VF Franchise Consulting

TASTE OF THINGS TO COME

Apr 20, 2013

Photo: VIETNAM ECONOMIC TIMES<br /><br /><br />
BUSINESS  REPORT<br /><br /><br />
April 2013<br /><br /><br />
Linh San</p><br /><br />
<p>TASTE OF THINGS TO COME</p><br /><br />
<p>Coffee lovers in Vietnam will at some point dabble in Arabica as against Robusta blends, and while some will like it and some won't there does appear to be long-term  growth possibilities for the likes of Starbucks.</p><br /><br />
<p>Dozens of people were patiently lined up for a cup   of   coffee   along Nga Sau  Phu  Dong  in Ho Chi Minh Ciry on che first day of February. Queuing for coffee may seem odd,  but  nor for Quoc<br /><br /><br />
Huy, who  with  che many  ochers was keen to be among  che ftrst to sip   on   a   Starbucks   coffee   in Vietnam.  "I  was excited when  I heard chat Starbucks would open a coffee shop  in Viemam," he said. "I've  travelled to  many countries and  always hoped  chat one  day Starbucks  would  come  here."  lt's two months since the opening and its  popularity  hasn't  diminished. Mr Sean T.  Ngo,    Managing Director  of  Vietnam Franchises Ltd, has dropped  in a few times and it's always been busy. "I like Starbucks but the wait is too long for a cup of coffee," he said.</p><br /><br />
<p>With  high expectations  as the first  quality brand   to  enter Vietnam  the arrival of Starbucks was big news. ''Vietnam is one of the most dynamic and exciting coffee markets  in  Asia," said  Mr John  Culver, President, Starbucks China and  Asia Pacific. "The market presents tremendous opportunities for  Starbucks  over the long term. Ho Chi Minh City is  our  first stop  and  we  aim  to open our stores in key cities throughout Vietnam,  including Hanoi,  in the future."</p><br /><br />
<p>The first Starbucks in Vietnam follows an expanded  long-term relationship   between   the  coffee giant and Hong Kong's Maxim Group  and marked the beginning of its Vietnam journey. This  is its 12th market in China and the Asia Pacific. "We are honoured  to open our  doors    to  our   Vietnamese customers today," said Mr Jinlong Wang. President, Starbucks Asia Pacific. "The  Starbucks Vietnam growth story goes beyond just future expansion.</p><br /><br />
<p>Many people have asked why Starbucks has entered Vietnam at a time when  the economy is in difficulty. Starbucks studied  the country for some  time before announcing plans to set up shop back  in  2011, when Managing Director Howard  Schultz told<br /><br /><br />
BBC that the chain  would  arrive in Vietnam  before 2013. It is inreresting to note that even before Starbucks announced their inten­tions in Vietnam it was purchasing significant amounts of Arabica coffee from  several regions in  the country, from 2007. "Vietnam has a strong coffee tradition, and that tradition will continue to expand and evolve, enabling the market to grow multi-fold," Ms Patricia Marques, General Manager of Coffee Concepts Vietnam,  the name  behind  Starbucks  in Vietnam, told VET "There are tremendous opportunities for us to offer the highest-quality Arabica coffee, handcrafted beverages, locally relevant food, legendary service and  the unique  Starbucks experience in Vietnam.</p><br /><br />
<p>"I don't see Starbucks as a direct competitor because they don't have the same vision in development and expectations. Starbucks  is quite a big company with plenty of stores worldwide and we like the idea of having them in Vietnam so that people can compare the flavours and the coffee experience." - Mr Andrew Nguyen, CEO of The Coffee Bean & Tea Leaf in Vietnam</p><br /><br />
<p>ROBUSTA OR ARABICA?</p><br /><br />
<p>There's no	doubt that Starbucks sees a lot of attention in<br /><br /><br />
Vietnam and internationally due to its brand  power. When  it opened its first coffee shop  in Vietnam many international brands as well as local brands took note and will continue with their own research and explore different market entry strategies. This includes brands that compete directly or indirectly with Starbucks.</p><br /><br />
<p>"Instead of looking at the challenges in the market, we want to view these more as opportunities for this to better integrate into the local community and the distinctive lifestyle pursuits of  our cusstomers. At  Starbucks,  we know  we will be teaming  new things  from Vietnam's coffee heritage and culture and we are committed to de1iv­ering a locally relevant Starbucks experience to our customers; one that reflects the Starbucks brand as well as Vietnam's rich culinary heritage." - Ms Patricia Marques, General Manager of Coffee Concepts Vietnam</p><br /><br />
<p>When asked about the arrival of Starbucks  in Vietnam,  Mr Dang Le  Nguyen  Vu, the owner of the Trung  Nguyen coffee brand<br /><br /><br />
- Vietnam's coffee giant - said that its success would lie in its display technology, not in the quality of its products. "Some  people may go to Starbucks because they want to prove they are modern and stylish but those who are coffee connoisseurs will still come to Trung Nguyen," he said.</p><br /><br />
