Vietnamese coffee chains ready to take on global giants

Vietnam - known for its deep-rooted coffee culture - has become one of the most diverse markets in Asia for the uplifting beverage, with scores of global giants, local chains and small cafés severing a wide variety of freshly roasted beans.

Domestic chains are competing well against international brands including coffee giant Starbucks, which has opened 24 outlets across Vietnam since its debut in the country four years ago.

Many Vietnamese can’t survive a day without a few shots of "ca phe sua da", Vietnamese style iced coffee with concentrated milk. Photo by VnExpress

Not long after Starbucks entered Ho Chi Minh City, the country’s southern business hub where people drink coffee from sunrise to sundown, local chain Phuc Long stepped up its game and presented a direct challenge to the global giant.

At a main intersection at the heart of the city, a Starbucks shop is under fierce competition from two Phuc Long stores just a few steps away.

Phuc Long has shown a determined attempt to take on international brands like Starbucks by building up its presence in busy downtown areas across Ho Chi Minh City that are densely crowded with office buildings and shopping malls.

Where there's a Starbucks outlet, there’s a Phuc Long store to draw in those who otherwise would be Starbucks clients, mostly upper- middle class consumers willing to pay a few extra bucks for a cup of premium-branded coffee.

“We are not overwhelmed by international brands as we have targeted young consumers who enjoy international products at reasonable prices,” said a Phuc Long executive.

Phuc Long is definitely not the only local coffee chain going head-to-head with foreign players.

A survey conducted by Financial Times Confidential Research of 1,000 consumers in each of the five biggest economies in Southeast Asia found that Vietnam was the only country where Starbucks was not as frequently visited by local coffee lovers as local brands Trung Nguyen and Highlands Coffee.

There remains far more growth potential, with more homegrown chains entering the market.

Saigon Café opened its first shop in July last year. Since then the domestic chain has reportedly invested about US$50 billion (US$2.2 million), excluding rental costs, in 10 outlets across the city.

“Despite increasingly fierce rivalry from international brands, we started generating a net profit not long after our first store opened,” said a Saigon Café executive. “Currently, each outlet is reporting monthly revenues of VND1.5 billion on average. Our estimate is that net profit can range between 20% and 25%.”

Despite the fact international coffee chains such as Starbucks and The Coffee Bean & Tea Leaf have been well received in the Southeast Asian country, there has been a surge in the establishment of homegrown brands.

On one hand, local coffee chains are confident that locals will stick to the strong taste of Vietnamese coffee. On the other, they have been responsive to the demands of a growing upper-middle class urban population who are more interested in sampling the ambiance of the store than the taste of coffee.

According to Euromonitor International, a UK-based market research organization, annual growth of coffee franchises in Vietnam is currently standing at 7%.