Convenience costs Vietnam’s out-of-home food service industry

If you were in the business of opening convenience stores in Vietnam this year, it’s been another big one.

However, the continued emergence of the channel hasn’t been without its fallouts.

People are seen at a convenience store in Ho Chi Minh City.

Disruption

According to a presentation by Ho Chi Minh City-based market research firm Decision Lab this month, convenience stores are disrupting Vietnam’s out-of-home food service industry ‘in a fundamental way.’

Tracking performance since April 2016, data from the agency’s Foodservice Monitor*, which is based on thousands of continuous online interview responses by consumers in Ho Chi Minh City, Hanoi and Da Nang, suggests that the continued expansion of convenience chains like Family Mart, VinMart+ and Circle K, is not only diverting foot-traffic away from mid-to high-end food outlets, but has also devalued the market by sparking a voucher war.

Responding to a question about what they’d eaten or drank out of home yesterday, a sample of 18,000 responders reported eating out slightly more often in Q3 2017 compared to Q3 2016; 147 times on average, up from 144.

However, according to Decision Lab senior consultant Nghiem Vu Huong Linh, who presented the data, they did so a lot more selectively, and a lot more frequently at the lower end of the market.

Market in flux: A slide from Decision Lab’s report on Vietnam’s out-of-home food consumption market Source: Decision Lab

It was this change, combined with what Linh described as 2017’s ‘discount tornado,’ whereby even fine dining restaurants engaged in heavy vouchering as the market got tough, that resulted in average spend declining by 18 percent per head per visit, to just over VND60,000 (US$2.65).

According to their numbers, this fall in average spend translates to a drop in total sales revenue of approximately VND3.3 trillion (US$145.3 million) or about 10% year on year.

During the same period, as bubble tea outlets also proliferated, the number of convenience locations grew rapidly, with consumers quick to adapt to their extended offer of around-the-clock hot food, cold drinks, free-wifi and other snacks in air-conditioned comfort.

The result has been an increase in market share to 14%, which translates to a lot of tuna sandwiches, bento boxes and warmed up chicken wings.

A direct threat

Commenting on the results, Linh said it was a reflection of convenience stores greatest strengths; speed of service, variety of goods and most importantly, availability.

Aggressive Expansion: VinMart+ was easily the most prolific but others are set to catch up. Source: Decision Lab

“The convenience channel poses a direct threat to the quick-service industry,” she said, “the increase in market share is a nightmare for operators in this segment, because unless total demand suddenly increases dramatically, Vietnamese consumers will continue to make trips to convenience stores at the expense of other channels.”

According to Decision Lab’s research, the number of visits to quick service outlets, which include staples like McDonalds, KFC, Highlands Coffee and Starbucks, reduced by 34 million nationwide between Q32016 and Q3 2017.

That decrease was in stark contrast to an increased flow of approximately 81 million visitors to categories classified as low-end, including convenience stores, street food vendors and workplace or school canteens.

Total visits to street food outlets fluctuated over the period and then went up to 87 million during Q3 2017, which was higher than Canteen’s at 73 million and Convenience Stores, at 64 million total visits in the most recent quarter.

A growing disruption

Significantly, according to numbers from the International Grocery Research Organization, Vietnam’s convenience market is expected to grow by a further 37.4% between now and 2021 - more than any other Asian market.

By 2020, it’s expected there will be one convenience store per 17,815 Vietnamese residents, which sounds like a lot in a nation of 94 million, but is still a long way from Taiwan, the undisputed kings of convenience, where this number is approximately 2,300.

Welcoming a global giant: 7-Eleven opened its first stores in Vietnam this year

GenZilla

Unsurprisingly, according to Decision Lab’s data, the rise of the convenience store is being driven by young people, specifically Gen Zers, classified as 15-23 year old ‘digital natives’, who are either entering the labor market for the first time, or are about to finish school.

According to Decision Lab co-founder Thue Quist Thomasen, who spoke about this segment of the population, Gen Z are ‘early adopters in the out-of-home food market’, and as such wield significant power. They also report eating outside of the home substantially more often than the national average – 197 times compared to 147.

With a growing population base of around 14.4 million across the three major capitals, and reported average out-of-home spend of VND892,000 per month, Thomasen said to the assembled industry players, “it’s time to take the kids seriously.”

Reaching out to them, Tuoi Tre News spoke to Justin, 23, who was hanging out with friends Huyen, 20, and Dana, 18, at the Family Mart store on Xuan Thuy in District 2’s Thao Dien in Ho Chi Minh City.

When asked why they chose to spend time in convenience stores, Justin said it was about ‘more choice’ and ‘better service’.

Gen Z: Justin, 23 and Huyen, 20 spoke to Tuoi Tre News at their local convenience store Photo: Vu Ha Kim Vy

“Here we have more choice, more comparisons on price, better service and overall its better for us young people,” he said.

“It’s comfortable, there is air-conditioning and the coffee here is cheaper than across the road. It’s VND50,000 over there compared to only 10 or VND20,000 here.”

Huyen, 18, echoed his thoughts, and said she visited convenience stores almost everyday, either to sit and study or sometimes to meet friends.

“I often go in the evening, sometimes around midnight. Sometimes I’ll stay for five minutes, or sometimes for 2 hours.”

Also there were co-workers Pham, 32, Nhien, 21 and Vy, 22 who were enjoying an after-work drink.

“It’s friendly here,” said Nhien, “and comfortable. We can sit around on tables with friends like a coffee shop, and it’s open all day. It’s relaxing.” 

Cheap, Cheerful and Good: Vietnam’s iconic street food culture isn’t going anywhere. In fact it’s getting better. Source: Vu Ha Kim Vy

What about street food?

Notably, of all the young people Tuoi Tre News spoke to inside convenience stores, almost without fail they said that they recognized that the ‘food was better outside.’

It seemed that rather than replace meals, food eaten in convenience stores was most often supplementary to their regular diet, where the first meal of the day is still a priority.

“I eat here sometimes,” said Long, 22 “but usually the food here is small, and not enough for a full breakfast, so most of the time I prefer local street food restaurants.”

“It’s cheaper and more convenient on the street,” said Yen, 19 “and the quality is better.”

Both of these sentiments are supported in Decision Lab’s own findings, which say that Gen Z consumers choose street food only slightly less often than the rest of the population, and that the popularity of street food is anything but on the wane.

This in a year when many vendors were forced ‘off the street’ by city administrations and were the subject of the usual number of hygiene inspections.

It should be music to the ears of people like street food identity Nguyen Thi Thanh, aka ‘The Lunch Lady”, who serves hot bowls of delicious soup in a well-frequented, but hard to find hem just off Hoang Sa in the Da Kao ward of Ho Chi Minh City’s district 1.

Addressing the potential disruption to her own market posed by convenience stores, she said she was aware of convenience stores popularity but believed that it was a cyclical change.

Internet Famous: Nguyen Thi Thanh aka “The Lunch Lady” known for featuring in Anthony Bourdains ‘Parts unknown’ Photo: Vu Ha Kim Vy

“It’s temporary,” Thanh said.

“Teenagers love something new, but I don’t think it will last long. It’s the same with fashion, food, everything. It changes all the time.”

Asked if she thought it was harder to be a street vendor now, she said she thought people would always recognize good food, no matter where they get it.

“If you cook with passion and you maintain the quality at a reasonable price, people will return.

“But if all you offer is air-con, free wi-fi and a comfortable space, you won’t succeed because the cost is too high and people won’t come back. “

Food for thought? This market is one to watch.