<p>Unlike  Mr  Vu, who has regularly appeared in local media and    made similar negative comments about Starbucks, a representative of Highlands  - another major Vietnamese coffee brand - preferred to focus on his brand's strengths. "Starbucks is a big brand but we have our own strengths that have been developed over the years, in location, good service, and a Vietnamese ambience more so than a take-away service, and we will continue to develop our strengths, especially with Starbucks now in Vietnam," he said.</p><br /><br />
<p>But  while  Highland   does indeed have some very nice locations,  they have not by any means secured all of the prime spots. Many prime locations are yet to be developed. Some will become available when key retail projects are completed in the years to come. The typical retail leasing term in Vietnam is three to five years and when these leases expire there is never any guarantee that existing tenants will keep the location,  as  landlords typically lease their properties to the highest bidder. lt will be difficult for local brands to compere on rental price with international brands like Starbucks,  who have deeper pockets. </p><br /><br />
<p>According  to  Mr Richard Moore, the  Managing Creative Director   of   Richard   Moore Associates, who  has 40  years experience in helping companies developing their brands, the arrival of Starbucks in Vietnam will certainly create a competitive environment    among coffee brands in the country. "Vietnamese   consumers   have already witnessed some degree of consistent in-store  experience in coffee shops, with the pioneering Trung Nguyen  brand and others like Highlands coffee," he said. "And  of  course they have also experienced some  international brands such as Gloria Jean's, The Coffee Bean  & Tea Leaf.  and Espressamente Illy.  From my experience, Vietnamese coffee shops have quite good tasting products, but to meet heightened consumer expectations Vietnamese  brands will  need to improve the consistency  of their products and both the quality and the consistency of their brand communications.</p><br /><br />
<p>Meanwhile, according to  Mr Ngo from Vietnam Franchises, Starbucks 'will compete mainly with The Coffee Bean & Tea Leaf and  the  recently announced future arrival of Dunkin Donuts. Competition with Vietnamese coffee brands will not be heated as coffee comes in different varieties. "Vietnamese  coffee is based on Robusta coffee beans, which are grown mostly in Vietnam,'' he said. "Robusta beans are quite strong, bitter and not as smooth or refined as Arabica beans. All  international brands like Starbucks,  The Coffee Bean & Tea Leaf, and Dunkin Donuts only use 100 per cent Arabica blends."</p><br /><br />
<p>Mr Andrew  guyen, CEO of The Coffee  Bean & Tea Leaf in Vietnam, told VET he doesn't see Starbucks as a direct competitor because they don't have the same vision in development and expectations. "Starbucks is quite a big company with plenty of stores worldwide and we like the idea of having them in Vietnam so that people can compare flavours and the coffee experience," he said. "The Coffee Bean & Tea Leaf is more about getting closer to each customer. Because we don't have thousands of stores we can focus more on product selection and quality and work out the  best flavours."  In  2008 The Coffee Bean & Tea Leaf first opened its doors in Ho Chi Minh City's District 1 and now have ten shops in the City and one in Hanoi. 2013 will see The Coffee Bean & Tea Leaf open new shops in a number of locations and  move closer to having 20 in the country, both north and south.</p><br /><br />
<p>With  the  recent success of The  Coffee Bean & Tea Leaf and the arrival of Starbucks the market will see more and more Viernamese people frequenting these international concepts due to changes in incomes. consumer  tastes,  a  preference for drinking coffee at places that are perceived as a place to bee seen, conven ience, as more and more units are developed over time, and  the general  trend of world wide consumption of 100 per cent Arabica bean-based coffee.</p><br /><br />
<p>Though    the    presence   of Starbucks will obviously  create competition  in  the  market,  it firmly believes that success is only possible when there are thriving communities where it does business. "We have deep respect for Vietnam's long coffee tradition and we want to ensure that our Starbucks experience is the right balance between the global offering that our customers have come to expect of us and a locally relevant familiarity that resonates with  our  customers  and  the communities we serve," said Mr Wang. "We continue to respect the other specialty  coffeehouses already operating in the market and we know that together we can further elevate the Vietnam specialty coffeehouse market and bring  more choice and  coffee enjoyment to local  consumers," said Ms Marques.</p><br /><br />
<p>In  the competition between local coffee brands and  foreign<br /><br /><br />
brands it is quite difficult to pick a winner.   All above else, the<br /><br /><br />
presence of Starbucks in Vietnam with other international brands says to the world that Vietnam is ready for premium food and beverage brands.
Coffee lovers in Vietnam will at some point dabble in Arabica as against Robusta blends, and while some will like it and some won’t, there does appear to be long-term growth possibilities for the likes of Starbucks.

