IJERD – International Journal of Environmental and Rural Development (2021) 12-1

Research article
erdFood Service Industry Development and its Effect toDistribution of Fresh Agri-products in Vietnamese Suburban
I
Area
7
d
e
n
FUMIE TAKANASHI*tTokyo University of Agriculture, Tokyo,
Japan

Email: ft207429@nodai.ac.jp
4
Accepted
16 May 2021 (*Corresponding Author).
7
Abstract This research aims to
2 uncover how the emerging catering industry contingent toReceived 31 December 2020

deindustrialisation changes the value chain of fresh agri-product in the Vietnamese suburban
area. The results revealed that byentering both international and local businesses, the cateringw
industry is competitive. Firstly, while the catering business in the North are small and operateoon a local level those operating in the South are consolidated enterprises as they have differentrmarket conditions. Secondly, Fresh food ingredients provide direct contract with producers ordwholesalers. In the south, catering companies tend to contract food wholesalers to purchase inbulk and distribute them to theirs branch preparation kitchens located in surrounding provinces.
Third, the value chain created by catering comapny could make transactions and the volume of
products handled concentrated, this could extend the transport distance of produce. However,the vertical coordination for the entire chain is inadequate. Furthermore, contract transactions
are limited to only part of the chain, and the requirement for quality control is weak.
Keywords food service industry, fresh vegetable and fruits distribution, industrialization,
suburban area, Vietnam

INTRODUCTION
The food system in developing countries has transformed rapidly in the past several decades (Reardon
et al., 2019). The two main themes are in trends regarding food systems in developing countries. These
themes include, exports and imports with trade liberalization and globalization, and transformation in
the food systems (Reardon, 2015). Consolidation and globalization of supermarket chains and its affecton small holders are also examined in many countries (Berdegué et al, 2005; Minten et al., 2009;
Ruben et al.,2007; Wang et al.,2009). The supermarket plays an important role in food production with
their ‘own brand’ products and the setting of safety, quality and manufactured food. The value chain is
aimed at quality control of food governed by global retail chains effect on all the actors in the chain,from the input suppliers to the farmer and the food retailer to the consumer (Burch et al., 2013).
Furthermore, the transaction system is changed from spot markets to contract transaction, foodproducts are standardised and the area of food supplied is geographically expanding. The modern value
chain offered by supermarkets are gaining the attention of scholars, as well as detailed research andanalysis have been conducted (Maruyama and Trung, 2007; Mergenthaler et al., 2009; Moustier et al,.
2010; Ruben et al., 2007).
In contrast, research regarding the middle stream (processing, wholesaling and storage) indeveloping countries are limited. Reardon (2015) reviled middle-stream growth and transformation,
both in a “modern revolution” with large and often foreign companies, but also a “quiet revolution”
with a small and medial enterprise and a substantial investment made by them. However, the foodservice industry, especially in rural and suburban areas, has recently begun rising due to urbanizationand industrialization, which has not been considered in previous studies.
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IJERD – International Journal of Environmental and Rural Development (2021) 12-1

