Sunday, 26 May 2019

Leading fast food brands in Vietnam report consecutive losses

Updated at Monday, 30 Jul 2018, 19:40
The Hanoitimes - For many years, both KFC Vietnam and Lotteria Vietnam, and to a lesser extent Jollibee, posted revenues of millions of USD but still sustained losses.
Despite being the leading fast food brand in Vietnam, South Korea-based fast food chain Lotteria has been reporting losses for years, accumulating to a loss of VND413 billion (US$17.85 million) by the end of 2016, according to newswire CafeF. 
Illustration photo.
Illustrative photo.
Jollibee, a Filipino multinational chain of fast food restaurants, also faces a similar situation, albeit with a more modest loss, while KFC witnessed ups and downs in its business performance. 

According to a report released by Euromonitor in 2016, fast food ranked third in term of growth rate among consumer foodservices in Vietnam's food industry, trailing behind restaurants and street stalls. However, in terms of revenue, fast food ranked second only behind restaurants. 

For many years, both KFC Vietnam and Lotteria Vietnam, and to a lesser extent Jollibee, posted revenues up to millions of USD but still sustained losses. 

Notably, each provided with different reasons despite operating in the same consumer foodservice and business model. 

Lotteria, a subsidiary of South Korean conglomerate Lotte Group, took the lead among the three with revenue in 2015 and 2016 of VND1.46 trillion (US$63.1 million) and VND1.3 trillion (US$56.2 million), respectively, according to the company's financial statement. 

Despite operating as a chain of fast food restaurants, Lotteria's gross profit margin remained at a high level of nearly 60%, higher than some Vietnamese leading food & beverage chains such as Golden Gate or Redsun. 

The report pointed to an exceptional high amount of sales expenses, standing at VND774 billion (US$33.48 million) in 2015 and VND745 billion (US$32.2 million) in 2016 and accounting for 53 - 55% of total revenue.
Source: CafeF.
Source: CafeF.
This resulted in net losses of VND118 billion (US$5.1 million) and VND135 billion (US$5.83 million) in 2015 and 2016, respectively. By the end of 2016, Lotteria posted accumulated loss of VND413 billion (US$17.85 million) against its charter capital of VND433 billion (US$18.73 million). 

KFC, however, saw its gross profit margin of less than 15% in 2016 and around 10% in previous years, significantly lower than the rate of 60% of Lotteria. 

In 2015, KFC reported loss of VND25 billion (US$1.08 million) before returning a profit of VND15 billion (US$649,000) in 2016. 

The total fast food revenue in Vietnam in 2015 stood at VND16.68 trillion (US$747.2 million), up 9% year-on-year, according to the Euromonitor International.

Transfer pricing - sign for worry 

According to the Ministry of Finance (MoF), the percentage of loss-making foreign invested enterprises (FIEs) increased from 44% to 51% during the 2012 - 2016 period, in which the rates were 51% and 50% for 2015 and 2016, respectively.
During the four-year period, despite about half of foreign-invested enterprises (FIEs) reporting losses, in which many reported losses for a number of years in succession, the majority still planned for production expansion - a sign of potential transfer pricing, stated representative of the MoF at a conference on July 10 on Vietnam's current preferential policies.
"FIEs' contribution to the state budget remains low, which is disproportionate to the used amount of resources, as enterprises are abusing high tax incentives for transfer pricing," he added.

Consequently, the representative recommended the Ministry of Planning and Investment to devise a protocol to limit loss-making FIEs to expand production and enjoy tax incentives. 
Ngoc Thuy
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