Coffee chains brew battle for winning cup

Cafe chains in coffee-crazy Vietnam are gathering pace as both international and domestic brands go head-to-head expanding their networks following the pandemic.

French colonialists brought the first coffee beans to the tropical country in the 19th century, then found that the climate and fertile soil in the Central Highlands was perfect for growing plants.

Today, Vietnam is the world’s second-largest coffee producer after Brazil, but the biggest exporter of robusta coffee as Brazil focuses on arabica.

The majority of people in Vietnam, especially in the central region and the south, love a cup of coffee in the morning. American giant Starbucks is set to open its 100th store in Vietnam in the second half of this year, while Japan’s % Arabica launched its first on Sunday.

‘Starbucks’ from the East

Ho Chi Minh City’s bustling Nguyen Hue walking street, the heart of the city center, is home to an old but famous apartment building at number 42, called “The Cafe Apartments”. The nine-storey block houses lots of cafes and restaurants, and the first Vietnam store of % Arabica, dubbed the “Starbucks of the East".

The newest shop, covering 100 square meters, was designed by French creative studio Cigue, and incorporates the Japanese brand’s trademark simple and clean design, adding local architectural elements.

The Japanese coffee chain announced its global expansion to Vietnam in 2019, and the plan is being carried out in collaboration with the Hong Kong-based investment company The Kho Group.

% Arabica also plans to open a second Vietnam shop in the city, at the rebuilt Diamond Plaza shopping center near the iconic “Cafe Apartments”. On level five, it will feature the Terrace 34 dining concept, according to Vynce Nguyen, general manager at The Kho Group Vietnam.

“Locations are one of the most important factors for % Arabica when opening in new regions,” he said, adding that the Japanese chain will expand to other markets in Vietnam like Hanoi - the capital, Hoi An and Phu Quoc.

Hoi An reflects a fusion of indigenous and foreign cultures (principally Japanese and Chinese, with later European influences) that combine to produce a unique experience.

Kyoto-based % Arabica says it currently has about 130 stores in 17 countries and territories. Founded by Kenneth Shoji, the coffeehouse chain has expanded into many other markets including mainland China, Cambodia, the U.S., Thailand, Hong Kong, South Korea, Taiwan, the Philippines, Canada, India, France, and now Vietnam.

Starbucks from the U.S.

The Seattle-based coffee chain will open 13 new stores in Vietnam during the first half of this year, with Binh Duong province bordering HCMC and Binh Dinh on the central coast set as target regions for expansion.

Patricia Marques, general director of Starbucks Vietnam, is optimistic considering recent challenges and has strong expectations for the world-famous brand.

“We will open our 100th store in the second quarter of 2023, but that doesn’t mean we will stop there,” she said in January.

Starbucks launched its first Vietnam store in early 2013 in HCMC at the five-star New World Saigon Hotel. Now it operates 87 stores in eight cities and towns with more than 800 employees and over 200 coffee masters. Ho Chi Minh City has the largest number of Starbucks stores at 50, followed by Hanoi with 24. Other outlets can be found in Hai Phong, Hung Yen, Nha Trang, Danang, Hoi An, and Binh Duong.

Marques said her brand is not racing in terms of the number of outlets but is focused on customer experience. She added Starbucks’ long-term goal in Vietnam is to become consumers’ “everyday café”.

However, Vietnamese coffee chains are taking a different approach and are expanding even stronger.

Phuc Long chain

Phuc Long Heritage, a coffee and tea chain part of the Vietnamese conglomerate Masan Group, opened 44 flagship stores last year and is heading into 2023 with strong momentum. It also closed underperforming kiosks last year.

Phuc Long ended 2022 with 132 flagship stores, doubling the store count since Masan’s acquisition of the business and closing the gap significantly with other industry players, Masan said.

“Having already been number 2 in terms of revenue and number 1 in terms of profit margin, Phuc Long Heritage expects to become the number 2 player in terms of store count by the second quarter of 2023,” the group said in its 2022 financial report late January. The chain has an international ambition to follow its leading position in the Vietnamese market, Masan said.

The 44 new flagship stores delivered an EBITDA (earning before interest, taxes, depreciation and amortization) margin of 26% in 2022, the report said. Phuc Long achieved sales of VND1.6 trillion (almost $67.9 million) and generated profits of VND195 billion ($8.3 million). The chain expects to open a further 75-90 flagship stores in 2023.

Phuc Long’s sales contributed about 2% to Masan Group’s total of more than VND76 trillion ($3.25 billion) in revenue last year, down 14% compared to 2021.

In terms of network size, Phuc Long is currently the third largest in Vietnam behind market leaders Highlands Coffee and The Coffee House, which operate more than 570 and 150 stores, respectively.

Larger market

According to forecasts from coffee info platform Allegra World Coffee, the Vietnamese branded coffee shop market will exceed 5,200 outlets by 2025. The market will therefore become more competitive.

The Coffee House this January re-launched its new ‘exclusive and upscale’ coffee shop brand - Signature after more than a year of forced closure. The Vietnamese chain said the new brand caters to increasing consumer appetite for premium products and experiences in the country.

The shop is located inside the Crescent Mall shopping center in Phu My Hung, a luxury urban area in HCMC’s District 7. Just in Crescent Mall alone, fierce competition is seen with fellow Vietnamese chains Phuc Long and Trung Nguyen, together with international brands including Wayne’s Coffee, The Coffee Bean & Tea Leaf, Baskin Robbins, and Paris Baguette.

Seedcom, The Coffee House’s parent company, announced in November 2022 that the chain achieved year-on-year sales growth of 53% to reach VND564 billion (about $22.7 million) in the first half of last year.

In December, Reuters said Jollibee Foods Corp, the biggest fast-food operator in the Philippines, was in advanced discussions to sell a minority stake in its Vietnamese coffee chain Highlands Coffee.

Jollibee, controlled by Philippine billionaire Tony Tan Caktiong, was considering a sale that could value the fast-growing coffee chain at roughly $800 million. The group is looking to sell 10% to 15% of its stake in Highlands Coffee to an investor, Reuters said but did not name the party because the sources who told this to the international news service declined to give the name as the information was confidential.

The sources said the stake sale, if successful, could eventually pave the way for an IPO of Highlands Coffee, a move that Jollibee has been considering for many years, Reuters said.

Jollibee initially bought a small stake in Highlands Coffee a decade ago and gradually took a controlling interest. Highlands Coffee was established in Hanoi in 1999 and has expanded nationwide, operating more than 570 stores acrossthe country.