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Vietnam's Noodle King Ly Qui Trung:

I Want to Create 'the McDonald's of the East'


I Want to Create 'the McDonald's of the East'

Source:Domingo Chung

With its sleek, modern interior, Vietnam's popular restaurant chain Pho24 is taking the traditional bowl of noodles to new heights. How did founder Ly Qui Trung win out against the multinational fast food competition?



I Want to Create 'the McDonald's of the East'

By Hsiang-Yi Chang
From CommonWealth Magazine (vol. 458 )

"Are you joking? You come from a distinguished family, and have a master's degree from an Australian university. Why would you want to sell pho in the streets?"

Such was the response of Ly Qui Trung's wife back in 2003 when he told her he wanted to establish a restaurant chain selling Vietnam's signature dish pho – rice noodles in beef broth served with slim cuts of beef or chicken and garnishes. As the 44-year-old founder of food company Nam An Group, which owns Pho24, recalls his wife's initial indignant reaction, a broad, slightly smug smile spreads across his face. "But the facts prove I wasn't on the wrong track," he says.

In the seven years since its founding in 2003, Nam An Group has grown into Vietnam's largest food and beverage concern. And Pho24, the group's most well-known subsidiary, has developed into the largest chain restaurant in Vietnam. Presently, 62 Pho24 restaurants can be found across the country, ranging from big cities like Hanoi and Ho Chi Minh (Saigon) to smaller towns in the provinces. Due to its fast pace of extension, Pho24 quickly surpassed the two dominant foreign fast food chains, chicken restaurant KFC from the United States and hamburger chain Lotteria from Japan, which entered the Vietnamese market years earlier. Meanwhile, 17 Pho24 restaurants have opened in other Asia-Pacific countries including Australia, Cambodia, Hong Kong, Indonesia, the Philippines and South Korea.

Ly's Nam An Group owns and operates several other restaurant and coffeeshop chains and acts as general distributor for a number of international food and beverage brands. Last year the group made more than US$10 million in fixed franchising fees alone.

In Taiwan revenue on the order of US$10 million would make you just a small or medium-sized listed company. But in Vietnam, which embarked on capitalist market reform less than two decades ago, the lion's share of large companies in most industries are still state-run, be it aviation, telecommunications, finance, oil refinery or beer brewing.

Ly created a new player in the state-dominated economy relying strictly on his own business acumen and private capital, yet managed to build Vietnam's largest food and beverage empire.

International Standards + Local Flavor = Miracle

Ly opened his first Pho24 restaurant in the center of Ho Chi Minh City near Notre Dame Cathedral, an area teeming with foreign tourists. Back then Ly's parents were toiling in the kitchen, and relatives and friends were helping out in the restaurant. What Ly did for a living was precisely the kind of "roadside business" that his wife found too embarrassing to mention.

"In Vietnam, pho is a simple everyday dish. The Vietnamese associate it with an elderly man in underwear, drenched in sweat and bent over steaming pots behind a roadside stall, peddling his noodle soup to passersby," Ly says with a laugh. "But I spent two whole years thinking about it. From the very beginning that wasn't the kind of shop I had in mind. I wanted to turn the roadside food stall into a clean, orderly, standardized and replicable McDonald's of the East," Ly recalls.

In 2003 Ly's first restaurant opened, boasting a glass storefront, servers in neat uniforms and round-the-clock air conditioning. At Pho24 noodle soup sold for US$1.5 per bowl, about five times as much as at a traditional street stall.

Ly earned a lot of ridicule and skepticism from the locals for his daring attempt to sell street food in a yuppie restaurant and for his high prices. But all this criticism soon died down when tourists from all over the world flocked to the new eatery. Those who had sneered at Ly before became curious, asking themselves, "What is Ly's secret? Why is his restaurant so popular with foreigners?"

Falling from Grace, Lessons Well Learned

"When the first Vietnamese set foot into my restaurant, I knew I had succeeded. Now 70 percent of our customers are locals," Ly notes with satisfaction. From the beginning foreigners with their rather limited numbers were not the customer group that Ly was targeting. Instead, he saw his opportunity in Vietnam's rapidly rising middle class. Average per capita income would grow rapidly as the Vietnamese economy took off, he anticipated, and consumption patterns and tastes in Vietnam's big cities would eventually emulate the West. Therefore, he began in 2005 to set up several other restaurant chains. The most widely known is the bistro-style Cafe Terrace with a mix of Western and Asian food. The stylish bistros have become a popular hangout for Vietnam's new class of young urban professionals, fashion lovers and trendsetters.

