The company said that it has signed a master franchise contract with CUVN, a Vietnam-based convenience store operator backed by local companies including retailer SnB Distribution Co., Ltd., according to newswire Pulsenews.co.kr.
Under the master franchise deal, BGF Retail – the franchiser – will share its brand and business knowhow in convenience store operation with its Vietnamese partner who will be responsible for investment and operations.
The two parties expect to open their first Vietnamese outlet by next June.
A master franchise contract is preferred because it can reduce the risk and investment costs for the franchiser in a new market while guaranteeing a steady loyalty income. BGF Retail also entered Mongolia last year under a master franchise deal with a local company.
Vietnam is considered a potential market with the average economic growth of 6.8 per cent and the population of 100 people, half of whom are under 30 years old.
However, according to experts, the convenience store segment is nearing its saturation point. According to British market research firm Euromonitor International, during the review period, convenience stores recorded booming expansion in terms of the number of outlets, as the format was still relatively new to Vietnam.
Previously, in January 2018, GS Retail Co., a major convenience store chain operator, opened the first outlet of convenience store brand GS25 Vietnam, a joint venture between South Korea’s GS Retail and Vietnam’s SonKim Land in Ho Chi Minh City’s District 1.
The launch of the stores came about six months after GS Retail signed an agreement with local company Son Kim Group to tap into the Southeast Asian country.
GS25 convenience store chain has announced that it will adopt a franchising plan with its business partners early next month, two years after entering the local market.
The franchising plan is part of the store chain’s strategy to expand its operating network in the country, said Nguyen Hong Trang, general director of GS25 Vietnam, at a meeting with business partners on September 26 in HCMC.
The move is also intended to leverage the available land sites of private investors, especially in the context of surging costs for leasing land to retailing businesses over the past two years, said Trang.
The chain is set to open 250 stores on a franchise basis in the next three years and within ten years, it plans to expand to 2,500 outlets nationwide.
The GS25 chain operator will franchise three store sizes to its franchisees, depending on their locations. The first covers 65-70 square meters, the second measures 100-120 square meters and the last covers 150 square meters. The operator will study each location, which is worth less than VND2 billion each, to offer appropriate products.
The head of GS25 Vietnam added that the amount of investment needed for each store remains low, equivalent to one-third or one-fifth of the required capital for franchising deals offered by other international brands.
As for time needed to recover the investment and minimum profits for franchisees, the representative of the chain predicted a gross profit margin of 25%. The franchiser will provide additional support if the profits earned in the first year are lower than expected.
The GS25 store chain has joined the local market for two years. With 50 stores in HCMC, the chain is managed and operated by the joint venture between GS Retail and Son Kim Group.
The retailer plans to expand its business northward by launching three new stores in Hanoi in December.
However, in 2018, outlet growth slowed down significantly. Many urban areas have become overcrowded with convenience stores while rural areas do not generate enough demand for industry players to invest there. In suburban and rural areas, convenience stores compete with many traditional grocery retailers, street stalls, and cafes that sell almost identical items at a cheaper price.
