Tony Chew, chairman of KFC Vietnam
When Singaporean Tony Chew (Chew Leong Chee) brought Kentucky Fried Chicken to Vietnam in 1997, he saw opportunities aplenty on the streets of Ho Chi Minh City, the former Saigon–meaning it was a blank canvas for branded fast food.
“At that time the country lacked basic infrastructure. There was limited power supply, roads and transportation, telecommunications, hotels, business connectivity and access to markets. The workforce lacked suitable training and most could not communicate in English. I hired one of the few cars, and the rest of the road was full of bicycles and rickshaws,” Chew, 66, recalls.
In fact, he had been doing business in Vietnam since the early 1990s, in a joint venture that bottled Pepsi after the U.S. lifted its trade embargo. That helped open the door for KFC, which was under the Pepsi corporate umbrella at the time. (It’s now part of Yum Brands.)
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Food and beverage have been a frequent regional interest of Chew and his Asia Resource Corp., alongside his role at home in “Singapore Inc.”–he chairs the Singapore Business Federation and sits on the board of Keppel Land–a holding of Temasek, the sovereign fund.
Although Chew is mum about most of his holdings, he allows that KFC–and Vietnam–have come a long way since the first unit was opened at Saigon Super Bowl, the early entertainment-shopping megamall near Tan Son Nhat airport. After 17 years KFC Vietnam (KFCV), owned by closely held Asia Resource, has 140 restaurants in 18 provinces with some 4,000 employees. In Vietnam it is second only to Korea’s Lotteria fast-food chain in outlets.
KFCV had the pioneer global fast-food franchise in Vietnam, and the initial years, especially, were a test. “We were hit by the Asian Financial Crisis in 1997, followed by the SARS epidemic in 2003 and the bird flu outbreaks in 2004 and 2005,” Chew, the firm’s chairman, says in an interview in his Singapore office. It took seven years to break even.
But after nearly two decades KFC is now facing a new hurdle: a flood of other global brands moving in, as Vietnam finally begins to catch up with the more established Southeast Asian nations (see chart). That means Chew is now competing with a good dozen fast-food brands, including the world’s largest chains, such as McDonald’s McDonald’s and Burger King. In the last three years the number of food and beverage franchise units have nearly tripled in Vietnam. There’s a fierce fight for locations, and though modern retail space capacity has improved, rents are high. Also, good management staff is scarce.
“That’s business, full of challenges. You have to face it,” says Chew.
Getting up to a critical mass of at least 20 stores was an early worry. Then bird flu hammered the core menu item. Sales at KFCV dropped 50% in January 2004 as stores had to close while the government banned poultry transport. KFCV improvised alternatives and revenues bounced back.
In crisis there are opportunities. Bird flu was somewhat a turning point for KFCV. Televised footage of Vietnamese officials eating its chicken products was widely circulated. Consumers opted for fowl with clear origins that were safely prepared.
With the current competitive onslaught, and bidding wars for storefronts, KFCV is taking development cautiously. Instead of rushing to open stores, it is redesigning and upgrading current restaurants. The average turnover is $30,000 to $40,000 monthly for each store. The number is not big, especially when compared with the first McDonald’s restaurant in Ho Chi Minh City, which served 400,000 customers in its first month in February. (It is owned by Henry Nguyen, managing general partner of IDG Ventures Vietnam, which owns Interactive Media, the licensing partner that publishes FORBES VIETNAM.) What does Chew think? “McDonald’s Vietnam has a big restaurant, and it is the first one. The excitement will subside,” he says.
Even as foreign brands pile in, the country has been recovering from a pause in its growth, as the hangover of the global financial crisis reached Vietnam’s banking and property sectors. Only now is optimism returning.
“For me, business is always a long-term strategy,” Chew says. “You need to build a strong management team and strong financial foundation.” He believes consumer purchasing power will continue to grow mid-to long-term. How about short term? “It will be difficult,” he says smiling.
Adapted from FORBES VIETNAM, a licensee of Forbes Media.
At the Front of Vietnam"s Food Queue
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