Franchising model on the rise in Vietnam logistics industry

Franchising model on the rise in Vietnam logistics industry

After becoming a franchisee for a local logistics company in the northern province of Ninh Binh in early 2019, Nguyen Thai now runs a network of delivery service points covering all districts across the province. He has over 900 customers, mostly shops, and guarantees delivery within the province on the same day including of cash-on-delivery orders.

"This is a time when COD orders are growing at a dizzying pace, and there is fierce competition between major players," he says.

According to the latest survey by the Vietnam Logistics Business Association, there are around 30,000 logistics companies in the country, including 4,000 international ones. The industry has been growing at 12-14 percent annually and is now worth $40-42 billion.

A recent change in this industry has been the shift from traditional businesses to e-commerce players, making the delivery market appealing. But those wanting to enter the industry need to make large initial investments since a logistics company needs both technology and wide coverage.

Thus, becoming a franchisee of an existing company instead of building one's own brand is preferable to many and this benefits both parties: the franchisor can quickly expand its network while the franchisee inherits an existing network, brand and customer base, according to industry insiders.

Since 2019 the market has been buzzing with the entry of well-known global companies such as ZTO Express and BEST Express.

BEST already has seven centers and over 100 service points, including 20 and 26 in Hanoi and Ho Chi Minh City.

According to industry insiders, franchisees need to invest around VND500 million ($21,600) in facilities at each service point besides paying VND200 million and VND175 million as deposit and franchise fee.

"In China and Thailand, we have applied this model and it has proven quite successful in helping small and medium businesses participate in the digital economy," Johnny Chou, founder and chairman and CEO of BEST, had said at the company's launch in Vietnam last year.

"I know small and medium businesses want to be part of the digital economy, but they are too small and don't have enough resources."

ZTO Express currently has some 12 service points. SuperShip, a local startup, also franchises and demands lower fees than its foreign competitors.

To become a service point for a district, a franchisee needs to pay SuperShip VND50 million, which covers both both fees and deposit, for a three-year contract, and invest VND50 million in facilities.

Le Sy Van, a franchisee in the central Thanh Hoa Province, says: "The boom in e-commerce has led to the rapid development of many industries, especially logistics for e-commerce."

According to Le Thanh Hoai, founder and CEO of SuperShip, in addition to the 128 service points that have already been opened, the company has over 30 waiting to be opened and plans to increase the number to 500 by June 2020.

Under the company's franchising model, the total revenues across the system are split evenly between all the different units involved in the delivery.

"This means when one unit expands its customer base, there will be more revenues for the entire system."

The franchising model is also trending globally in the delivery industry.

Delivery companies are no longer following a strategy of searching for customers in each locality, but are focusing on developing their brands well in one locality or country and investing in a tech platform before selling this platform to franchisees in other localities and countries.

As a result, their revenues now come more from franchisees rather than fees paid by customers.

vnexpress