Dozens of people were patiently lined up for a cup of coffee along Nga Sau Phu Dong in Ho Chi Minh City on the first day of February. Queuing for coffee may seem odd, but not for Quoc Huy, who with the many others was keen to be among the first to sip on a Starbucks coffee in Vietnam. “I was excited when I heard that Starbucks would open a coffee shop in Vietnam,” he said. “I’ve travelled to many countries and always hoped that one day Starbucks would come here.” lt’s two months since the opening and its popularity hasn’t diminished. Mr Sean T. Ngo, Managing Director of Vietnam Franchises Ltd, has dropped in a few times and it’s always been busy. “I like Starbucks but the wait is too long for a cup of coffee,” he said.

With high expectations as the first quality brand to enter Vietnam, the arrival of Starbucks was big news. “Vietnam is one of the most dynamic and exciting coffee markets in Asia,” said Mr John Culver, President, Starbucks China and Asia Pacific. “The market presents tremendous opportunities for Starbucks over the long term. Ho Chi Minh City is our first stop and we aim to open our stores in key cities throughout Vietnam, including Hanoi, in the future.”

The first Starbucks in Vietnam follows an expanded long-term relationship between the coffee giant and Hong Kong’s Maxim Group and marked the beginning of its Vietnam journey. This is its 12th market in China and the Asia Pacific. “We are honoured to open our doors to our Vietnamese customers today,” said Mr Jinlong Wang. President, Starbucks Asia Pacific. “The Starbucks Vietnam growth story goes beyond just future expansion.”

Many people have asked why Starbucks has entered Vietnam at a time when the economy is in difficulty. Starbucks studied the country for some time before announcing plans to set up shop back in 2011, when Managing Director Howard Schultz told BBC that the chain would arrive in Vietnam before 2013. It is interesting to note that even before Starbucks announced their inten­tions in Vietnam it was purchasing significant amounts of Arabica coffee from several regions in the country, from 2007. “Vietnam has a strong coffee tradition, and that tradition will continue to expand and evolve, enabling the market to grow multi-fold,” Ms Patricia Marques, General Manager of Coffee Concepts Vietnam, the name behind Starbucks in Vietnam, told VET. “There are tremendous opportunities for us to offer the highest-quality Arabica coffee, handcrafted beverages, locally relevant food, legendary service and the unique Starbucks experience in Vietnam.”

“I don’t see Starbucks as a direct competitor because they don’t have the same vision in development and expectations. Starbucks is quite a big company with plenty of stores worldwide and we like the idea of having them in Vietnam so that people can compare the flavours and the coffee experience.” – Mr Andrew Nguyen, CEO of The Coffee Bean & Tea Leaf in Vietnam

ROBUSTA OR ARABICA?

There’s no doubt that Starbucks sees a lot of attention in Vietnam and internationally due to its brand power. When it opened its first coffee shop in Vietnam many international brands as well as local brands took note and will continue with their own research and explore different market entry strategies. This includes brands that compete directly or indirectly with Starbucks.

“Instead of looking at the challenges in the market, we want to view these more as opportunities for this to better integrate into the local community and the distinctive lifestyle pursuits of our customers. At Starbucks, we know we will be teaming new things from Vietnam’s coffee heritage and culture and we are committed to delivering a locally relevant Starbucks experience to our customers; one that reflects the Starbucks brand as well as Vietnam’s rich culinary heritage.” – Ms Patricia Marques, General Manager of Coffee Concepts Vietnam

When asked about the arrival of Starbucks in Vietnam, Mr Dang Le Nguyen Vu, the owner of the Trung Nguyen coffee brand – Vietnam’s coffee giant – said that its success would lie in its display technology, not in the quality of its products. “Some people may go to Starbucks because they want to prove they are modern and stylish but those who are coffee connoisseurs will still come to Trung Nguyen,” he said.

