Although the business model of a chain of culinary restaurants or cafes (F&B) is growing "hot", it has never been easy for the insiders. Even big companies such as McDonald's, Burger King have not been as successful as expected in Vietnam. So what is the main cause of this situation? And what are the factors that determine the success of this chain business model in the Vietnamese market? In this article, DPS will answer the above question in detail.
I. Current status of the chain business model of the F&B industry in Vietnam.
Food and Beverage (F&B) is one of the most “exciting” sectors in Vietnam. As it accounted for 15% GDP in 2018 and with a steady annual growth rate of 7% (Wang, 2020).
Vietnam's F&B industry in the period 2014 - 2019 has a growth rate of approximately 18%/year according to Euromonitor. This number is expected to continue to increase as economic and social development leads to an improvement in people's living standards. Especially the middle class in Vietnam is increasing.
Indeed, when according to the calculation of NielsenVietnam has about 33 million people classified as middle class by 2022 and will increase to about 95 million people by 2030.
What is the criterion by which Nielsen defines the middle class? There are two criteria to define this class. Firstly, households with consumption expenditures of more than 15 USD/person/day. The other criterion is that their total spending on beverages and food accounts for between 30% and 40% of total income.
Meanwhile, the F&B industry's projected revenue is around US$665 before 2024 and with an average growth rate of 8%/year during 2020-2024 (Statista, 2020).
2. The big "giants" in the F&B industry in the Vietnamese market
Also because of the huge development potential of the F&B industry, the battle for market share has never cooled down. From Golden Gate , Redsun, Huy Vietnam company and IPP Corporation.
2.1. Golden Gate
Golden Gate Trading Joint Stock Company – Golden Gate is the company that holds the dominant market share in the Vietnamese F&B market. Currently, Golden Gate does business and owns nearly 300 stores across the country including many famous brands and is loved by young people: Kichi-Kichi, Sumo BBQ and Vuvuzela etc. Golden's spectacular makeover Gate is recognized by many economic experts thanks to its "huge" capital investment and support for relationships with experts in the culinary field from Standard Chartered and Mekong Capital.
Considered as a competitor of Golden Gate in this same segment is none other than Red Sun Commercial Investment and Management Joint Stock Company – Redsun. When Redsun currently owns more than 200 stores across 26 provinces and cities in the country. However, the performance of Redsun is not appreciated. When the revenue in 2018 reached over VND 620 billion and increased by 14% compared to 2017; However, the profit before tax that Redsun earned was only 1.4 billion dong.
2.3. Huy Vietnam Company
The beginning of the fourth quarter of 2019 witnessed the "departure" of Huy Vietnam's chain business model (Hue restaurant) after more than 12 years of existence and development in the market. In addition, the company has been successful in owning many brands with Vietnamese cuisine names such as: Pho Ong Hung, Com Thong, Pho 99 etc. However, mistakes in business strategy orientation have made the company The company lost its breath in the battle for market share.
It is indeed an omission if not to mention an emerging but growing trend is the business of franchising. Typically, IPP Group with brands including: Burger King, Domino's Pizza or Popeyes ... are also trying to conquer the taste of Vietnamese people.
3. Covid19 – a big “shock” for the food chain business model.
All of the above data was very positive until the "earthquake" called COVID19 spread its obsession across most fields. But perhaps the most affected is the F&B industry.
When the revenue of the restaurant chain business model decreased significantly compared to the time before the outbreak. However, big companies like Golden Gate already have the scenario when "turbulence" emerges. Regarding the source of raw materials, the company was not affected much because from the beginning they diversified the import market. In addition to updating information about the epidemic, Golden Gate's chain of stores also implements epidemic prevention principles to create trust for customers when coming to the restaurant such as:
- Mandatory 100% staff wear masks when serving guests.
- Hand sanitizer.
- Continuous cleaning and disinfection in the restaurant etc
In addition, Golden Gate's ability to react quickly when implementing the home delivery program strategy but still ensures the criteria when eating at the restaurant. This program helps them to secure some revenue and has new directions to develop this service if the demand for home service continues to increase. That is a specific example of “at risk” that many people still talk about.
II. Three core challenges of the chain business model facing the F&B industry.
In the above section, DPS gave a brief overview of the current state of the F&B industry in the past years and forecasted development in the next 5 years. As well as the impact of Covid 19 on the "health state of the industry".
In the next section, DPS will address the three main challenges that the owner of a food and beverage business will encounter when pursuing a chain business model.
1. Management thinking – The soul of the chain business model
Once you determine to develop a chain business model in the field of F&B; Then the first barrier for you is the problem of thinking in management. Two issues that are considered key in the development of a chain model are product quality management and at the same time providing an appropriate management method to maintain quality when expanding the model.
This is actually a difficult problem for business owners when aiming to develop a chain store business. In fact, not all models in the F&B sector can be developed into a chain. The problem is that there are some products in the food and beverage business that are difficult to expand and still maintain the quality of products and services.
Grandfather Ly Quy Trung The founder of this Pho 24 has an objective view of the business model in his autobiography. Mr. Trung said, when expanding the system too quickly and they had to face the huge challenge of how to keep the quality uniform for the whole chain of stores.
On the other hand, despite being in the chain, the quality of products and services varies greatly between stores. If business owners are not looking for solutions to overcome, an event like the COVID-19 pandemic will be a "resistance" test of your business model.
Why when developing a chain of stores does the heterogeneity in quality appear?
To answer this question there are quite a few reasons to explain. DPS asks for permission to use the Mon Hue restaurant chain business model to make it easier for you to visualize.
In the chain restaurant business, the less dependent on the chef, the better. That means the process must be standardized and the dishes must be simple and not complicated. Meanwhile, when it comes to Hue dishes, customers will imagine Hue royal-style dishes which are already sophisticated and sophisticated. Therefore, the processing of dishes requires careful quality control.
