Wednesday, July 26 2017

VietNamNews

Foreign cafes’ struggle in Việt Nam

Update: May, 22/2017 - 10:15

By Thiên Lý

Australian-owned Gloria Jean’s Coffees recently decided to close its last store in Việt Nam, ending a 10-year stint in Hồ Chí Minh City and Hà Nội due to slow expansion, high rents and an unsuitable business model.

Gloria Jean’s Coffees arrived in the country in 2006 after a local firm signed a franchise contract with it expecting the business would develop well like it did in Thailand and Malaysia.

This was based on the fact that the chain served Arabica coffee, a relative novelty in Việt Nam where the robusta bean rules.

Việt Nam, the world’s number two coffee producer after Brazil, is known to have one of the fastest growing coffee retail markets, along with Indonesia, Turkey and India.

However, the Australian coffeehouse chain was only able to open six outlets in Hồ Chí Minh and one in Hà Nội in the first six years.

Nguyễn Phi Vân, the first franchisee of Gloria Jean’s Coffee in Việt Nam, told Vnexpress that the demise was due to the adoption of a business model that had been developed in Australia for the local and regional markets.

Later on, even after Gloria Jean’s Coffees International allowed its franchise in Việt Nam to make some changes to its products to adapt to local people’s tastes, the going remained really tough due to many reasons including fiercer competition from both foreign and domestic rivals like Starbucks, The Coffee House, Phúc Long, Urban Station, and Trung Nguyên.

Gloria Jean’s Coffees is not the only foreign cafe whose business has failed in Việt Nam.

Last year New York Dessert Café (NYDC) said goodbye to its customers in Việt Nam via its Facebook page, promising to “return someday.”

Brought to Việt Nam in 2009 by a Singapore Group, NYDC used to be one of the most popular foreign coffee chains in HCM City. It had expected to open 20 outlets in Việt Nam.

What when wrong for the foreign cafés?

Many coffee industry insiders said in the food and drink sector, the coffee area in particular, it is not easy for foreign players in Việt Nam even if when they have famous brands.

Some foreign coffee chains serve normal customers in their native countries but only affluent ones in Việt Nam.

Because of this they often choose prime locations in major cities for their shops, meaning very high rents and skyrocketing overheads.

Not surprisingly, their prices are often two or three times the prices at local cafes.

The attractiveness of foreign coffee products is also affected by their localisation: some beverages are made under foreign formulas but with domestic materials, meaning they do not seem “authentic” and put off foreign customers in Việt Nam.    

However, locals too do not enjoy coffee made using foreign formulas and prefer local cafes.

The increasingly fiercer competition is another important factor contributing to the foreign coffee chains’ failure.

Market observers pointed to the increasing dominance of affordable local coffee chains like Passio Coffee, The Coffee House, Phúc Long, Highlands Coffee, Urban Station, and Trung Nguyên.

These have also intensified investment in design and décor to give foreign cafes a run for their money in terms of looks.

Besides, customers there can get comfort foods that foreign cafes do not have such as phở (phở), bún (vermicelli soup), bread, hủ tiếu (rice noodle soup), and rice.

But according to analysts, international coffee brands continue to be interested in the Vietnamese market.

US chain PJ’s Coffee opened its first outlet in HCM City recently and a second within two months. It hopes to have at least 10 additional stores in the next five years.

A spokesperson for TRG International, the franchisee of PJ’s in Việt Nam, said each shop would be different and are based on lessons from the former.

This is also seen at Starbucks, where each shop has its own style with a specific group of customers in mind.

Banks await debt trading market

Banks’ bad debts now seem to be lower than in previous years. But the total amount remains high, affecting the lenders’ business as well as their goal of reducing interest rates.

An analyst at a securities company said that as of March 31 Sacombank had the highest bad debts rate, an estimated 4.89 per cent, followed by Eximbank with 3 per cent, BIDV with 2.14 per cent, and MB with 1.35 per cent.

Data from the State Bank of Việt Nam (SBV) indicates that the banking sector’s bad debt rate as reflected in balance sheets is under 3 per cent.

Some banks may however have significant amounts of off-balance sheet assets and liabilities.

In December 2016 the bad debts reported in balance sheets, bad debts managed by the Việt Nam Asset Management Company (VAMC), and latent bad debts was around 8.86 per cent of total outstanding loans, according to the SBV data.

The VAMC’s handling of bad debts is too slow, according to banks and many of them are looking for ways to buy back the bad debts they had earlier sold to it, hoping to settle them by themselves.

Some of them even plan to trade bad debts.

At shareholders meeting this year, the bosses of many lenders like VIB, OCB, VietinBank, Techcombank, MB, SCB, ACB and VPBank proposed plans to buy back most of their bad debts from the VAMC.

Vietcombank has already bought back all its bad debts totally worth VNĐ4.3 trillion (US$184.43 million).

Analysts said the reason for this is that sooner or later the Government would force the banks to put all their bad debts in the balance sheet instead of allowing some to be off it.

So buying back the bad debts from the VAMC makes sense since they can keep it all in one place to make things less unwieldy.

So why did they not take this route in the first place instead of selling to the VAMC?

The chief of a bank admitted that the VAMC had come to the rescue of the banks in their darkest hour.

Analysts said thanks to consigning their bad debts to the VAMC for a few years, the banks have had the time and conditions to recover enough to handle their bad debts by themselves.

Besides, most lenders had expected the VAMC to miraculously fix their bad debts, and this had not happened, they said.

But not all banks are capable of buying back their bad debts, only those that have low bad debt rates of under 1.5 per cent and abundant resources.

Some also plan to participate in the debt selling and buying market.

At its recent shareholders meeting, Vietcombank tabled a proposal to set up a debt selling and buying company for approval.

Last week the bank got a licence from the SBV for debt trading.

VIB shareholders also approved a plan to buy debts estimated at VNĐ6 trillion (US$264.32 trillion) from credit institutions.

Market observers see a trend, saying many banks are keenly awaiting a debt market, which is expected to take shape soon.

Another encouraging sign for banks is that their bad debts are becoming attractive to investors since more than 70 per cent have properties as collateral and the real estate market is recovering strongly.— VNS

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