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  • Vietnam knows its coffee.

  • It's famous for a thick, heavy brew sweetened with condensed milk, a cup

  • of traditionalphê sữa đá is made with robusta beans, which have a

  • sharper, bitter flavor and higher caffeine content than more mild Arabica

  • beans. The drink is available all over Vietnam, served at roadside cafes,

  • restaurants and at home.

  • But you won't find the traditional style in a Starbucks.

  • That's because most international coffee chains only serve Arabica beans,

  • which are more mild than robusta beans.

  • And while that may work for customers in many countries in Vietnam,

  • serving only Arabica is a problem.

  • It's one reason big coffee chains have struggled to grow there, despite

  • the country's more than $1 billion market for specialty coffee and tea

  • shops. Starbucks is a global brand with more than 30000 stores around the

  • world. Australian chain Gloria Jeans Copies has close to 760 cafes in over

  • 55 countries, but they haven't cracked the market in Vietnam.

  • Gloria Jeans exited Vietnam entirely in 2017 after 10 years in the market.

  • While Starbucks has grown since it entered Vietnam in 2013, the number of

  • Starbucks per capita is low compared to neighboring markets.

  • There's just one Starbucks per 1.7

  • million people in Vietnam.

  • That means the competition is fierce.

  • As international chains go head to head with local chains on the whole,

  • local chains are expanding faster and performing better than their

  • international counterparts.

  • With its long coffee history, an abundance of high quality Joe on every

  • corner, coffee in Vietnam is a way of life, with mom and pop coffee shops

  • still occupying a large share of the coffee market in Vietnam.

  • A big question remains Do international chains stand a chance in Vietnam?

  • Living in the world's second largest coffee exporter, Vietnamese people

  • have tons of local options when it comes to coffee.

  • The market is highly fragmented, with small family owned and independent

  • shops making up the bulk of coffee sales.

  • There are over five hundred and forty thousand restaurants in Vietnam and

  • over 430000 of them are street stalls.

  • Even the five largest coffee chains in Vietnam collectively hold just a

  • fraction of the market.

  • Fifteen point three percent.

  • The popular Highlands coffee tops the list with seven point two percent.

  • Filipino fast food giant Jollibee has a majority stake in Highlands.

  • And even though Starbucks holds the number two spot in sales, it's still

  • less than 3 percent of the entire coffee market in Vietnam.

  • At those small roadside shops, coffee costs less than a dollar there fast,

  • and some provide services like Wi-Fi and shoe shines.

  • And their biggest advantage?

  • There are thousands of them.

  • Analysts say a cup of coffee at a Vietnamese Starbucks typically costs

  • substantially more than a similar drink at a local chain like Highland's.

  • In general, Vietnamese consumers spend about two and a half times more

  • money at Western outlets than they do at Asian outlets.

  • Office workers are able to afford a cup of Starbucks coffee.

  • They are also willing to pay a premium for Starbucks unique in Stice

  • appearance, and especially so it's like a way to pamper oneself every once

  • in a while. And on the other hand, the local coffee place would cost enjoy

  • higher purchasing frequencies as the coffee is much more affordable in a

  • Starbucks coffee. Vietnam has developed rapidly over the last 30 years

  • from one of the world's poorest countries to a lower middle income

  • country. The middle class is growing too, but it's still small compared to

  • other countries. Part of Gloria Jean's problem in Vietnam was failing to

  • recognize that middle to upper class consumers were still a relatively

  • small segment of the population.

  • And I think that when the international brands, when they come to Vietnam,

  • they bring their own new coffee enjoyments.

  • But at the same time, we still love our tradition.

  • Vietnam's economic transformation is thanks to a policy called Doi Moi,

  • which was a series of economic and political reforms that led to rapid

  • growth. It also introduced a set of policies that encouraged international

  • companies to set up shop in Vietnam despite strong population growth and

  • urbanization. Vietnam is predominantly agricultural and rural outside of

  • cities. Experts say coffee culture looks a little different.

  • It's easy to say Hodgeman City, Saigon is the focus of coffee consumption

  • or Hanoi is the new focus of coffee consumption or some of these growing

  • cities on the Central Coast.

  • These are coffee consuming cities and Vietnam.

