difficult for them to trust and delegate tasks to employees. Meanwhile, the business owner themselves cannot handle all the work alone.
So, in addition to preparing management mindset, quality management, and standardizing product processes, training and human resource management also need to be emphasized.
III. What are the solutions for developing the chain business model for enterprises?
In fact, during the implementation of the chain store business model, businesses are required to have a long-term and solid development strategy. Say no to rapid, hasty development when facilities, people, and management processes are not yet fully developed. Especially in the Vietnamese market, rental costs and employee salaries only tend to increase, not decrease. Therefore, to ensure success when operating under the chain model, businesses need to carefully consider the following factors:
1. The brand of the business chain system
Consistency across all business locations is considered truly essential. This includes standards for premises, store image, interior layout, and staff service style. More importantly, business owners need to consider whether the chosen business location is suitable for the product, service, and easily accessible to the target customers the business aims for. In case the store operates at a loss beyond the contingency plan, you should quickly decide to close the unprofitable stores.
2. The operating system for the chain business model
To develop a complete operating system, business owners need time and expert consultants to build and perfect it.
Kaizen is one of the very good management philosophies that business owners can absolutely apply. Making small changes over a long period of time results in great achievements from those changes and is well worth your perseverance.
In the 4.0 era, besides human resources and control processes, suitable management software will support business owners in operating the chain business model.
3. Human resources
The issue for business owners is to train a good workforce with management skills, experience, honesty, dedication, and loyalty to the business. However, finding someone who meets all these criteria seems like “looking for a needle in a haystack.”.
Therefore, business owners should aim to build a management and work reporting system centralized on one platform to easily manage and control their chain business model. Firstly, this can help employees self-adjust and comply with the strict working processes of the business. Secondly, this will help limit financial and inventory risks.
In addition, businesses also need to pay attention to building regular training programs to train and develop the knowledge and skills of employees at all levels on:
- Food safety and hygiene procedures.
- Training service staff and management skills.
For example, if your store is a coffee shop chain. If you are a business owner with a strategic and long-term vision, you should create opportunities for employees to attend training courses in beverage preparation or barista skills, for instance.
4. Suitable products for the chain business model
The issue of controlling consistent product quality and stable pricing.
Besides, you need to understand customer preferences to develop new products that meet the needs and trends of your target customers. The chain business model in the F&B industry is very “hot” but has a very fast elimination rate, especially in a dynamic market like Vietnam.
This requires businesses not to just follow trends to meet customer needs. Business owners should use marketing tools to detect and create trends. How? The next section will answer this question for you.
5. Building a marketing strategy for the restaurant chain business model
Marketing is the tool that business owners can leverage to collect information and customer preferences. From this data, with the keen and sensitive eyes of a Marketing expert, the needs of target customers can be discovered—even when customers themselves are not yet aware of their own needs.
In addition, business owners cannot lack an integrated marketing communication strategy – Integrated Marketing Communication – IMC. To deliver messages to target customers in the most consistent and effective way.
Besides, there is also a marketing strategy for each quarter and year for each sales point. At the same time, establish a customer care program to collect customer data, understand needs, and promptly resolve arising complaints. Doing these well helps prevent the situation of “one bad apple spoils the bunch.”
Reference documents:
Cafef.vn. (2019). “Coffee Chain War”: Highlands dominates in scale, The Coffee House doubles growth to surpass Starbucks. Retrieved from Cafef.vn: https://cafef.vn/dai-chien-chuoi-ca-phe-highlands-quy-mo-ap-dao-the-coffee-house-tang-truong-gap-doi-de-vuot-mat-starbucks-20190612110847722.chn
Highlands Coffee. (2020). Menu. Retrieved from Highlandscoffee: https://www.highlandscoffee.com.vn/vn/san-pham.html
Statista. (2020). Food & Beverage Vietnam. Retrieved from Statista: https://www.statista.com/outlook/253/127/food-beverages/vietnam
Wang, C. N. (2020). A DEA Resampling Past-Present-Future Comparative Analysis of the Food and Beverage Industry: The Case Study on Thailand vs. Vietnam. Mathematics, 8(7), 1140.