With the rapid growth in the industrial zone in rural and suburban Vietnam, the food service
industry providing meals for labourers working in factories is emerging. With the development of theindustrial and rural labour markets, non-farm labour is rising continuously. In 2005, the number oflabourers in the country working in the primary sector was 23,563,000 (55.1%), with the number oflabourers in manufacturing numbering 5,031,000 (11.9%). However, the number of people working in
the primary sector dropped to 18,831,000 (34.4%), while the number of labourers in manufacturing
increased to 11,287,600 (20.6%) in 2019. Employers in the industrial sector (factories) contracted bycatering companies provide one to two meals per working day for employees as welfare support. While
supermarkets are suspended in relatively small channel for Vietnamese lifestyle (Sigrid C.O.
Wertheim-heck et al., 2015), as the emergence of the catering industry’s contingency toindustrialization and food demand growth in suburban area, the value chain of food is graduallychanging. Nevertheless, the framework of catering companies providing meals to the factories, how
they deal with food suppliers and how food value chains are restructured remains a matter of
uncertainty.
OBJECTIVE
This research aims to uncover how the emerging catering industry is industrialized and changes in thevalue chain of fresh agri-product (fruits and vegetables) in the Vietnamese suburban area.
METHODOLOGY
A semi-structured interview was conducted with 15 catering companies (3 international and 12 local
companies), which supply meals to factories in the industrial sector in northern and southern Vietnam,
particularly in Hanoi City, Hai Duong Province, Ho Chi Minh (HCM) City and the Tien Giang
Province. In addition to Hanoi and HCM, the centre of industrialization for North and South Vietnam,
Hai Duong and Tien Giang Province, respectively, are used as a fresh food producer for the former
cities, which are investigated to clarify changes in agri-food distribution.
This research answers the following questions:
1) What are the general characteristics of these catering companies and business conditions?
2) How do they procure and control the quality of fresh agri-products as ingredients?
3) How does the development or modernization of the food service industry affect agricultural
distribution in the surrounding areas of the industrial sector?
Sample companies are selected due to introduction by department of health in each province andcity, and the interviews were conducted in 2014 for North Vietnam and in 2019 for South Vietnam.
RESULTS AND DISCUSSION
General Characteristics of Catering Companies Supply Meals to Factories at Industrial Zone
Table 1 outlines each of the catering companies, with 15 companies divided into 3 groups by the scaleof business. Companies that provided over 20,000 meals/day were categorised as large scale, those thatprovided 10,000 to 20,000 meals/day as middle, and 10,000 meals/day as small scale. The size ofcatering companies varied, the largest cater (L1) provides 60,000 meals/day and has 600 labourers,
while the smallest (S5) distributes only 200 meals/day.

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IJERD – International Journal of Environmental and Rural Development (2021) 12-1

Most of informants were started their business in the 2000s, especially in 2011-2015, when
foreign direct investment increased1. The largest company (L1) are jointly invested with a Japanesecatering company and the Vietnamese local company. Their Headquarter is in HCM, then spreading
their business into the north. Several former food wholesalers (L3, L4) started their catering business.
Local restaurants have also entered the catering industry, but their business scale is relatively small (S1,S2 and S4). Middle scale companies are comprised mostly of those that left other catering companies
to develop their own business. According to the informants, companies in the catering industry arecontinuously merging and splitting.
Two types of meal preparations were observed. These include those that set up the facilities2 to
prepare meals on spot, and those that prepare meals at a central kitchen location and then deliver themto each customer in the industrial sector. While the latter is recommended for hygienic reasons, most ofcompanies could adapt to either style, depending on their customers’ needs. Large catering companies
with facilities (L1, L3, L4 and M3) and small catering companies which distribute a small number ofmeals/day (S2, S4, S5) tend to prepare these in their own kitchen and then deliver them to each factory.
Of the 15 catering companies, 4 of them invested in a central kitchen that met ISO and HACCP
standards, yet quality certification is not popular for small scale companies. Furthermore, unstableannual contracts made middle and small scale catering companies hesitate to invest in new facilities.
Table 1 Outline of sample catering companies

Table 1 Outline of sample catering companies
Large scale

Middle scale

Small scale

L1

L2

L3

L4

M1

M2

M3

M4

M5

M6

S1

S2

S3

S4

S5

Location

HN

TG

HCM

HCM

HD

HCM

HCM

HCM

TG

TG

TG

HD

TG

HD

TG

Year established

2013

2011

1998

2011

2008

2017

2003

2015

2004

N.A.

2007

2014

2009

2014

2011

Num. of branches

2

16

5

4

5

7

2

8

4

5

2

1

20

1

background

JP+V

Num. ofmeals(1,000M/day)
note

N.A.

WS

WS

N.A.

600

N.A.

350

55

400

130

2500

60

13

20

20

15

13

11

HACCP,ISO2000

ISO22000

N

Num. of employees

split

ISO2200

out

FP

split

1
Sub

N.A.

N.A.

FS

FS

N.A.

FS

70

N.A.

N.A.

N.A.

21

N.A.

22

N.A.

9

6-11

5

1.9

1.5

1

0.6

0.2

out

con.

