HANOI -- The first-ever Nikkei investigation into restaurant and cafe chains in the six major Southeast Asian nations has revealed that homegrown restaurant and cafe operators are holding up well against major U.S. rivals.
In Vietnam, Thailand and Indonesia, some domestic chains are operating more than 1,000 stores. Several of them are stepping up efforts to break into neighboring countries, as the birth of the Association of Southeast Asian Nations Economic Community later this year will make it easier to do business across the region. But the creation of the single economic bloc will also bring increased competition.
What's on offer
At about 2,500, Vietnam's Trung Nguyen Coffee chain has the highest number of stores among Southeast Asian restaurant and cafe operators.
The country has a multitude of coffee shops, with cafe culture deeply ingrained in the society due to its once being a French colony. Trung Nguyen Coffee has managed to expand its chains by allowing existing cafes that sell its coffee beans to use the Trung Nguyen Coffee store sign free of charge. As a result, directly run cafes and franchises make up only a small portion of the chain.
The company serves high-quality Vietnamese coffee based on the traditional brewing method of using a steel filter. At 50,000 dong to 60,000 dong ($2.24-$2.68), the coffee is rather pricey, but the chain has won consumers' support by also serving restaurant-quality meals, ranging from sandwiches to the traditional pho. Also, its G7 brand instant coffee commands a 30% domestic market share, surpassing products sold by Swiss food giant Nestle.
In Indonesia, Kebab Turki Baba Rafi is the most pervasive restaurant chain. Its kebab eateries sell the Middle Eastern dish for around 18,000 rupiah ($1.32), cheaper than what major hamburger chains charge for their main offerings. Tapping into Indonesians' love of sweet food, Kebab Turki even serves a kebab made with banana and chocolate.
While some of its franchises look just like typical fast-food restaurants, about 80% of the 1,254 Kebab Turki chain stores are based on simple setups similar to kiosks. These stand-type shops are key to the chain's dramatic rise. The company has kept the franchise fee for the tiny shops at less than half of that for a convenience store. This type of shop is also ideal as a part-time business because it can be operated by one person, making working hours very flexible.
Kebab Turki now claims to be the world's biggest kebab chain.
Over in Thailand, Cafe Amazon has expanded to 1,292 locations. Operated by PTT, Thailand's state-owned oil and gas company, 80% of the stores are located at gas stations. It offers cafe latte, frozen coffee and other drinks similar to products available at Starbucks Coffee, but the pricing is about 20-30% lower at Cafe Amazon. With its cakes, cookies and other food, it has become a popular rest stop for Thai drivers.
In the Philippines, Jollibee Foods remains by far the biggest player. Jollibee, which serves a wide range of dishes including hamburgers, fried chicken and pasta, is the leading fast-food company's flagship franchise. It has the most locations in the country at 880, nearly double the number of McDonald's restaurants there.
In addition, Jollibee Foods runs the Mang Inasal barbecue restaurant chain, the second-largest in the country, the Chowking Chinese restaurant chain, fourth, and others. All told, the company has a total of 2,374 locations in the Philippines alone.
Learn and improve
The modern restaurant business came to Southeast Asia in the 1980s and 1990s with the expansion of U.S. chains, such as McDonald's and Kentucky Fried Chicken, commonly called KFC. The successful local restaurant chains of today have achieved their dramatic growth by not merely undercutting those giants in price. The newcomers have studied the Western operators' efficient franchise systems, ingredient supply chains and popular menus, and modified them to better suit their markets.
An excellent example is Jollibee. McDonald's once made a partnership offer to Jollibee. But Jollibee turned down the hamburger giant's offer and developed its own supply chain and other business infrastructure, which have brought about its huge success today.
Cafe Amazon was launched in 2002, four years after Starbucks Coffee came to Thailand. It has been able to dramatically expand its chain network through its strategy of locating stores inside gas stations.
Off to the races
With the ASEAN Economic Community set to go into effect, the leading Southeast Asian restaurant and cafe chain operators are beginning to establish a presence in neighboring countries.
Trung Nguyen Coffee has opened coffee shops in Thailand and Singapore. It also exports coffee beans and instant coffees to 60 countries around the globe.
Indonesia's Kebab Turki is already operating in the Philippines, Malaysia and China. The company will continue to expand by pinpointing areas with Muslim populations, business travelers and tourists.
Today, Jollibee generates 20% of its revenue from 627 overseas locations in Singapore, Vietnam and elsewhere. The company aims to raise that figure to 50%.
Among the major U.S. chains, KFC ranks No. 1 in Malaysia and second in Thailand and Indonesia. Its success may be intertwined with Muslim religious tenets prohibiting the consumption of pork, thus making chicken dishes popular.
McDonald's, which operates roughly 3,000 stores in Japan, claimed the top spot in Singapore and the third in the Philippines.
In Singapore, the U.S. sandwich chain Subway is growing rapidly, as increasingly health-conscious locals turn to the chain's generous use of vegetables. Subway plans to have 150 stores in operation by the end of the year, surpassing McDonald's.
Japan's companies are also expanding into Southeast Asia. Its restaurant and cafe chains collectively have more than 1,000 stores in Thailand, where ramen is drawing crowds, as well as in Singapore. The figure stands at 500 in Vietnam.
In the Philippines, Japanese pork cutlet from the restaurant Saboten is popular. Gyu-Kaku, a Japanese barbecue restaurant, is rapidly adding locations.
With its 600 million people and their income levels expected to rise, the ASEAN Economic Community makes for a highly attractive market for many businesses, including restaurants and cafes. The food industry, however, must address the crucial issue of satisfying diverse regional tastes in the quest for success. The challenge of meeting local preferences while maintaining a unique edge will have regional companies and their overseas rivals battling fiercely to capture this growing market.
Nikkei staff writers Minoru Satake in Manila, Yukako Ono in Bangkok, Tomomi Kikuchi in Singapore and Wataru Suzuki in Jakarta contributed to this story.