BUSINESS BLUNDERS
Why Starbucks Is Failing in Vietnam
For one, they’re using the wrong kind of beans
When I was scrolling through my Instagram feed a few days ago, I came across a thought-provoking quote:
“As kids, we wanted to be adults so bad. Look at us now, we can’t even function without coffee.”
Really, coffee can occupy a lot of space in an adult’s head — and many business owners are armed with their finest coffee to fill this space.
One of the big players in the game, Starbucks, occupies more than 30,000 outlets around the globe. Yet it only has a measly 46 locations in Vietnam — a country that has a population of 97.34 million.
Just for comparison purposes, the U.S. has nearly 15,000 Starbucks locations, and Australia, a country where Starbucks failed, only has around 42 Starbucks cafes.
Let’s understand why the American coffee giant is having a tough time in Vietnam.
1. Starbucks Uses Arabica Beans, but Vietnam Has Stronger Robusta Beans
Traditional Vietnamese iced coffee, also known as cà phê sữa đá, is one of the most popular beverages in the country.
And what makes this Vietnamese coffee so different? It’s the stronger robusta beans that have a higher caffeine content as compared to Starbucks’ mild arabica beans.
Starbucks’ arabica beans contain up to 1.5% caffeine. But if a Vietnamese customer wants a stronger dose, the robusta beans in the cà phê sữa đá can give them the energy boost they need with a whopping 2.7% caffeine content.
Starbucks doesn’t seem to care about their weaker caffeine content, and apparently, they don’t want to deviate far from their American-style coffee.
2. Vietnam Is a Powerhouse of Coffee Production
The French colonialists introduced coffee into Vietnam in the 19th century, and today, coffee production plays a very important role in the country’s economy.
Did you know that Vietnam is the second-largest producer of coffee in the world? In 2016, the Southeast Asian country produced 1,650,000 metric tons of coffee.
But what does this have to do with Starbucks? Well, it’s simple. The local cafe owners don’t need to go through the hassle of importing coffee. They’ve got a huge pile of strong, eye-opening robusta beans right outside their door.
3. The Menu Wasn’t Adapted to Suit Vietnam
Ever heard of egg coffee? Cà phê trứng is a Vietnamese beverage that’s made using egg yolks, sugar, condensed milk, and robusta coffee.
There are some more coffee varieties in Vietnam that might surprise a Westerner. (Some are made with yogurt and fruit as well.)
Starbucks, on the other hand, restricted its Vietnamese menu mostly to the usual flat whites and lattes. There’s a huge demand in the market for traditional Vietnamese coffee that Starbucks is failing to fill.
Not adapting its menu to appeal to the local customers is also why McDonald’s failed in Vietnam. Sticking to an American menu didn’t prove to be lucrative for both McDonald’s and Starbucks.
4. Tough Local Competition
Until 1995, American businesses were not allowed in Vietnam. The resentment of the Vietnam war severed ties between the two countries for decades.
But eventually, they patched up, and American businesses seized the opportunity as soon as they could. However, they had to face thousands of local coffee shops in Vietnam.
The local vendors control almost 80% of the restaurant business, and it’s not going to change anytime soon.
And if foreign countries don’t adjust their menu and prices keeping the Vietnamese customers in mind, it’ll be extremely difficult for them to own a significant share of the market, if not impossible.
On a side note, not being able to beat the stiff local competition is also one of the reasons why Starbucks failed in Israel.
5. The Vietnamese Customers Don’t Visit Starbucks Just for the Coffee
As you can probably imagine, the average price of coffee in a Vietnamese Starbucks outlet is higher than the local cafes. This doesn’t stop customers from visiting Starbucks. However, the frequency of their visits is certainly affected.
The Vietnamese customers, especially people with good jobs who can afford expensive coffee, visit Starbucks to break the usual routine and experience something different every once in a while.
Special occasions, such as a date, can also drive people to visit this American coffee chain. It’s like when someone in a first-world country goes to a five-star hotel every once in a while to pamper themselves.
But it’s a ‘once in a blue moon’ type of thing — not something that can be done frequently.
Conclusion
When a product is in high demand, the competition is bound to be tough. It’s not that coffee is a patented product and only the people with proper rights can sell it. Anyone can sell coffee.
Vietnam is the hub of cafes and coffee production, and it has a well-established coffee culture with a unique menu that’s found almost nowhere else in the world.
Until Starbucks makes some drastic changes to its menu, such as providing customers with an option to choose between robusta and arabica beans or adding some local beverages to the list, the sales are unlikely to skyrocket.
