Why McDonald’s Flopped In Vietnam - YouTube

Fast-food restaurants dominate markets all over the world

Burger King has more than 16,000 locations in over 100 nations

And McDonald's has over 36,000

There's one in a decommissioned airplane in New Zealand

And there's even one in Vatican City

Fast food is a more than half a trillion a year business

But there is one place where these chains can't seem to take off

And that place is Vietnam

Here's why McDonald's and Burger King are failing to find a mass following in Vietnam

There was a lot of hype with McDonald's first opened its doors in Vietnam in 2014

The launch drew crowds of locals who waited hours to get their hands on a Big Mac

But fast-forward to today and the hype has slowed way down

McDonald's which launched in Vietnam in 2014 has only 17 stores there

And Burger King which entered the market in 2011 has only 13 as of 2018

Failure to capture the attention of the Vietnamese market was odd given that

these burger chains had previously been met with success when expanding into Asian countries

McDonald's has seen tremendous growth in countries like China and Japan

Where it has thousands of storefronts in both countries

And Burger King has grown its franchise in Japan from 12 restaurants in 2008 to 98 last year

McDonald's has ranked second out of all foreign fast food in mainland China behind KFC

And Burger King is ranked fourth

But Vietnam was a different story

When McDonald's finally entered the Vietnamese market in 2014

it planned to open a hundred stores in Vietnam within 10 years

But so far today it's only launched 17

The same thing happened at Burger King

The company invested 40 million dollars in Vietnam in 2012

with the goal of opening 60 restaurants by 2016 according to Vietnam Business Review

And as of 2018 they're just 13 Burger Kings in Vietnam

Both McDonald's and Burger King did not respond to CNBC's questions about

why they face such trouble breaking into the Vietnamese market

Fast-food in the States is popular because you can get it now

Vietnamese food is the same thing, if you go to street vendors

you can get your bowl of pho or your bahn mi also maybe even faster than McDonald's

So that kind of defeats the the value proposition of fast-food in Vietnam

But part of the problem seems to be that fast food giant's underestimated their local rivals

Vietnamese diners are spoiled for choice in top-tier cities like Hanoi or Ho Chi Minh City

which has made it tough for international fast food chains to compete

For the Vietnamese we have our banh mi sandwiches and those sandwiches are sold on the streets

at rock-bottom prices compared to McDonald's and Burger King

According to the European Commission, Vietnamese consumers dedicate a sizable portion

of their income to food

and of that money spent on food, 78% of that cash

went to local vendors street stalls and kiosks

Just 1% went towards fast-food restaurants in Vietnam

Vietnam's food service sector has over 540,000 outlets

Over 430,000 outlets are local vendors and food kiosks

There's nearly 80,000 full service Vietnamese restaurants and almost 22,000 bars and cafes

But as for fast-food chains, they account for just over 7,000 outlets in Vietnam

Fast-food chains are so outnumbered in Vietnam partly because of

the severed diplomatic ties between the US and Vietnam

After the United States withdrew forces from Vietnam following the war in 1973

all diplomatic relations were severed between the two countries in 1975

It wasn't until 1995 that the United States and Vietnam mended fences and opened the door for trade

If you know anything about like the history of Vietnam like the last 30 to 40 years

There was a lot of growth, but only really in the last 20

A lot of storefronts are literally just people's homes

They'll live upstairs and they'll just convert the downstairs into any sort of street vending option

In 1997 KFC was one of the first American brands to open up shop in Vietnam

But it was entering an already crowded food market

It took seven years for KFC to open just 10 restaurants

So KFC changed course and updated its menu to better fit local tastes

The brand introduced the KFC chicken rice and the KFC shrimp burger for Vietnamese customers

And today the company has a 130 KFC stores in 21 Vietnamese cities

But the hefty price tag for KFC meals seem to be worth it for customers

The comparatively high prices weren't unique to KFC

McDonald's and Burger Kings prices are also considered be at a premium compared to local vendors

Local vendors can feed twice as many people as a single meal does

at Burger King and McDonald's, at half the cost

Average people would say, about 2-3 dollars for their lunch

That's about it, you know

And 2-3 dollars is quite a lot

Average people tend to go out in groups, then once in a while they would

probably use McDonald's and then all the other days its Vietnamese food on the street

But these high prices are only part of the problem for McDonald's and Burger King

The way food is served in Vietnam has a lot to do with it

When Americans go to a restaurant they normally find something

on the menu that they like and order for themselves

In Vietnam, it's more of a family-style serving experience

Burgers have a tough sell in Vietnam because they're not really a food you want to share

And it doesn't look like things will be getting better fast food chains any time soon

More Vietnamese customers are retreating from fast food chains each year

Traffic to fast food chains dropped 31% from 2016 to 2018

While visits to street food vendors were up 70% during that two year span

But not all fast food chains have failed to appeal to locals

Just take KFC and PizzaHut

McDonald's and Burger King make up 2.8% of the total share of foreign fast food chains in Vietnam

But KFC makes up 11.4% and Pizza Hut makes up 21.3%

McDonald's and Burger King aren't giving up just yet

The companies have made efforts to adapt their menus to reflect the cultural influences of Vietnamese cuisines

like the grilled pork rice with egg from McDonald's and the fish rice combo from Burger King

Experts say that's gonna take a lot more than revamping a menu to compete with

so many local foods crowding the market space

With the popularity of fast-food in Vietnam on the decline

McDonald's and Burger King have a hard future ahead when it comes to satisfying the Vietnamese tastes