ISO9001,BRC,
HACCP* NH=Hanoi, TG=Tien Giang, HCM=Ho Chi Minh, HD=Hai Duong**N.A.=no answer, WS=Whole sealer, FP=Food Processor, FS=Food Service (Restaurant)***Shaded companies are in north.
Source: field survey in 2014-2019

As Table 2 shows, the contract between catering companies and customers (factories) are typicallyannually arranged3. Contract sometimes broken, and often not renewed. It made their business unstableand flexible so large companies often outsource meal preparation to local small catering companies. In
addition to existence of countless competitors, unstable business condition caused caters to continuallymerge and split.
Contract unit prices vary widely from 12,000-40,000 Vietnamese Dong (VND) per meal (Table 2).
As explained next, the food safety requirement for industrial workers meals are not high. This
minimum safety standard makes catering companies provide reasonably priced meals. According to theinterview with department of Health, the average price for primary school lunch in HCM was 35,000
1 Value of foreign direct investment to Vietnam was $428.5 million (US) in 1991, which increased to $2.4 billion (US) in

2000 and $17.5 billion (US) in 2017.
2 Depending on the contract, facilities are invested in by either the customers or catering companies. According to theinformant, it costs 1.5-2.0 billion VND for the facility with capacity for 1,000 meals/day.
3 It could also be every 3 months, 6 months, 12 months, 18 months or more. However, one year is the most common period

for the contract.
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IJERD – International Journal of Environmental and Rural Development (2021) 12-1

(VND) per meal, while the average price the informant provided for the factory was 15,800 (VND) per
meal. In most cases, the meals that catering companies provide for factories are segregated from those
prepared for school meals because the quality required for both differ greatly.
Table 2 Contents of contracts

Table 2 Contents of contractsNum.
customers

L1

L2

Large
L3

L4

M1

M2

Middle
M3
M4

M5

M6

S1

S2

Small
S3

S4

S5

N.A.

N.A.

50

35

N.A.

7

N.A.

8

4

5

1

3

1

1

1

Fac.,
office,school
15
40

Fac.,
schoolSchool,fac.

Fac.

office

Fac.

Fac.

Fac.

Fac.

Fac.

Fac.

Fac.

School, Fac.

20
35

12
15

15
30

20
30

14
20

20

16.5

15

14
17

15

13
-20

15

Main
customer.

Fac.

Fac.

Unit price(1,000VN
D)

18
20

N.A.

source: field research in 2014-2019

Supply Chain of Ingredients – Vertical CoordinationTwo main routes: contract with suppliers and spot purchasing, were observed for ingredient food(especially fresh food) procurement.
Table 3 Purchasing fresh produce

Table 3 Purchasing fresh produce
Large
L1
Supplier
Contractor*
required
standard

Pro
kitche
n
own
Stan.

L2
W
S
H
Q
―

L3

L4

WS

WS/Pro

HQ
－

HQ
V-GAP

M1

M2

Pro

Coop

kitch
en
own
Stan.

HQ
own
Stan.

Middle
M
M4
3
W
WS
S
H
HQ
Q
―

―

Small
M5

M6

Coop
kitche
n
VGAP

S1

S2

S3

WS

WS

Coop

WS

WS

Pro

HQ

N.C
.

N.C.

HQ

N.C
.

N.C
.

―

―

―

―

―

―

S4

S5

*N.C.=no contractsource: field research in 2014-2019

1) Direct contract with producers/producers’ coop (L1, M1, M2, M5, S2 and S5):
Catering companies purchase food directly from producers or producers’ cooperatives which obtained
the Food Safety and Hygiene Certification (FSHC) located near the preparation spot. The transaction
volume was relatively small and transportation capabilities were limited. Each kitchen had theinitiative to find suppliers, purchase process and maintain quality control. This purchasing system tends
to be employed primarily by catering companies in the north rather than the south. There are threeimportant reasons that direct purchasing is more common in north than in the south. Firstly, the meals
provided each day are limited since the industrial zone in the north is not as developed andconcentrated as in the south. Secondly, the consolidation of transactions are difficult because the food
wholesale business is also not well developed to provide standardised ingredients for preparation
locations. Lastly, even though catering companies can find food wholesalers with well-developed
networks, it is difficult to purchase from a distant area because the cold chain is not maintained.
2) Purchase from suppliers (L2, L3, M3, M4, M6, S1, S3 and S4):
Creating contracts with food suppliers are more prominent in the south. Several large catering
comapnies (L2, L3, L4, M3, M4 and M6) deal with food suppliers that are based on the Binh Dinh,
Hoc Mon and Tu Duc wholesale markets4. They aggregate orders for all their branch kitchens locatedin southeast and Mekong delta regions, then indicate suppliers to deliver to each kitchen. However, insome cases, each kitchen could be a contractor.
4 The Binh Dinh market is the largest wholesale market and mainly provides fish and fruits from the Mekong Delta. The Hoc

