Faced with increasing cost pressures, F&B businesses grapple with a critical choice: raise prices to preserve profit margins or optimize operations to retain customer loyalty.
The Heavy Cost Load on Vietnam's F&B Industry
Over 60% of the more than 4,000 food and beverage (F&B) businesses surveyed in the Vietnam Food Business Market Report 2024, conducted by iPOS.vn, reported a revenue decrease. Even businesses with stable or increased revenue acknowledged relatively thin profit margins due to rising selling costs and aggressive promotions to attract customers.
Cost pressures are heavily burdening F&B businesses, particularly raw material expenses. Nearly 45% of businesses stated that these costs account for 30% or more of their selling price, with 6.2% even exceeding 50%, pushing profit margins into dangerous territory.
According to Mr. Nguyen Thai Binh, co-founder of Concepts Academy, raw material prices in 2024 are rising due to various macroeconomic factors. Global inflation and economic volatility are driving up import costs, while transportation expenses are increasing due to political instability and fluctuating fuel prices.
Tax policies and import regulations are also being tightened, coupled with climate change affecting agricultural supply, leading to reduced yields of coffee, sugar, rice, and vegetables. Simultaneously, increased exports, especially of rice and coffee, are limiting domestic supply and driving up prices.
Additionally, other cost factors such as the basic salary increase from July 1, 2024, and rising rental costs due to real estate price increases are also putting pressure on F&B businesses.
Real estate expert Minh Phan, founder of SitePlus, noted that the retail space market is undergoing a strong purification phase as rental costs have reached high levels.
After the Lunar New Year, the number of vacant spaces increased due to weak purchasing power and high operating costs, forcing many landlords to be more flexible and offer more support to tenants. However, in prime locations, rental prices remain unchanged or slightly increased due to limited supply.
iPOS.vn forecasts that raw material cost pressures show no signs of easing in the short term, requiring F&B businesses to have more flexible strategies. Balancing cost, profit, and customer purchasing power will become a matter of survival in 2025, as the market becomes increasingly competitive.
What Path Forward for F&B Businesses?
Mr. Nguyen Anh Quan, Brand Director of iPOS.vn, states that to address the increasing cost pressures, nearly half of the surveyed businesses revealed they would raise product prices. However, this price increase will be applied to specific product lines rather than a sudden, across-the-board increase.
This year, businesses with six or more outlets show a willingness to increase prices at a rate of over 53%, while units with only one outlet have a rate of just 50.25%.
"This indicates that larger F&B chains have more proactive control over adjusting selling prices, possibly due to their brand advantage, greater raw material purchasing power, or the need to increase prices to maintain profit margins," Mr. Quan said.
Approximately 58% of businesses with growth exceeding 5% are prepared to raise prices, reflecting their confidence in maintaining customer volume despite price increases.
According to Mr. Quan, adjusting selling prices will be a way for businesses to maintain profit margins, compensate for increased costs, and potentially enhance service quality and improve customer experiences.
However, raising product prices is not a straightforward decision. The F&B industry is facing a challenging market where consumers are tightening their belts. This has led 50.8% of businesses to decide to maintain their current prices, avoiding the risk of losing customers. Nearly 61% of businesses with revenue declines exceeding 20% are reluctant to raise prices, indicating their concern about losing even more customers if prices change.
According to Mr. Binh, product price increases in 2025 need to be carefully considered due to rising input costs coupled with weakened market purchasing power. A sudden price hike could impact sales as customers become increasingly cautious about spending.
"Large F&B chains and businesses with strong growth will lead the way in raising prices to maintain profit margins. Smaller businesses and those experiencing revenue declines may delay price increases to avoid losing customers, especially in the budget-friendly segment," Mr. Quan said.
Mr. Chau Le, co-founder of the SanThai milk tea chain with 20 outlets in the Mekong Delta, says that raising prices is not a suitable option at the moment. The business does not face significant operating cost pressures, and import costs remain stable, so there is no reason to adjust prices in the coming year.
Instead, SanThai prioritizes retaining customers, especially in the context of competition with small, independent vendors – where owners are not affected by rental costs, making price increases challenging.
"However, SanThai maintains its advantage through its widely accessible product and well-established, reasonable pricing strategy. After approximately eight months of operation, thanks to effective marketing and communication strategies, the chain has not been significantly impacted by market fluctuations. With an average price below 30,000 VND, SanThai continues to maintain its competitiveness in a context where customers in the region remain cautious about approaching higher-priced products.
Instead of rushing to increase selling prices, experts suggest that cost optimization remains a core factor in a market that has not truly rebounded. Businesses need to be cautious in selecting locations, balancing rental costs and revenue, negotiating with suppliers, adjusting recipes or product portions, and optimizing through technology to avoid hasty decisions that lead to unnecessary financial pressure.
Mr. Hoang Tung, founder of Pizza Home, emphasizes the importance of streamlining the business model. Reviewing, eliminating unnecessary elements, or making appropriate adjustments will help optimize operations. "Competing through business models is good, competing through cut costs is a losing game," Mr. Tung said.
Pizza Home is also affected by rising costs, but thanks to its streamlined model, the impact is minimal. In the event of a mandatory increase, Mr. Tung says he will only adjust prices on less sensitive items. Pizza Home's optimization efforts span multiple aspects, such as reallocating personnel to reduce the number of employees needed, investing in machinery to cut long-term labor costs, finding new suppliers, and negotiating prices to maintain operational efficiency.
"For example, if the central kitchen used to need 10 staff members, now it only needs four thanks to the support of machinery," Mr. Tung shared.
According to experts, in cases where a price increase is necessary, businesses should apply flexible strategies based on region, and customer segment, and combine them with enhancing product value to maintain appeal.
For example, regarding renting space in shopping centers, investors need to consider the business model, not just follow trends. According to Mr. Minh Phan, shopping centers provide stable customers with high purchasing power but come with high costs. If a business wants to expand its brand, this may be a reasonable choice, but if profitability is a priority, the cost-revenue equation and target customer base need to be carefully considered.
(According to TheLEADER)
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