HO CHI MINH CITY (Reuters) - Tycoon Henry Nguyen mopped floors, flipped burgers and even cleaned toilets over a 10-year campaign to convince McDonald’s Corp (MCD.N) to let him bring Big Macs and Happy Meals to communist Vietnam.
McDonald’s is making a late entry into this market, where Yum Brands Inc (YUM.N) already has dozens of Pizza Hut and KFC outlets and Burger King Worldwide Inc BKW.N has 15 restaurants. Even Starbucks Corp (SBUX.O) debuted in Ho Chi Minh City in February and opened its second branch last week.
Capitalism has taken root in a country that many Americans associate more with an unpopular war than rising wealth. The super-rich are becoming household names in Vietnam, which showcased its first billionaire in June on the cover of its inaugural edition of Forbes magazine.
Nguyen, a Vietnamese-American who set up Pizza Hut in Vietnam six years ago, says he has lived and breathed McDonald‘s. He studied its business model as part of his master’s degree, and pursued the Vietnam franchise opportunity for a decade - even as he worked with rival Yum. When he visited his hometown of Chicago, he would meet McDonald’s executives at the company’s headquarters in suburban Oak Brook, Illinois.
The Golden Arches will first appear in Ho Chi Minh City in early 2014 and later in the capital Hanoi, but the expansion will be “step by step”, said Nguyen, who worked at McDonald’s in the United States as a teenager and again this year at a Singapore outlet.
His timing looks questionable. While rivals have gained a firm foothold, McDonald’s is opening just as the economy falters and consumer demand is fading. Still, the 40-year-old is convinced the local market is ripe for a McDonald’s franchise.
“McDonald’s showing up here shows that Vietnam is a big deal to a lot of people. It means things are happening in Vietnam,” Nguyen told Reuters in an interview at his swanky office here in Vietnam’s most iconic building. He is the son-in-law of Nguyen Tan Dung, Vietnam’s prime minister since 2006, but insists that isn’t why he won the McDonald’s franchise deal.
McDonald’s spokeswoman Becca Hary confirmed that Nguyen had been discussing the franchise opportunity for many years, and said he made the shortlist out of a much larger group.
“His marriage did not preclude him for participating in what was a very competitive selection process for our partner in Vietnam,” she said, adding that the company’s research into a new market can span years and it saw “great opportunities ahead” in Vietnam.
Vietnam recorded 4.9 and 5 percent economic growth, respectively, in the first two quarters of 2013, lackluster for a developing Asian market, putting it on track for its slowest annual expansion in 14 years.
Debt-laden banks are struggling to lend and at least 120,000 businesses have closed since 2011, official data shows. Retail sales growth was 11.8 percent in the first quarter, the slowest since 2005, and 2012’s annual increase of 15.7 percent was just half the rate recorded two years earlier.
In advanced markets, McDonald’s tends to do well when the economy weakens because cash-strapped consumers trade down to cheaper food. But in developing economies, Western fast food has cachet and is often priced out of the reach of the masses.
In Vietnam, a piece of KFC chicken costs about as much as a bowl of Vietnam’s trademark all-day meal, pho noodle soup, at 32,000 dong ($1.51), and a KFC meal is more than double that. Burger King’s burgers go for as much as 85,000 dong.
McDonald’s has not yet opened, so pricing information was not available, but Nguyen said he did not want to position it as a luxury brand.
Though this once “tiger” economy might appear to be losing its teeth, Nguyen is adamant McDonald’s hasn’t missed the boat.
“McDonald’s doesn’t look at the conditions today, they look at the long-term potential of the market,” he said. “There’s a big market here, a big part because of the demographic.”
Other big brands have sussed that out too. Two-thirds of Vietnam’s 90 million population are under the age of 30, its cities are swelling and 34 percent of its people are internet users within easy reach of Western marketeers.
It’s not just about the masses. Although average annual income per capita is just $1,400 - one quarter that of Thailand and a seventh of Malaysia’s according to the World Bank - Vietnam has a wealthy, status-conscious urban middle class that enjoys splashing out on big names, expensive smartphones and top of the range Vespa motorcycles.
“My family’s business is doing well, so I don’t see any recession,” said Doan Ngoc Nhu, 33, moments after handing over 200 million dong ($9,400) for an Hermes (HRMS.PA) bag at a posh Ho Chi Minh City mall.
“I chose this bag because it’s expensive,” added Nhu, sporting a well-cut designer dress. “It means quality, it helps me build an image and I care a lot about my image.”
Gucci (PRTP.PA) and Louis Vuitton (LVMH.PA) are now readily available for well-heeled Vietnamese urbanites. Starbucks, the world’s biggest coffee chain, sees “tremendous opportunity” in Vietnam, a spokesperson said.
As Starbucks is aware, in a country that produces 15 percent of the world’s coffee and has an abnormally high amount of coffee shops, it’s about where, not what people are drinking.
“It makes me feel more Western, more dynamic,” said student Tran Thien Thanh, 20, perched on a modern sofa in a Starbucks in the former Saigon thronged with customers web-surfing on iPhones and iPads.
Luxury automaker Rolls Royce plans to open its first showroom in Vietnam next year, targeting the entrepreneurs unscathed from the slowdown having earned their riches in the boom years of 2003-2008, when the economy grew an average 7.8 percent annually.
“The Rolls Royce customer owns at least $30 million or has five or more super-luxury cars,” said Minh Doan, head of Rolls Royce Motor Cars in Hanoi. “The fundamentals are sound for long term growth and wealth creation for Vietnam’s businesses.”
But there’s still plenty of chains and brands that aren’t here and many companies have been put off. Infrastructure is often inadequate, supply chains are limited, import taxes are high. Corruption, cronyism, protectionism and excessive bureaucracy are longstanding problems, as shown in Vietnam’s ranking of 99th out of 185 countries last year in terms of ease of doing business, according to the World Bank.
One additional hurdle is the requirement for foreign chains to be set up as local franchises.
“It’s changing, there’s good potential, but the biggest obstacle is a lack of qualified and capable franchise partners with skills and business knowledge,” said corporate lawyer Fred Burke, a managing partner at Baker and McKenzie in Vietnam.
($1 = 21160.0000 Vietnam dong)
Additional reporting by Martinne Geller in New York; Editing by Emily Kaiser