  • But to do that is to forget that there's a lot of people who don't live in

  • those cities and there's a lot of people in Vietnam who don't have the

  • money to spend even a Highland's Cafe, which are relatively

  • expensive compared to those street same cafes or a local cafe.

  • There are two main types of coffee being traded internationally, Arabica

  • and Robusta. Vietnam is famous for its robusta coffee, which has a sharper

  • flavor and a higher caffeine content than the more mild Arabica bean.

  • Most coffee consumed from chains in the U.S.

  • is brewed from Arabica beans.

  • Robusta beans typically cost less than Arabica beans because producing

  • them is less resource intensive.

  • In Vietnam, robusta beans account for about 97 percent of the country's

  • total coffee production.

  • But international chains like Starbucks and Gloria Jeans have long shunned

  • the use of robusta beans.

  • It's perceived as a lower quality, cheaper alternative to Arabica and is

  • often used in instant coffee and espresso blends.

  • But most Vietnamese consumers look for the taste and energy bill of high

  • caffeine robusta beans, not to mention the fact that many drinks sold at

  • international chains like lattes and flat whites don't resemble anything

  • close to traditional Vietnamese coffee.

  • Vietnamese coffee offers more variety than just coffee, Suda.

  • There are varieties made with egg yolk, yogurt and even fruit.

  • While some chains attempted to adapt to local tastes, they didn't go for

  • it 100 percent of the way.

  • For instance, Gloria Jeans added condensed milk to replicate traditional

  • drinks, but it still served.

  • Being coffee, which lacks the punch of robusta, Starbucks also added

  • Arabica being coffee with condensed milk and ice to its menu.

  • But there's a shift in some corners of Vietnamese coffee culture thanks to

  • the so-called third wave coffee movement.

  • That's a global coffee trend that focuses on quality and sourcing of the

  • coffee bean. Third, wavers in Vietnam, for example, are experimenting with

  • the Arabica bean to other right to their coffee habit.

  • In Vietnam's urban centers like Coachmen City and Hanoi, analysts say the

  • interest in third wave coffee and specialty coffees is on the rise, but

  • it's still a small portion of the population.

  • And menu differences between local and international chains go beyond just

  • the type of bean. I think local chains understand a customer much better

  • than international chains, and hence they are more responsive to adapting

  • change when customer preference evolve or shift.

  • So I think this flexibility of the local chains over the international has

  • been reflected in the frequency of changing their menus.

  • In Vietnam, some of consumers top reasons to visit Western chains are to

  • try something new. Celebrate a special occasion or treat themselves.

  • Asian chains are visited due to convenient location and good value for the

  • price. In other words, Western outlets are visited less frequently than

  • Asian outlets across the board, according to.

  • Search firm decision lab when locals do go to international chains to

  • spend a lot on fancy coffee.

  • They're also paying for the experience.

  • Analysts say a recognizable brand name, an Instagram experience draws in

  • curious customers.

  • It's high profile brand may have been what set Starbucks apart from some

  • of its other international competitors.

  • Starbucks brand recognition gives it an edge on other foreign chains.

  • In Vietnam, Starbucks loyalty program and smartphone app also appeal to

  • young, tech savvy Vietnamese consumers.

  • Starbucks, a unique and welcoming environment, remains one of its

  • distinguishing features in a crowded market.

  • While Starbucks doesn't break out financial results by country, it's been

  • adding new stores in Vietnam slowly and steadily building its presence

  • there. So what does the future look like for international coffee chains

  • in Vietnam? Vietnamese Gen-Z consumers who were born between 1994 and 2002

  • spend a higher proportion of their money on eating out about $40 a month.

  • They're also more likely to try foreign chains.

  • But there is bad news for coffee chains that generation drinks more tea

  • and milk than coffee.

  • According to research firm Decision Lab Gen-Z, consumers are responsible

  • for the boom in bubble tea in Vietnam, a product most international coffee

  • chains don't offer.

  • And local chains have another advantage here.

  • It's easier for them to adapt their menu quickly to local tastes.

  • Vietnam is a coffee market full of challenges and competition.

  • And it's not just the type of being that international chains can change

  • to appeal to consumers.

Vietnam knows its coffee.

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Why Starbucks Struggles In Vietnam's $1B Coffee Market

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