Mon market is in the west side of the city, mainly supplying meat. Finally, the Tu Duc market located in the east part of
HCM accepts vegetables from the central highland to distribute to the entire city.
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Using quality controlled or certified produce is not popular for caters. The minimum level ofsafety standard officially set by the government, only requires a FSHC provided by the department of
Health for each province. Furthermore, it supports caters provide reasonably priced meals and are
discouraged from forming tight relations with suppliers. In most of cases, the contract unit price is notaffordable to prepare certified products. While the response to their customers mainly comes fromoverseas, several catering companies (L4 and M5) supplying meals with certified ingredients havespecial practices for production (Good Agricultural Practice (GAP)), and tracing their products origin.
The companies, L4 and M5 needed to find producers who could produce V-GAP form a contract withthem to ensure quality control. Furthermore, L1, M2 and M2 have their own standard for purchasing
food. Caters’ behaviour for purchasing is determined by customers (factories) attribute for workers
welfare. However, most of the enterprises in the Vietnamese industrial sector do not pay close attention
to it.

Impact of the Value Chain on Agricultural Produces
The development of such large scale catering in the south could be the changing value chain of
agricultural products in the region. Food for urban areas has been supplied from surrounding
production areas, and it has been clarified that the supply chain of fresh food in Vietnam was scatteredand relied on small scale distribution actors even in the 2000s (Cho, 2001). Delays of infrastructuraldevelopment, development of commercial capitals and procedure cooperatives, and the gradual growthof urban food demand due to the slow influx of migrants to cities have hindered the changes of
distribution systems. For instance, the industrial park surveyed by the Tien Giang Province is an area
where agricultural production is carried out and it used to be relatively large vegetables supplier not
only in Tien Giang, but also for cities like HCM and Bien Hoa5. They were suppliers of food to urban
area and to the local market. Food demand in Tien Giang was supplied by local produce. Thus, when alocal restaurant provides meals for workers in the Tien Giang province, locally produced food from thelocal market could be prepared. However, developing large scale catering that has a headquarters in
HCM employ different methods for efficient procurement of their ingredients. They purchase in bulk at
the wholesale market in HCM then deliver the ingredients to each preparation kitchen. In the former,
the food system is completed within the region, while in the latter, agricultural products produced in
the region are transferred to the HCM market where they are purchased and distributed by a large
collector, and then transferred again to the Tien Giang Province.
On the other hand, since the demand for quality food is not strong, development of the catering
industry did not promote vertical integration of the whole value chain. For this reason, contracts
between catering and wholesalers, which obtained FSHC, is popular.
CONCLUSION
This research empirically investigated how the emerging catering industry impacted value chain of
fresh food in the Vietnamese suburban area. The results suggest that first, both international and local
enterprises have entered the catering industry. In northern area, since industrial sectors are
geographically sparse, catering companies are also scattered, and meals are mostly prepared by local
small businesses so that the impact to conventional procurement value chain is limited. While in thesouth, since large industrial sectors invested more, catering companies developed and merged toprovide large number of meals to more extensive places. Second, the fresh food ingredients areprovided by producers, or wholesalers. In the south, more catering companies tend to contract food
wholesalers to purchase bulk amounts then distribute them to their branch preparation kitchens located
5 Central city of Binh Duong province, where a lot of industrial parks are concentrated.

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in surrounding provinces. Finally, the value chain created by caters could make transaction and volumeof fresh product handled more concentrated and extend the transport distance of produce. However,
because of low requirement for quality, the value chain is not integrated and coordinated strongly.
ACKNOWLEDGEMENTS
This work was supported by JSPS KAKENHI, Grant-in-Aid for Young Scientists (B), JP17K15337.
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