Restaurant, coffee chains struggle in hypercompetitive market

By Dat Nguyen   October 29, 2019 | 07:40 pm PT
Restaurant, coffee chains struggle in hypercompetitive market
A closed Mon Hue restaurant seen in Go Vap District, Ho Chi Minh City on October 23, 2019. Photo by VnExpress/Quynh Tran.
In closing down recently the Mon Hue restaurant chain has followed in the footsteps of many Vietnamese food and beverage businesses.

Last week the 80 outlets in the traditional Vietnamese food chain closed without warning. Dozens of suppliers picketed the headquarters of the company in HCMC on October 21, claiming they had not been paid tens of billions of dong (VND1 billion = $43,000).

Foreign investors, who had sunk $70 million in the chain, are suing its founder, American-Vietnamese Huy Nhat, who has been unreachable since the crisis began.

The close-down of Mon Hue is by no means unprecedented in the Vietnamese food and beverages (F&B) market. Coffee and restaurant chain The KAfe closed in 2017, unable to achieve its targets.

The KAfe had made headlines in 2016 after getting an infusion of $5.5 million from Hong Kong’s Cassia Investment. Founded in 2013 by a young Vietnamese, the chain seemed to be on the right track, securing prime locations in Hanoi and Ho Chi Minh City being among the first cafe chains to attract major foreign investment.

But after founder and CEO Dao Chi Anh quit in October 2016, it struggled to expand and closed down six months later.

Saigon Cafe was another coffee chain to close in 2017, a year after its establishment with 10 outlets in prime locations in HCMC. Its bosses said the closure was due to rising rents and intense competition in the F&B market.

One common thread running through these failed businesses was rising expansion costs and a failure of revenues to catch up with them, experts said.

Duong Nguyen, CEO of restaurant management solutions provider Dcorp R-Keeper Vietnam, said some F&B chains are willing to pay top dollar to secure prime locations though this does not guarantee profits.

"Some hire dozens of workers for each outlet when four are enough. Opening a chain is different from opening a food stall."

Mon Hue had accumulated losses of almost VND107 billion ($4.62 million) as of last year as expansion costs rose faster than revenues.

Between 2016 and 2018 its revenues were almost unchanged even as costs rose by 53 percent.

Marketing expert Le Phung Hao said: "If an owner keeps expanding the chain ... without being able to generate cash flow, costs will rise, debts will mount, and death will be inevitable."

Duong said rapid expansion distracts owners from doing their most important job: that of managing cash flows and containing costs.

Ensuring quality as a chain expands is another challenge for owners.

Hao said location is not the most vital factor in a chain’s success: "Maintaining good food quality at all outlets, even if the number reaches 100, is the key."

But traditional Vietnamese food is complex and difficult to standardize across a large chain, whereas other food such as BBQ have lower level of complexity and therefore easily standardized, he added.

Duong said many owners erroneously think opening a chain of restaurants is similar to opening one. Once a threshold of 50 outlets is reached or major foreign investment received, professional management is imperative, he said. But Mon Hue seems to have failed to do this.

Many of Mon Hue's restaurants are large with a large complement of staff, but since traditional Vietnamese food takes a long time to make, the number of customers it can serve in a day is limited. Customers used to often complain they had to wait for a long time for run-of-the-mill food.

Other experts too said the rising competition in the F&B market would cause marginal players to be pushed out.

Chau Tieu Ngoc, a consultant to F&B chains, said many Vietnamese chains operate without proper market research and strategy and therefore fail.

"Chain owners should not imitate or copy successful international models but need to create their own models to fit with the local market and culture."

The F&B market is estimated to grow at 10.9 percent a year in 2017-19 thanks to increasing incomes, according to market research firm Business Monitor International.

go to top