Starbucks and a decade-long struggle to conquer Vietnamese consumers22/03/2023
By the end of 2022, the number of Starbucks stores in Vietnam has not reached 100 units, equivalent to 0.9 stores per million people – the lowest figure among 6 other economies in the region.
According to Nikkei Asia, coffee shops in Vietnam are imbued with local character and still stand firm even when Starbucks appears. Vietnam is considered the country with the most coffee shops in the world, with a market size of up to $1 billion.
When it launched in the Vietnamese market in 2013, Starbucks – the world’s largest coffee chain – faced a series of expectations that were different from the US brands present before, such as McDonald’s and Subway.
Many wondered how the world’s largest coffee chain would operate in a country that is the world’s largest exporter of Robusta coffee beans. Responding to Nikkei Asia, a Starbucks representative said they would mark 10 years of operation in Vietnam by opening their 100th venue but refused to disclose whether they had made a profit here or not.
Although Vietnam has the largest coffee market in Southeast Asia in terms of value and number of stores, Starbucks has only 0.9 stores per million people. This is the lowest ratio of the brand among the 6 markets where they are present in the region.
“Starbucks beverages are not something that people can buy every day, while we bring quality and products that people can buy,” said Kim Ngan, owner of Mindfully Cafe – a Vietnamese cafe with a canopy made of grape leaves.
While Starbucks offers a cup of coffee with a little arabica that costs up to $5, often mixed with syrup, its competitors sell all alternative options from special coffee to 1-dollar robusta coffee, a type of coffee that is more bitter but also cheaper and has a higher caffeine content than arabica coffee.
For Enma Bui, a representative of Lacaph – a local coffee brand, her views on Starbucks had many contrasting points. On the one hand, she said the global giant had created more curiosity about coffee after the brand arrived in Vietnam; on the other hand, the sugary way Starbucks prepares coffee loses the characteristic flavor of the coffee.
The coffee taste in Vietnam dates back to the 19th century. In the 2000s, drinking coffee became a national characteristic, with domestic beverage chains Highlands Coffee and Trung Nguyen leading the way. Thousands of small coffee shops have sprung up.
But in the 2010s, two trends emerged. Vietnamese coffee chains such as The Coffee House and Phuc Long with free Wi-Fi attracted young customers with a trendy aesthetic. And Vietnam’s open economy has helped to import many cultures from outside, such as “third-wave coffee”, which focuses on distilling the natural flavors of coffee beans.
These newer shops have added to the array of existing coffee shops with a market of 19,000 establishments. According to Euromonitor data, this amount is ranked after the US, China, and South Korea markets.
Among the coffee shops in Vietnam, foreign brands only have a relatively small market share.
“I guess some kind of demographic and consumer behavior in Vietnam might explain why international coffee chains don’t work as expected,” said Nathanael Lim, Euromonitor’s deeply knowledgeable beverage director in Asia. “Because they have succeeded in other Asian markets, they think of using similar strategies, positioning themselves as small and premium shops.”
Among the first international coffee chain brands to enter Vietnam, Coffee Bean & Tea Leaf has only 15 stores after about 15 years in the country, while Gloria Jeans left Vietnam in 2017, though the brand is trying to come back.
According to Euromonitor, Vietnam has less than 90 Starbucks stores, while another small market in the region, Singapore, has 146 stores.
Key to success: Adaptation to the local market?
Coffee in Vietnam is social, Ngan said. People like to have meals at restaurants, then go to coffee shops for water – shifting places is part of the habit. Or they like to watch the street from a coffee shop, sometimes on the street itself – a characteristic that makes street vendors different from Starbucks.
Emma Bui also sees independent coffee shops as places that serve Vietnamese cultural needs.
“Coffee is an excuse,” she said, describing the desire for community that attracts Vietnamese people to coffee shops.
Two decades ago, coffee was important to Vietnam as an export item that brought profits and was a daily habit. Only in recent years has it taken on the mark of a specialized craft, with drinkers becoming more aware of what’s inside their cups and realizing they are participating in a cultural community.
It is still a fat export item. Data from the US Department of Agriculture shows Vietnam exports 25 million bags of coffee beans each year, only surpassed by Brazil. Those are 60kg bags, mainly of robusta.
In simple terms, domestic demand is also very strong. According to Euromonitor data, from 2021 to 2022, Vietnam’s coffee market increased by 13%.
Starbucks Vietnam, or any other international beverage chain, how much market share can they take to achieve that growth?