Why McDonalds Flopped In Vietnam

Fast-food restaurants dominate markets all over the world. Burger King has more
than 16,000 locations in over 100 nations. And McDonald's has over 36,000.
There's one in a decommissioned airplane in New Zealand and there's even one
in Vatican City. Fast food is a more than half a trillion a year business. But there
is one place where these chains can't seem to take off. And that place is
Vietnam.

Here's why McDonald's and Burger King are failing to find a mass following in
Vietnam. There was a lot of hype with McDonald's first opened its doors in
Vietnam in 2014. The launch drew crowds of locals who waited hours to get their
hands on a Big Mac. But​ fast-forward to today​ and the hype has ​slowed way
down. ​McDonald's which launched in Vietnam in 2014 has only 17 stores there.
And Burger King which entered the market in 2011 has only 13 as of 2018.

Failure to capture the attention of​ the Vietnamese market was odd given that
these burger chains had previously been met with success when expanding into
Asian countries. McDonald's has seen tremendous growth in countries like China
and Japan where it has thousands of storefronts in both countries. And Burger
King has grown its franchise in Japan from 12 restaurants in 2008 to 98 last year.
McDonald's has ranked second out of all foreign fast food in mainland China
behind KFC. And Burger King is ranked fourth.

But Vietnam was a different story. When McDonald's finally entered the
Vietnamese market in 2014, it planned to open a hundred stores in Vietnam
within 10 years. ​But so far today​ it's only launched 17. The same thing happened
at Burger King. The company invested 40 million dollars in Vietnam in 2012 with
the goal of opening 60 restaurants by 2016 according to Vietnam Business
Review. And as of 2018 they're just 13 Burger Kings in Vietnam. Both
McDonald's and Burger King did not respond to CNBC's questions about why
they face such trouble breaking into the Vietnamese market.

“Fast-food in the States is popular because you can get it now. Vietnamese food
is the same thing, if you go to street vendors, you can get your bowl of Pho or
your Banhmi also maybe even faster than McDonald's. So that kind of defeats
the the value proposition of fast-food in Vietnam.”

But part of the problem seems to be that fast food giant's ​underestimated their
local rivals. ​Vietnamese diners are ​spoiled for choice​ in ​top-tier​ cities like Hanoi
or Ho Chi Minh City which has made it tough for international fast food chains to
compete.

“For the Vietnamese we have our Banhmi sandwiches and those sandwiches are
sold on the streets at ​rock-bottom prices​ compared to McDonald's and Burger
King.”

According to the ​European Commission​, Vietnamese consumers dedicate a

sizable portion of their income to food and of that money spent on food, 78% of
that cash went to ​local vendors​ ​street stalls​ and kiosks. Just 1% went towards
fast-food restaurants in Vietnam. Vietnam's ​food service sector​ has over 540,000
outlets. Over 430,000 ​outlets​ are local vendors and food kiosks. There's nearly
80,000​ full service Vietnamese restaurants​ and almost 22,000 bars and cafes.
But as for fast-food chains, they account for just over 7,000 outlets in Vietnam.
Fast-food chains are so ​outnumbered​ in Vietnam partly because of the ​severed
diplomatic ties between the US and Vietnam. ​After the United States ​withdrew
forces​ from Vietnam following the war in 1973 ​all diplomatic relations were
severed​ between the two countries in 1975. It wasn't until 1995 that the United
States and Vietnam ​mended fences and opened the door for trade.

“If you know anything about like the history of Vietnam like the last 30 to 40
years. There was a lot of growth, but only really in the last 20 a lot of storefronts
are ​literally​ just people's homes. They'll live upstairs and they'll just convert the
downstairs into any sort of ​street vending option.​”

In 1997 KFC was one of the first American brands to open up shop in
Vietnam.But it was entering an already crowded food market. It took seven years
for KFC to open just 10 restaurants. So KFC ​changed course​ and updated its
menu to better fit local tastes. The brand introduced the KFC chicken rice and the
KFC shrimp burger for Vietnamese customers. And today the company has a
130 KFC stores in 21 Vietnamese cities.

But the ​hefty price tag for​ KFC meals seem to be ​worth it​ for customers. The
comparatively high prices weren't unique to KFC. McDonald's and Burger Kings
prices are also considered be at a premium compared to local vendors. Local
vendors can feed twice as many people as a single meal does at Burger King
and McDonald's, at half the cost .

“​Average people​ would say, about 2-3 dollars for their lunch. That's about it, you
know. And 2-3 dollars is quite a lot. Average people tend to go out in groups,
then once in a while they would probably use McDonald's and then all the other
days it’s Vietnamese food on the street.”

But these high prices are only part of the problem for McDonald's and Burger
King.The way food is served in Vietnam has a lot to do with it. When Americans
go to a restaurant they normally find something on the menu that they like and
order for themselves. In Vietnam, it's more of a family-style serving experience.
Burgers have a tough sell in Vietnam because they're not really a food you want
to share.

“There’s basically two rules, the first rule is you need to be able to share the food.
Second rule is it, needs to be the chicken. When you then look at the burger​, it’s
not chicken, it’s not terrible. ​And I think it’s just not the cuisine that is exciting to
them, to the Vietnamese.”

And it doesn't look like things will be getting better fast food chains any time
soon. More Vietnamese customers are ​retreating​ from fast food chains each
year. ​Traffic to fast food chains​ dropped 31% from 2016 to 2018. While visits to
street food vendors were up 70% during that ​two year span.

“So when I look at the American fast food chains, I would divide them into the
burgers, the chicken and the more Italian kitchen. If we start with the Italian
kitchen, it’s a rather approachable dining experience in many countries because
you can share the food.”

But not all fast food chains have failed to appeal to locals. Just take KFC and
Pizza Hut. McDonald's and Burger King ​make up​ 2.8% of the total share of
foreign fast food chains in Vietnam. But KFC makes up 11.4% and Pizza Hut
makes up 21.3%.

McDonald's and Burger King aren't giving up just yet. The companies have made
efforts to adapt their menus to reflect the cultural influences of Vietnamese
cuisines like the grilled pork rice with egg from McDonald's and the fish rice
combo from Burger King. Experts say that's gonna take a lot more than
revamping a menu​ to compete with so many local foods crowding the market
space. With the popularity of fast-food in Vietnam on the decline, McDonald's and
Burger King have a hard future ahead when it comes to satisfying the
Vietnamese tastes.