Anyone for Coffee ?
The Trung Nguyen brand is spreading across
Vietnam, giving a caffeine-like boost to new trends
in consumerism and private business
"I've never heard of starbucks," says
Dang Le Nguyen Vu, puzzled by a reference to the
Seattle-based coffee chain. That might seem odd for a
man presiding over Vietnam's fastest-growing
coffee-shop franchise. But Vu isn't venturing abroad.
He's concentrating on converting local coffee-drinkers
to his own brand, Trung Nguyen--a name now
emblazoned across 165 cafes in Ho Chi Minh City,
Hanoi and provincial towns.
The caffeine-powered push of Trung Nguyen is driving
a new consumer trend in Vietnam, creating fresh
business opportunities, developing new marketing
techniques and breathing life into the country's coffee
industry. Yet Trung Nguyen's strategy differs from
Starbucks'. While the U.S. company is marching across
China, Malaysia and Singapore with cloned outlets
offering nearly identical decor and service, Trung
Nguyen outlets maintain an individual, almost haphazard
character. The franchise agreements are tailored to a
swelling class of private entrepreneurs who are looking
for new opportunities with minimal investment and
low-cost products.
A similar strategy of low-cost venues and high brand
awareness is fuelling the spread of Dilmah tea, a Sri
Lankan brand aided by the ingenuity of a group of
Russian-educated Vietnamese distributors . In the coming months Vietnam's cafe
society is likely to become even more crowded as local
and foreign companies expand. The trend is creating a
new kind of public space. Rather than talk business in
outdoor beer gardens, fetid karaoke parlours or
bustling restaurants, entrepreneurs and executives are
turning to cafes. Meanwhile, young people are carving
out their own cafe sanctuaries.
Starbucks hasn't set up shop in Vietnam, and with good
reason: A 50% tax applies to imported roasted coffee,
and few can afford a $2 coffee injection. But the
Vietnamese seem increasingly willing to pay 8,000 dong
(57 cents) to sip filtered Trung Nguyen coffee and be
part of the scene.
The country's north-south divide also presents business
challenges. In the north, where proximity to China has
nurtured a strong tradition of tea-drinking, Trung
Nguyen and other coffee promoters have their work cut
out for them. In the south, where the French colonial
taste for coffee has long lingered, Dilmah is struggling.
"Southerners think that tea is for free," says Vincent Lu,
national sales manager for Nestlé. Typically, those who
order coffee at street stalls receive a thimbleful of tea at
no extra charge. Of course, there's plenty of overlap,
since job opportunities in the south's growing private
sector and in government in the north have led to
internal migration. Grimy neighbourhood stalls attract
customers for both beverages. Still, all companies are
targeting young people who're more likely to change
brew.
The market is thriving on choice, a reflection of the
individualism seeping into Vietnam's nascent consumer
culture. Teenagers marvel over Dilmah's 25 different
flavours, while a slightly older crowd pores over various
Robusta and Arabica blends at Trung Nguyen.
"Sometimes I go to other cafes, but it's very boring
because there's only one choice," says Hieu, a
25-year-old tourism manager lounging in a Hanoi outlet.
"Before Trung Nguyen opened, I never drank coffee at
all." Quips his pal Tung: "It's a movement."
Ironically, the movement is flourishing just as local
coffee farmers are facing hardship. Vietnam is the
world's third-largest coffee exporter, but dismal world
prices--40% lower than last year--are casting gloom
over former boom towns such as Buon Ma Thuot in the
heart of the coffee-producing province of Daklak,
where Trung Nguyen is based.
Sensitive matters
Domestic prices have followed suit, offering roasters
like Trung Nguyen lucrative opportunities. "The margins
are really quite sexy," says an industry analyst.
Considering that Vietnam consumes just 20,000 tonnes
of coffee but exports more than 480,000 tonnes, Vu
and his cohorts have ample scope to pump up domestic
volumes.
Perched on the balcony of a Trung Nguyen cafe in
Hanoi, Vu won't comment on whether favourable
margins have aided rapid expansion. Neither will he
disclose annual revenues or retail volumes. "There are
many sensitive matters," murmurs the diffident
29-year-old, alluding to the fact that private enterprise
is still a grey area in Vietnam. He won't allow himself to
be photographed, and his roasting facility in Daklak
remains off-limits to reporters.
Fierce competition reinforces Vu's reticence. State
firms have long dominated Vietnam's coffee business,
and not everyone wants to see a private company
flourish. Officials at state-owned Vinacafe say they
command half of the domestic sales of roasted coffee in
the Hanoi area, estimating that Trung Nguyen has 10%.
With hundreds of small roasters struggling to hold their
own, a few entrepreneurs are beginning to enter the
gourmet coffee market.
Vu founded the company in 1996 when he was still a
struggling medical student in Daklak. Friendships with
local coffee agents, he says, allowed him to buy beans
on favourable terms and slowly build capital to import
machines from the United States and Taiwan.
The real innovation came when Vu introduced
franchising to Vietnam. The first cafe, opened in
October 1998 in Ho Chi Minh City, was wholly owned
by the company. But thereafter a host of entrepreneurs
franchised the company name and products for 15
million dong to 300 million dong apiece, depending on
the outlet's location. All Vu gets, besides revenues from
coffee sales to cafe owners, is a one-time payment for
use of the name; franchisees receive a 10% discount on
their coffee purchases. But the cafes are living
advertisements for Trung Nguyen: Once hooked,
customers are likely to buy it to take home.
With growth concentrated in the south, where there are
now 149 shops in the chain, Trung Nguyen is just
starting to penetrate the north. The first Hanoi outlet
opened in April, and eight others have followed. The
company is now aiming for a coffee shop in every
province, with 20 in Hanoi.
Some cafe owners report thriving business. Nguyen
Kim Thu, who opened a cafe near Hanoi Polytechnic
University in January, quadrupled her customers and
trebled her monthly revenues to 30 million dong after
she signed on with Trung Nguyen in April. She's still
selling other beverages--witness a bright yellow awning
advertising Lipton tea--but coffee is the big draw. She's
reassured by Trung Nguyen's policy of keeping at least
1.5 kilometres between outlets.
Sill, none of her waitresses don the tan,
geometric-patterned outfits in evidence at some other
Trung Nguyen coffee shops. Though some might find
that diversity refreshing, inconsistency can also draw
criticism.
Need to control quality
"While they have done a good job of building brand
recognition, they need to have more control over their
brand image for the medium and long term," says David
Thai, who has built his own roasting facility in Hanoi for
a new gourmet coffee brand, Highlands Coffee, to be
launched in December. "They have to institute and
control consistent quality standards, across the board,
from one outlet to another."
In future, Vu will face more competition from Viet An.
The Vietnamese firm opened two "Boca" brand cafes in
Ho Chi Minh City this year--featuring flavours like Irish
cream--and is hoping to have 20 cafes by the middle of
next year. But that's good news for Vietnam's
economy, which needs as many coffee breaks as it can
get.
By Margot Cohen - Far Eastern Economic Review - October 26, 2000.
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