Founder of Pho 24: Cannibalization in opening chain stores

The opening of chain stores has become a trend amongst food, fashion, and technology businesses. Many of them have gained success while others experienced the failure. Questions concerning how to develop and utilize the market, brand coverage, administrative capability, capital and business location have been raised.

Entrepreneur Ly Quy Trung, the founder of Pho 24, a Vietnamese pho noodle restaurant chain, shared with TheLEADER his experience in running his chain stores in the context of cannibalization.

I first heard the term “cannibalize” from an experienced entrepreneur when Pho 24 had just more than 20 restaurants in Ho Chi Minh City, especially in District 1. The meaning of it obsessed me a lot as that was what I worried about.

“Cannibalize” in business means reducing the sales of one product/store as a result of the introduction of a similar new product/store. Obviously, some businesses are killing themselves when more suppliers appear while the market size remains unchanged.

In 2007, Vietnam’s economy experienced a slowdown and almost stopped showing any progress in 2008 after developing in few years. The government’s priority was addressing inflation instead of pushing the development of the national economy. Therefore, the State tightened all policies on credit and interest rate.

At that time,“CANNIBALIZE” became more terrible than ever when Vietnam witnessed a gloomy economic picture. Fruits were ripe without any buyers as credit became harsher, baba fish’s price kept dropping and constructions were suspended. People complained everywhere. Fewer people came to Pho 24 as they were tightening their belts.

As a result, we had to gradually close many of our restaurants due to the reduction of customers, let alone the fiercer competition with other rivals who had started their businesses after a long time research.

It is a precious lesson on the word "cannibalize" that I want to share with young people. Some people see the idea of chain opening as a measure of success, level of knowledge and social status and then exaggerate the number of restaurants opened.

In short, I advise young people that you can be successful without opening chain, and if you want to do that, be careful in each step instead of rushing to pursue the high quantity of stores.

Each time you launch a new product or open a new store, think more about the word “cannibalize” and have a long-term vision, do not be lured into the glamor of new products or stores. Despite the high revenue of newly opened stores, a business will be operated ineffectively if revenues of older ones decline.

It is very important to realize the market saturation or anticipate the bad situation in order to avoid the unexpected saturation and the self-cannibalization, especially in the Vietnam economy which is still young and has many fluctuations.

It was quite late for me to know the term “cannibalize”, but better late than never. And you who have opened no or a few stores should see this as a gift from me as it will help you to avoid the unforgettable mistakes of predecessors.