Ly's gift for sniffing out trends and transforming them into business opportunities is partly owed to his upbringing and his family background.

Before the reunification of North and South Vietnam in 1976, Ly's family was among the most eminent families in the South. Ly's father was a nationally known journalist during the Vietnam War, while his mother hailed from an entrepreneurial family that ran several traditional upscale gourmet restaurants. When the American military withdrew from Vietnam and communist North Vietnam conquered the capitalist South, South Vietnam's former elite fell from grace, losing their privileged social status.

But Ly says these political changes did not manage to undermine his upbringing. "The influence my family had on me was something that none of the changes in the outside world could take away," he says. From childhood on his journalist father had taught him to closely explore his surroundings and to recognize trends, and instilled in him a pluralistic attitude which accepts that nothing is absolute in this world. Ly's mother, through her words and deeds, taught her son the basic concepts of business.

In the 1980s Ly went to study in Australia, eventually graduating from Griffith University with a master's degree in hospitality management. Studying abroad gave him not only professional knowledge, but also a generous dose of culture shock in the form of Western fast food.

Ly vowed to himself that he would lift the veil of mystery behind the success of multinational fast food chains such as McDonald's and KFC. Not only did he work in fast food restaurants to gain hands-on experience, he also made it a habit to thoroughly check out Western chain restaurants whenever he had a meal in one with friends. Brandishing a pen and a notepad, he would inspect the premises inside and out, filling notebook after notebook with densely scribbled observations over a period of six or seven years. Gradually, an idea took shape in his mind: "Why not using the Western chain franchise model to sell authentic Vietnamese fare?"

Going International

Upon his return to Vietnam Ly put to use what he had learned in Australia. Starting with his very first restaurant, Ly adopted a central kitchen, which delivers prepared food items to the franchised restaurants. While maintaining a central kitchen is generally more expensive than cooking on site, it is also easier to assure quality and consistency. He developed standard operating procedures for all tasks and services and set up Vietnam's first homegrown franchised restaurant system.

Ly's franchise model differs somewhat from the Western model. Most Western franchises are based on a simple contract between the franchisor and the franchisee. While the franchise giver collects franchise fees from the franchise taker, the latter usually fully owns and manages the franchise. But Ly is involved in all franchised restaurants as a co-investor, retaining at least a 30 percent stake in each individual outlet. "By introducing the joint venture concept, we can reduce franchisees' concerns about conflicts between ownership and management rights. As a major shareholder I can also supervise the franchisee," Ly points out.

Ly also came up with Pho24's unique franchising system in a bid to accommodate Vietnam's somewhat peculiar business environment. Today, Ly also lectures at his alma mater and in the EMBA program of Asia University in central Taiwan, offering advice to other franchisors on market entry into Vietnam.

Ly also knows how to exploit the selling points of light Vietnamese cuisine. The Pho24 menus in South Korea, Australia and other overseas locations feature a table that compares the nutrition and calorie content of Vietnamese noodle soup with typical fast food items such as hamburgers and pizza.

"In developed markets where exotic food is ubiquitous, Vietnamese pho doesn't stand out. What I want to highlight is that pho is much lower in calorie content and high in nutritional value than fast food, to get in on the popularity of healthy living and eating," Ly says. While Ly is currently focused on expanding sales points in Asia, for some time he has also been preparing his next step – formal entry into the American and Greater China markets.

Mindful of the dramatic changes during his childhood when the family's privileged affluent life ended over night, Ly does not dare to rest on his laurels. He is an active participant in conferences, forums and seminars on the franchise restaurant industry. And he still uses every free minute to jot down notes in his indispensable notebook. "Consumer trends are changing too quickly. If you let your attention slip for an instant, if you stop learning, then you're going to be eliminated," Ly declares.

Translated from the Chinese by Susanne Ganz

Ly Qui Trung

Born in 1966 in Saigon

Education: Master’s degree in hospitality management and honorary doctorate in business administration from Griffith University, Australia.

Business achievements: Founded Nam An Group. Based on internal estimates, global annual revenue of US$10 to US$12 million. Not publicly traded.

Subsidiary Pho24 noodle soup chain is the largest chain restaurant in Vietnam. Nam An Group also acts as general distributor for foreign food brands such as Australian franchise Gloria Jean’s Coffees, Canadian frozen yogurt vendor Yogen Fruz and Singaporean bakery chain Bread Talk. The Group wholly owns a dozen restaurant chains in Vietnam, including Maxim Nam An gourmet restaurants and Cafe Terrace bistros.