Unlike Mr Vu, who has regularly appeared in local media and made similar negative comments about Starbucks, a representative of Highlands – another major Vietnamese coffee brand – preferred to focus on his brand’s strengths. “Starbucks is a big brand but we have our own strengths that have been developed over the years, in location, good service, and a Vietnamese ambience more so than a take-away service, and we will continue to develop our strengths, especially with Starbucks now in Vietnam,” he said.

But while Highland does indeed have some very nice locations, they have not by any means secured all of the prime spots. Many prime locations are yet to be developed. Some will become available when key retail projects are completed in the years to come. The typical retail leasing term in Vietnam is three to five years and when these leases expire there is never any guarantee that existing tenants will keep the location, as landlords typically lease their properties to the highest bidder. It will be difficult for local brands to compete on rental price with international brands like Starbucks, who have deeper pockets.

According to Mr Richard Moore, the Managing Creative Director of Richard Moore Associates, who has 40 years experience in helping companies developing their brands, the arrival of Starbucks in Vietnam will certainly create a competitive environment among coffee brands in the country. “Vietnamese consumers have already witnessed some degree of consistent in-store experience in coffee shops, with the pioneering Trung Nguyen brand and others like Highlands coffee,” he said. “And of course they have also experienced some international brands such as Gloria Jean’s, The Coffee Bean & Tea Leaf and Espressamente Illy. From my experience, Vietnamese coffee shops have quite good tasting products, but to meet heightened consumer expectations, Vietnamese brands will need to improve the consistency of their products and both the quality and the consistency of their brand communications.

Meanwhile, according to Mr Ngo from Vietnam Franchises, Starbucks will compete mainly with The Coffee Bean & Tea Leaf and the recently announced future arrival of Dunkin Donuts. Competition with Vietnamese coffee brands will not be heated as coffee comes in different varieties. “Vietnamese coffee is based on Robusta coffee beans, which are grown mostly in Vietnam,” he said. “Robusta beans are quite strong, bitter and not as smooth or refined as Arabica beans. All international brands like Starbucks, The Coffee Bean & Tea Leaf, and Dunkin Donuts only use 100 per cent Arabica blends.”

Mr Andrew Nguyen, CEO of The Coffee Bean & Tea Leaf in Vietnam, told VET he doesn’t see Starbucks as a direct competitor because they don’t have the same vision in development and expectations. “Starbucks is quite a big company with plenty of stores worldwide and we like the idea of having them in Vietnam so that people can compare flavours and the coffee experience,” he said. “The Coffee Bean & Tea Leaf is more about getting closer to each customer. Because we don’t have thousands of stores, we can focus more on product selection and quality and work out the best flavours.” In 2008 The Coffee Bean & Tea Leaf first opened its doors in Ho Chi Minh City’s District 1 and now have ten shops in the City and one in Hanoi. 2013 will see The Coffee Bean & Tea Leaf open new shops in a number of locations and move closer to having 20 in the country, both north and south.

With the recent success of The Coffee Bean & Tea Leaf and the arrival of Starbucks the market will see more and more Vietnamese people frequenting these international concepts due to changes in incomes, consumer tastes, a preference for drinking coffee at places that are perceived as a place to be seen, convenience, as more and more units are developed over time, and the general trend of worldwide consumption of 100 per cent Arabica bean-based coffee.

Though the presence of Starbucks will obviously create competition in the market, it firmly believes that success is only possible when there are thriving communities where it does business. “We have deep respect for Vietnam’s long coffee tradition and we want to ensure that our Starbucks experience is the right balance between the global offering that our customers have come to expect of us and a locally relevant familiarity that resonates with our customers and the communities we serve,” said Mr Wang. “We continue to respect the other specialty coffeehouses already operating in the market and we know that together we can further elevate the Vietnam specialty coffeehouse market and bring more choice and coffee enjoyment to local consumers,” said Ms Marques.

In the competition between local coffee brands and foreign brands, it is quite difficult to pick a winner. All above else, the presence of Starbucks in Vietnam with other international brands says to the world that Vietnam is ready for premium food and beverage brands.

VIETNAM ECONOMIC TIMES
BUSINESS REPORT
April 2013
Linh San

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