HO CHI MINH CITY: Fast-food outlets have proliferated in Vietnam over the past decade but profitability has eluded many as they have yet to achieve the necessary scale in a 92-million strong market.

Lotteria is the leading brand, claiming a 17.9% share of the market according to Euromonitor, but the Japan-based chain has accumulated losses of VND 413bn ($18.3m) VietnamNet reported and many other international brands have also struggled to achieve significant growth and profits.

“The scale of Vietnam’s fast-food market has yet to hit the profitable point, so the chain is committed to ongoing investment,” Lotteria marketing manager Truong Ham Liem told Vietnam Net.

“It is only when Lotteria achieves its intended scale that the company will consider profitability,” he said, adding that he expected the chain to begin generating profits from its more-than 220 outlets this year.

Second-placed KFC (11.4%) operates 140 outlets and turned around a 2015 loss into a marginal profit in 2016.

One observer of the fast food market, Sean T. Ngo, CEO of VF Franchise Consulting, highlighted growing competition, rental costs and the reliability of the supply chain as factors affecting profitability.

“Some chains are also realising that smaller footprints are critical to success as they cost less and, if the location is chosen correctly, can generate more returns and thus revenue for the company,” he said.

“KFC and Lotteria are slowly, but surely heading in the right direction and towards better profitability, as branding power and economies of scale become ever more important in an increasingly competitive market,” he added.

Saby Mishra, the CEO of J. Walter Thompson in Vietnam, put the Vietnamese market into a longer term perspective, noting how a spurt of distribution-led growth had ended around 2010-11 when the economy went into recession, but has started to recover since 2015.

“Vietnamese consumers have evolved beyond that initial excitement phase,” he said, speaking to Branding in Asia.

“They’ve become more mature, they are more aware, they are more digitally connected, they are more time-pressured, so they value convenience a lot more. Therefore, things like e-commerce or things that can save them more time are becoming much more relevant.

“It’s a volatile market,” he added. “You’ve got to be there, learn the market and keep doing things until you hit the tipping point.”

Sourced from VietnamNet, Branding in Asia; additional content by WARC staff