Global chains suffer as Vietnamese coffee lovers vote with their feet

Young customers are now choosing smaller brands like The Coffee House, Cong Ca Phe and Phuc Long as their to-go spot for affordable brews.

Local brands not only offer many beverage options but also sophisticated interiors and unlimited and fast internet access to ensure they retain customers, Nikkei Asia Review quoted market researcher Nguyen Phuong as saying.

All this has helped these brands become very popular among students and young working professionals, who can spend hours there yet feel welcome.

Phuong said having knowledge of Vietnamese culture and consumers has helped the local brands attract customers.

By changing their business models to fit customers’ tastes, local brands report growing and some are even looking to expand.

Nguyen Hai Ninh, CEO of what is thought to be the fastest growing chain, The Coffee House, told Nikkei that he plans to open 700 outlets around Vietnam in the next five years, or around 10 a month.

Just one month after the brand opened its first shop in Seoul last month, Cong Ca Phe plans to add two more stores in the Korean capital.

The chain, which debuted in 2007, has more than 50 stores around Vietnam, and intends to add one or two every month until 2020.

Thuc Coffee, Urban Coffee Station and Phuc Long report 7% annual revenue growth.

In contrast, international names like Starbucks have grown slower than expected in the Vietnamese market.

Starbucks only has 38 stores after entering the market five years ago despite boasting huge numbers in neighboring countries such as Thailand (330 stores), Indonesia (320) and Malaysia (190).

Meanwhile, NYDC, Gloria Jean’s Coffees, and Caffe Bene of Korea have all wound up or are close to doing so.

Singapore-based NYDC closed its last store in July 2017, Australian brand Gloria Jean's Coffee also closed its last store in April 2017 after a decade of slow growth. 

Caffe Bene now has only three outlets remaining, according to InsideRetail Asia.

Talking about the reason for the failure of international brands in the domestic market, industry insiders said that high rents on premium land have raised the cost of retail prices, making their coffee less competitive than local ones.

A local coffee shop owner told Nikkei that opening a 200-square-meter Starbucks store in Saigon requires an initial investment of US$215,000, while Coffee House only needs US$86,000.

Sean T Ngo, CEO of VF Franchise Consulting, said Vietnam, a major exporter of Robusta coffee, imposes high import tariffs on coffee beans, and international coffee chains often use imported Arabica beans that raise costs significantly. Higher costs have driven many customers to domestic brands.

Phuong said that another reason for the downfall is that old brands are slow to adjust their business models to match customers’ taste.