Global chains suffer as Vietnamese coffee lovers vote with their feet
In this article (5)
Local coffee shop chains are outmaneuvering international brands like Starbucks by catering to customers’ demands.
Young customers are now choosing smaller brands like The Coffee House, Cong Ca Phe and Phuc Long as their to-go spot for affordable brews.
Local brands not only offer many beverage options but also sophisticated interiors and unlimited and fast internet access to ensure they retain customers, Nikkei Asia Review quoted market researcher Nguyen Phuong as saying.
All this has helped these brands become very popular among students and young working professionals, who can spend hours there yet feel welcome.
Phuong said having knowledge of Vietnamese culture and consumers has helped the local brands attract customers.
By changing their business models to fit customers’ tastes, local brands report growing and some are even looking to expand.
Nguyen Hai Ninh, CEO of what is thought to be the fastest growing chain, The Coffee House, told Nikkei that he plans to open 700 outlets around Vietnam in the next five years, or around 10 a month.
Just one month after the brand opened its first shop in Seoul last month, Cong Ca Phe plans to add two more stores in the South Korean capital.
The chain, which debuted in 2007, has more than 50 stores around Vietnam, and intends to add one or two every month until 2020.
“Thuc Coffee, Urban Coffee Station and Phuc Long report 7 percent annual revenue growth.”
Thuc Coffee, Urban Coffee Station and Phuc Long report 7 percent annual revenue growth.
In contrast, international names like Starbucks have grown slower than expected in the Vietnamese market.
Starbucks only has 38 stores after entering the market five years ago despite boasting huge numbers in neighboring countries such as Thailand (330 stores), Indonesia (320) and Malaysia (190).
Meanwhile, NYDC, Gloria Jean’s Coffees, and Caffe Bene of Korea have all wound up or are close to doing so.
Singapore-based NYDC closed its last store in July 2017, Australian brand Gloria Jean’s Coffee also closed its last store in April 2017 after a decade of slow growth.
Caffe Bene now has only three outlets remaining, according to InsideRetail Asia.
Talking about the reason for the failure of international brands in the domestic market, industry insiders said that high rents on premium land have raised the cost of retail prices, making their coffee less competitive than local ones.
A local coffee shop owner told Nikkei that opening a 200-square-meter Starbucks store in Saigon requires an initial investment of $215,000, while Coffee House only needs $86,000.
Sean T Ngo, CEO of VF Franchise Consulting, said Vietnam, a major exporter of Robusta coffee, imposes high import tariffs on coffee beans, and international coffee chains often use imported Arabica beans that raise costs significantly. Higher costs have driven many customers to domestic brands.
Phuong said that another reason for the downfall is that old brands are slow to adjust their business models to match customers’ taste.
Questions & Answers
Q.What business strategies have local coffee chains employed to attract and retain customers?
What business strategies have local coffee chains employed to attract and retain customers?
Local brands offer many beverage options, sophisticated interiors, and unlimited fast internet access. They also have a deep understanding of Vietnamese culture and consumer preferences, which helps them tailor their services.
Q.Why have international coffee brands struggled to gain traction in the Vietnamese market?
Why have international coffee brands struggled to gain traction in the Vietnamese market?
High rents on premium land increase retail prices, making their coffee less competitive. Also, high import tariffs on imported Arabica beans, often used by international chains, significantly raise costs.
Q.Which international coffee chains have either closed or significantly reduced their presence in Vietnam?
Which international coffee chains have either closed or significantly reduced their presence in Vietnam?
Singapore-based NYDC and Australian brand Gloria Jean's Coffee have closed their last stores. Caffe Bene of Korea now has only three outlets remaining in the market.
Q.What expansion plans do some of the successful local coffee chains have for the near future?
What expansion plans do some of the successful local coffee chains have for the near future?
The Coffee House plans to open 700 new outlets in Vietnam over the next five years. Cong Ca Phe intends to add two more stores in Seoul and one or two stores monthly in Vietnam until 2020.
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