Five Reasons Starbucks Will Do Well in Vietnam
Bloomberg Business Week published an article yesterday about Starbucks’ long-awaited entrance to Vietnam. Overall, I believe the author underestimates the potential impact of Starbucks on the market.
I think Starbucks is uniquely positioned to do quite well in Vietnam for five reasons:
- Product Quality and Consistency - Many people in the West have legitimate qualms with the quality and roast of Starbucks’ beans, but both surpass the predominantly low-quality robusta blends currently available in Vietnam. I am a fan of Oriberry’s arabica roast, and I enjoy a dark Trung Nguyen drip with sweet milk, but neither are my go-to cup of coffee. The article does raise a good question regarding whether the Vietnamese palate will take to Starbucks’ products. Based on my observations at Coffee Bean and Tea Leaf and Joma Bakery Cafe, I think Starbucks will do fine with its sweeter espresso-based drinks (i.e. frappuccino, refreshers) for the general public. People who have traveled abroad or are interested in Western-style roasts/coffee will be enticed by Starbucks’ offerings.
- Service Quality and Consistency – Visit Highlands, Coffee Bean and Tea Leaf and Gloria Jeans – service ranges from mediocre to abysmal across the board. Outside of the major hotels (which typically dominate barista contests in Vietnam), only Highlands has a strong barista training unit. Via its management philosophy, machinery, backend systems (e.g. process flow management) and training , I expect Starbucks have excellent front-end staff and baristas that deliver high quality, consistent cups of coffee.
- Brand Perception and Philosophy – As evidenced in the picture above, the Starbucks logo has already found its way around the country – those Vietnamese that have traveled abroad, from my experience, certainly know Starbucks as a place for good coffee, wifi and conversation. I expect the formidable Starbucks marketing machine to articulate the quality of its beans and baristas that contribute to each cup of coffee. As it did in the USA, its brand will seek to educate customers as to why their coffee is worth a multiple of other offerings and build a position as a high-end coffee shop. Its responsible profile, reputation as a good place to work, and “third-place” ethos will earn it points amongst young Vietnamese.
- Human Resources Management and Strategy - The company is very mindful of how it trains, treats, rewards and retains its employees. Starbucks’ brand name, C&B package, training opportunities, and diverse career opportunities are likely to be unmatched by competitors. Attracting and retaining talent is tough in Vietnam – most establishments open well and the quality falls dramatically after six-months (Coffee Bean and Tea Leaf is a prime example).
- Weakness of Direct Competitors – Anecdotally, Highlands has suffered from infighting amongst its numerous shareholders and severe financial difficulties. Coffee Bean and Tea Leaf has opened a high number of outlets in a short period of time, but the quality is generally poor and products overpriced. Gloria Jeans exploded into Vietnam, but has since closed nearly all of its outlets in the country. Trung Nguyen is an institution in Vietnam and relies heavily on wholesale/export business – I do not think Starbucks will eat away too much of its core business.
Starbucks competitors that rely solely on revenue from espresso-based and craft drinks (particularly Coffee Bean and Tea Leaf, Highlands Coffee, Illy, and Gloria Jeans) will bear the brunt of Starbucks’ entry to Vietnam. I believe that organizations with a diverse mix of complementary products (e.g. quality food), an established brand, and a compelling philosophy will not be as adversely affected. In fact, with Starbucks as a basis for comparison, consumers will be able to better appreciate the differences in price, product mix, and mission/vision of existing establishments.
My next question – When and how will Costa Coffee enter the Vietnamese market after its explosive growth in China? Or, perhaps more telling, why did it open a shop in Phnom Penh before Vietnam?
Update February 2 - Thanks for the comments, Don and Khamg! The first customer comments included in this Bangkok Post article display a muted response to Starbucks’ coffee offerings. We’ll see how things develop and if they stick to their current position as an arabica alternative or if they start to offer stronger alternatives similar to other VN cafes. Based on their willingness to innovate and iterate on employee feedback in China (rice-based food products/treats) and Japan (Green Tea latte), I think they will offer an entry point product (e.g. a stronger roast) that serve as an introduction to their other lines.
Update May 19 - According to the Wall Street Journal, looks like sales at Starbucks’ HCMC flagship at “exceeding expectations.”