Coffee chains shaking up habits and business tactics

According to the Vietnam Report 2020, beverages is one of the consumer goods industries with the highest growth rate in Vietnam, at an increase of around 6 per cent per year.

And although the pandemic has caused this ratio to decrease in the past two years – and despite bumpy progress thus far – Vietnam is still considered a land of promise for foreign coffee and beverage brands, including those from the United States.

Vietnam’s coffee and beverage market has witnessed the entry of several major beverage chains over the years, but not all brands have achieved impressive business results or expanded in the way they envisioned.

The Coffee Bean and Tea Leaf is one such case. Officially present in Vietnam since 2006, the chain was expected to conquer customers in big cities with a modern coffee model. But after 13 years, the brand has only opened 15 stores and business results were also continuously in the red before the business segment in Vietnam was sold to Jollibee Foods in 2019.

Dunkin’ Donuts, an American brand with a history of more than 60 years, has fared no better as it has continuously faced many challenges since entering the market in 2013 through a franchise partner. During its 9-year journey, Dunkin’ Donuts has opened only 16 branches, mainly in Hanoi and Ho Chi Minh City.

Another top brand from the US, PJ’s Coffee, only owns three stores in Ho Chi Minh City, despite six years of business in the country. The stagnation of PJ’s Coffee is completely at odds with the initial goal of opening 100 stores in its development strategy. Vietnam was the first market outside the US that PJ’s Coffee attempted to conquer.

Tough strategies

Among the American coffee and beverage chains present in Vietnam, only Starbucks has shown positive signals and gradually established a strong position in the market, with 78 stores scattered around big cities and famous tourist destinations.

However, some experts would argue that success has not yet been attained in Vietnam. After more than eight years, Starbucks only accounted for around 3 per cent of the coffee and beverage market share before the pandemic emerged, behind foreign beverage chain Highlands Coffee and a number of domestic chains, according to a report from Euromonitor in 2019.

Comparing the size and correlation with other markets, like Malaysia, there is a Starbucks location for every 105,000 people, and a Starbucks for every 175,000 people in Thailand. In Vietnam, the figure is around 1.2 million people per store.

The impact of the pandemic also affected Starbucks’ business plans and forced them to close three stores in prime locations last year, as well as open five more stores on a smaller scale and a more streamlined menu in Vietnam’s two biggest cities.

Sharing the brand’s strategy, general director of Starbucks Vietnam Patricia Marques said, “The speed of expansion is fully assessed according to the market demand and based on business challenges. With Starbucks, we’re happy with this number of stores, because we didn’t choose to grow fast.”

Marques further explained that logistics costs are a challenge for chain operators like Starbucks because all ingredients are imported and fixed at the beginning of each week at a warehouse in Ho Chi Minh City, before being mobilised to each store.

The characteristics of Vietnamese coffee drinkers have also become a big obstacle for overseas coffee chains. Local coffee-drinking habits and traditions are associated with robusta coffee with a strong flavour and high caffeine, while Starbucks, Dunkin’ Donuts and others typically offer arabica with a milder flavour.

In addition, most US chains target the mid- to high-end customer segment, while the percentage of customers willing to pay for high-end experiences is only a small percentage of the Vietnamese population.

The high rent for the premises themselves has also become a challenge that threatens the existence of foreign coffee chains. A representative of PJ’s Coffee shared that the biggest difficulty of opening a coffee chain in Vietnam is the high rental price, which can be even higher than in the US in places.

Catering to tastes

While American food and beverage chains try to succeed in this country, Vietnamese businesses are doing their utmost to conquer the enormous population present in the States.

PhinDeli is making an effort to maintain the export of coffee to the US after the first shipment exported to the market was successfully cleared at the port of Oakland, California in April, marking the first step to conquering a new market for the PhinDeli coffee brand. PhinDeli is cooperating with distribution partners to build a team, simultaneously focusing on expanding the distribution channel across the country.

PhinDeli’s coffee products are standardised and passed all requirements by the US safety watchdogs to be sold in the country. Its 3-in-1 instant coffee products exported to the US are all food safe, use additives allowed in the US regulations, and comply with the latest nutrition labels.

Owner Pham Dinh Nguyen admitted that it was a tough road ahead for his business to gain its first success in the US. Previously, he started to distribute the products via Amazon and targeted to have them on shelves first at the Asian supermarkets, then larger chains like Wal-Mart and Costco. But progress is moving in the right direction.

Along with the presence of PhinDeli in the US, Phuc Long Coffee and Tea – a beverage chain with over 80 stores in Vietnam – opened its first store in the US in July 2021, following in the footsteps of other Vietnamese coffee brands that have branched out to other markets.

The store is located in Garden Grove, California – the second-biggest population of Vietnamese-Americans among cities in the US of over 50,000 people, just behind San Jose in the same state. The choice of location is one of its key strategies because of the crowded density of Vietnamese-Americans, while Phuc Long’s menu is also optimised for the palate of young consumers.

Meanwhile, TNI King Coffee, owned by Le Hoang Diep Thao, opened its first store inside a mall in Anaheim, California in June 2021 after starting to distribute the packed coffee in this market in 2016. The company plans to open 100 stores in the US through the franchising business model. Globally, the company aims for further expansion into many markets such as China, the Middle East, Europe, and all over Southeast Asia.

TNI King Coffee in the US serves a full range of traditional Vietnamese coffees, such as filter, iced, and milk coffee, with beans imported from Vietnam and around the world with the ingredients of TNI King Coffee’s speciality roasted and ground products.