Cafes remain an attractive option for investors in the franchising industry. That doesn’t mean every café or coffee chain will work in all countries across Asia. In a previous article we discussed the café and coffee industry in general. You may find it here: IS IT TOO LATE TO BUY A COFFEE FRANCHISE?
So, let’s look at café brands in the industry. Who are the biggest café brands? Which are in Asia already? What does it cost to get involved in this exciting industry? What factors should I consider when choosing a brand? What café franchises are available in Asia?
The 6 largest café brands in the world are Starbucks, Dunkin Donuts, Tim Hortons, Paris Baguette, Costa Coffee, and Café Amazon. Interestingly enough they originate from many different countries, including the US, Canada, South Korea, the UK, and Thailand. All the brands in this list have more than 3,000 cafes in the world, with Starbucks leading at 28,200+. *
Unless you’re Starbucks, being the largest doesn’t mean you will be successful however. We have seen the entry and failure of several top 10 brands like Caffe Bene and Dukin Donuts in Vietnam in recent years to prove my point.
All 5 of the top brands, and many in the top 50 are already present in Asia. Most countries in our region, drink a lot of coffee, and also use cafes as meeting places, social meeting points, and just to hangout. We will consider some factors that make some work and some not work below when we consider “What factors should I consider when choosing a café brand?”
Much of this depends on the local franchisee or operator. With 100,000+ franchised cafes all across the world, they obviously can be very profitable. In 2019, Starbucks awarded shareholder dividends of $12 Billion USD. Yes, their stores made money, across many outlets, in many countries**. A well run café can earn an EBITDA of 25-35%, leading to a 3 year ROI which is considered good in the F&B industry.
There is a lot of variations in the cost to build one single café. Some brands require quite expensive décor, imported unique equipment, and have quite strict guidelines on locations. Others are much more reasonable. You can expect a single café to cost between $125,000 – $500,000+ USD, with an approximate average of around $200,000 in Asia.
However, a key factor to remember is that 1 café doesn’t normally work in a territory. Opening 1 Wayne’s Coffee in Vietnam would not have been useful for the franchisor, or the local franchisee there. Cafes, more than restaurants, require scale. It is usually around 3-5 units when the local consumers start to notice your brand and you have a chance to gain them as regular customers. It also takes some scale to cover your HQ, or head office, costs. This is one of the reasons that International brands sell the franchise rights in territories, usually with an agreement to open 5 to 10 cafes in a certain period of time. This creates the best potential ROI (return on investment) for both the franchisor and the franchisee. Waynes here in Vietnam now has 17 units, and through its success has given the brand a strong proof of concept in Asia. They are currently only in 1 city (Ho Chi Minh), and have very aggressive expansion plans in the future to further solidify their hold on the city, and then throughout the country. This strategy is key in getting strong ROI and long term success in the café industry.
This means, you should be planning for any franchisee/territory fee (using Waynes as an example for master franchise fee of $100 – $300k depending on country), plus enough to open your first 3 cafes in your investment planning. This can mean from $500k to around $1million.
Ask 10 people this, and you will get 10 different answers. For me, I think the following are the most important factors for successfully choosing the “right” brand. Something unique, reasonable investment, local flexibility, and having a limited number of imported items.
Something unique. Competing against Starbucks, or even strong local competitors isn’t possible if you just repeat what they are doing. Brands which try often fail. Be different! One of the reasons we chose to help Waynes is that they are from Sweden, with a very European café style and culture. It offers something different when compared to traditional American style cafes. The unique features can be in design, food, drinks, or even service but make sure you stand out somehow.
Reasonable investment. As discussed above, a single café can cost as little as $125k or more than $500k. That is a huge difference and also will determine how fast or slowly you recover your investment. Be wary of brands with very expensive fitouts and construction requirements.
Local flexibility. Many hugely successful International brands like KFC, McDonald’s, Starbucks, Tim Hortons, Jollibee, and others have entered the Asia and struggled until they localized the menu. Often this can simply be focusing on certain menu items, marketing messages, or limited time offers. The bestselling pizza in the US is pepperoni, the bestselling pizza in Asia is Seafood. McDonald’s Vietnam sells more chicken than burgers, totally opposite than most countries in the world. Brands need to maintain their identities, but actively look for ways to attract local tastes. How flexible a brand is often determines how successful it can be, and how quickly it can become so.
Limiting imported items. Waynes coffee as an example, only requires you to import the coffee. Some brands have huge lists of products you must purchase from them, which have to be imported. Shipping charges plus import taxes and duties, which can often add an extra 60-100% cost on these items. This can significantly affect your COGs (cost of goods). You want some items, which are key for the brand and intrinsic to making the products that brand is known for. But look for brands which limit the quantity of these items.
Café brands are not new to Asia. Many like the ones we have mentioned are already in many countries around our region and expanding rapidly into the remaining territories. Other brands are looking to expand, but based on the factors above I would question if they are a good investment or not.
One of the main responsibilities of VF Franchise Consulting is to identify brands that have a high potential for success in Asia. Unlike many franchise brokers who will represent anyone, we carefully limit the brands we represent to those which will work in the Asian markets we cover.
After a careful evaluation of the various brand opportunities, we have chosen to represent Waynes. This Swedish brand is unique, requires a reasonable investment to build stores, allows local flexibility, and only requires you to import their coffee. They also do not directly compete with Starbucks and other American style cafes. Their proven history throughout Europe and in Asia make them the ideal brand to consider in the café industry.
To learn more:
Watch their new concept launch here:
We all love coffee. We also love the café culture of meeting friends and having our business meetings there. These things are not likely to change anytime soon. This means that International coffee / café brands will continue to be successful all across Asia and the Middle East. The only question is are you ready to seize the opportunity?
Robert has over 25 year of F&B, including director level position in several well-known coffee franchises, and has lived in ASEAN for more than 13 years. He is currently the Director of Franchise Development & Operations at VF Franchise Consulting. You may contact him at [email protected]
* Source: List of coffeehouse chains – Wikipedia