Starbucks targets Vietnam

4 January 2013

HO CHI MINH CITY: Starbucks, the coffee house group, is planning to enter Vietnam next month, tapping a country regarded as holding considerable potential for long term growth.

The firm will open its first store, in Ho Chi Minh City, in February. It is to be run by Maxim Group, which has license deals with Starbucks in Hong Kong and Macau, and now a similar agreement for Vietnam.

"We've been in the region going on 16 years, and given our success in Thailand, Singapore and Malaysia, as well as our overall financial performance, we see Vietnam as the next natural entry point," John Culver, Starbucks president for China and Asia Pacific, told the Wall Street Journal.

Starbucks had hoped to enter Vietnam in 2012, but then decided on the start of 2013, after the holiday season in many countries, would be preferable. "It just felt like it was better timing," said Culver.

KPMG, the consultancy, estimated that Vietnam had a population of 86m in 2012. Some 14.6m of this group fell into the middle class, a figure due to top 20m during the next few years.

The Vietnamese coffee market, including production and consumption, is worth $3bn per year. Domestic shoppers also have a more established heritage of enjoying the drink than in nations like China or India, where tea dominates.

"Vietnam is the second-largest coffee-producing country in the world, behind Brazil ... We've been sourcing coffee from there for several years," Culver said. "Over the long term, we see an opportunity to have hundreds of stores in Vietnam."

Starbucks boasts over 3,300 stores across the Asia Pacific region, with around 700 in China alone. It also recently moved into India, now running three stores through a joint venture with Tata Group.

Asia Pacific yielded around 5% of Starbucks' sales in the 12 months to the end of September, at $721m, but the possibilities are considerable. "We are not looking at this with a short-term view," said Culver.

Trung Nguyen, Vietnam's leading coffee processor, has predicted that the country's coffee ecosystem in Vietnam should be worth $20bn annually in 15 years' time.

It is aiming to boost sales from $250m in 2011 to $1bn in 2015 by building its product portfolio, focusing on corporate social responsibility and expanding internationally.

"Vietnam currently exports 90% of beans raw. These beans carry no brands. That needs to be changed," Dang Le Nguyen Vu, Trung Nguyen's chairman, told Reuters. "Our ambition is to become a global brand ... American consumers don't need another product. They need another story."

Data sourced from Wall Street Journal/Reuters; additional content by Warc staff