Franchising model the way ahead for burgeoning domestic coffee outlets

Franchising is being seen as the fastest way to help brands, including cafe chains, to increase coverage in Vietnam, with numerous chains reporting soaring numbers of outlets thanks to this model.

Franchising model the way ahead for burgeoning domestic coffee outlets

Within the franchise model, profits mostly come from franchised investors. The larger the chain, the more investors will be attracted to participate.

“Franchising helps businesses quickly reach a large number of sale points and optimise investment costs via streamlining the operating team and cost for decoration, furniture, lighting, uniforms, and other factors,” said James Duong Nguyen, general director of Dcorp R-Keeper Vietnam.

There are two popular franchise models in Vietnam – zero-dong and traditional.

Representatives of the two largest zero-dong franchise coffee chains in Vietnam are Milano and Napoli, with more than 1,000 points of sale per brand. The founders of these coffee chains do not collect brand copyright fees and no monthly maintenance fees from franchisers. Instead, their main revenues come from providing full-service coffee shop design solutions, including decoration, to partners.

For example, Napoli offers three franchise packages from $3,000-15,000 with an area of 50-100 square metres. These packages include a 5-year warranty, decorations, furniture, lighting, and uniforms, which are enough for a coffee shop to start operating.

The devices serving for decoration and construction of a coffee shop are manufactured by Napoli, thus, the cost is at least twice as cheap compared to franchisers doing it themselves, and construction time takes only 7-10 days.

Nguyen Duc Hung, founder of Napoli, reaffirmed that this model has been a source of life for Napoli for more than 20 years. “Opening a cafe usually costs a lot initially but the zero-dong franchise model helps to simplify these cost for investors,” he said.

Within the traditional franchise model, partners will have to pay much more to the founders of a chain.

According to statistics published by news publisher FnB Vietnam, as of late 2019, Highlands Coffee – one of the most successful names in the local coffee and franchising scene –charges a franchise fee much higher than the average competition, with stricter rules to comply with.

Notably, the initial franchise fee amounts to up to VND5 billion ($217,000). The monthly franchise fee makes up 7 per cent of the franchiser’s monthly profit, and the management fee is 5 per cent of the monthly profit.

At Viva Star Coffee, the franchise fee is VND160 million ($7,000) for a 5-year contract, while the monthly fee amounts to 5 per cent of the profit, with total expenditures to set up a shop estimated at around VND1.1 billion ($48,000).

A representative of Ong Bau coffee said it is upbeat about its adaptability to the pandemic. He told VIR that most of Ong Bau’s partners are those who own the premises or rent them to run another business. They incorporate Ong Bau’s franchise to make the most of their premises and increase their income. Therefore, these partners are not much affected by the current complications.