Developing a wide range of models while ensuring uniform quality for Hue dishes seems to be an impossible task. This is one of the reasons why many people find that when there are only 1 or 2 stores, the quality at Mon Hue is quite good. However, when discovered to become a restaurant chain, the quality of the dishes is getting worse and worse.
DPS can identify this as one of the key 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 elements in products and services
“Sacrifice” things that do not bring high economic value to the store. This is considered a solution to adjust the business model accordingly to develop and control the service well when replicated.
In other words, how to remove all redundant elements, standardize process; provide ongoing training and apply technology to consistently deliver products.
So what factors are considered redundant? There are two main factors for businesses to determine this:
- The product does not bring high revenue or high economic value.
- The product is difficult or impossible to standardize at scale.
DPS will use a classic example in the F&B industry when accepting to "sacrifice" the superfluous to thrive. That is Highlands Coffee. When it was just "born", Highlands' drink menu had 50 products. However, by 2019, with a scale of more than 240 stores across the country (Cafef.vn, 2019); the menu of Highlands only has 18 dishes (Highlands Coffee, 2020).
You see, in fact, if the sacrifice is right and appropriate, the value it brings is really "sweet"!
3. Train people in line with the chain business model.
The last factor that DPS wants to mention is to train human resources capable of managing and maintaining the quality of products and services when expanding.
3.1. The importance of preparing Human Resources when expanding the store chain
Besides being able to standardize processes to maintain quality is extremely important, your customers also perceive service through human connection; which is the employee of the store. Therefore, the standardization of the process from service to solving problems when arising for all employees also needs to be standardized and properly trained.
In case you develop your restaurant chain business model too quickly; but the system of standardizing the product quality process is not strict, causing shortcomings. This will cause Domino effect. That is, the company's management and human resources are "required" to expand to handle the huge work. In the long run, failure is inevitable if there is no timely remedy.
3.2. Difficulties and solutions for Business Owners in choosing personnel when they want to expand their business chain.
In addition, business owners who choose to do business under the chain model also face difficulties in terms of the shortage of personnel at the management level. Because the personnel at this time must increase 2 to 3 times to ensure the operation of the restaurant chain.
If the business owner believes blindly and does not have appropriate control measures, dishonest management will cause loss and damage to the restaurant.
On the other hand, if the restaurant owner is a micromanagement style person, it is difficult for them to trust and delegate work to the staff. While the business owner himself cannot embrace all the work to do.
So, in addition to preparing management thinking, managing quality and standardizing product processes, training and people management also need to be focused.
III. What is the solution for the development of a chain business model for enterprises?
In fact, in the process of implementing a chain store business model, businesses must have a solid and long-term development strategy. Say no to fast development, hurry when the facilities, people and management processes have not been fully developed. In particular, in the Vietnamese market, the cost of space rental and staff salaries tend to increase but not decrease. Therefore, to ensure the success of the business chain business model, it is necessary to carefully consider the following factors:
1. Brand of the business system chain
The element of consistency across all business locations is considered essential. Including standards of premises, store image, interior layout and service behavior of staff. More importantly, business owners need to consider in choosing a business location that is suitable for products and services and easily accessible to the target customers that the business is aiming for. In the event that the loss of your business goes beyond your contingency plan, you should quickly decide to close the loss-making stores.
2. Operating system for chain business model
To develop a complete operating system business owners need time and consultants to build and perfect it.
Kaizen is one of the very good management philosophies that business owners can completely apply. Changing little by little over a long period of time, the results of the change are great and it is worth your persistence to change.
In the 4.0 era, besides human resources and control processes, appropriate management software will support business owners when operating a chain business model.
3. Human Resources
The problem for business owners is to train good human resources with management capacity, experience, honesty, dedication and commitment to the business. However, to find a person who meets the above factors seems to be "searching for a needle in the seabed".
Therefore, business owners should aim to build a centralized management and reporting system on one system to easily manage and control their chain business model. Firstly, it can help employees self-adjust and comply with the strict working process of the enterprise. Secondly, this will contribute to limiting financial and inventory risks.
In addition, businesses also need to pay attention to building regular training programs to train and develop employees' knowledge and skills at all levels on:
- Process of ensuring food safety and hygiene.
- Training service staff and management level.
For example, your store is a chain of coffee shops. If you are an employer with a strategic and long-term vision, you should create opportunities for employees to take training courses on baristas or baristas, for example.
4. Products suitable for the chain business model
The problem of product quality control is uniform and price stability is maintained.
Besides, you need to understand the preferences of customers in order to develop suitable new products to meet the needs and trends of target customers. The chain business model in the F&B industry is very "hot" but has a very fast elimination rule, especially in a vibrant market like in Vietnam.
This requires that businesses should not only stop at following trends to meet customer needs. Business owners should use marketing tools to spot and create trends. How? In the next section will answer this question for you.
5. Develop a marketing strategy for the restaurant chain business model
Marketing is a tool that business owners can use to gather information and preferences of customers. From these data, under the delicate and sensitive eyes of Marketing experts will discover the needs of target customers; even when customers are not aware of their own needs.
In addition, business owners cannot lack an integrated marketing communication strategy - Intergated Marketing Communication - IMC. To convey the message to the target customers in the most consistent and effective way.
Besides, there is also a marketing strategy for each quarter and each year for the points of sale. At the same time, set up a customer care program. To collect customer data, capture needs as well as promptly resolve arising complaints. Do these things well to avoid the situation of "a worm that upsets the soup pot"
Cafef.vn. (2019). "Great war" of coffee chains: Highlands is overwhelming, The Coffee House doubles 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, CN (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.