COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET ＮＧＵＹＥＮ ＤＵＹ Economics, Economics COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET The story of Vietnamese coffee market is not only the competition of Western style coffee shops but also the competition between Robusta and Arabica coffee beans Although Vietnam is considered as a potential emerging market, many foreign coffee chains with huge economic potential have failed to expand their shops in Vietnam, even famous names such as Gloria Jean’s Coffee or NYDC Meanwhile, domestic brands with little experience such as The Coffee House or Phuc Long Coffee & Tea start to flourish and win the heart of Vietnamese consumers Thus, this report aims to get a better understanding of the Vietnamese market based on the P.E.S.T analysis, which includes political, economic, socio-cultural, and technological environments The paper also indicates the reasons why many businesses want to expand to Vietnam and the underlying challenges that make most of them fail in such potential market, compared to Japan POLITICAL-TECHNOLOGICAL ANALYSIS Regarding politics, Vietnam is working to harmonize trade policies through both bilateral and multilateral free trade agreements (FTAs) According to Nguyen & Trang (2018), Vietnam has involved in 17 FTAs, in which multilateral FTAs include the ASEAN Free Trade Area (AFTA), the Regional Comprehensive Economic Partnership (RCEP), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (International Trade Administrative, 2018) This trend indicates Vietnamese market is more open to attract foreign direct investment (FDI) Along with the benefits of tax exemption or reduction, foreign businesses can easily expand their distribution network to Vietnam, where they are welcomed by both the people and the government Not only that, another thing in Vietnam that appeals to them is the tax rate there Companies operating in Vietnam have to pay 20% of their net income for the corporate income tax, lower than that of Japan, which is 30.86% (Trading Economics(1), 2018) The tax of social security rate in Vietnam is also less than that of Japan, which is 26% and 29.2% respectively (Trading Economics (2), 2018) Moreover, compared to Japan – a place requires corporates to follow a strict food sanitation law in order to obtain the restaurant business license (Joe, 2018), Vietnam has a quite weak legal framework as well as food safety monitoring and surveillance system (World Bank, 2016) For these reasons, coffee chains are willing to have their shops opened in Vietnam rather than in Japan However, administrative procedures are the factor that can have a negative effect on the cost to set up a business overseas According to Hung (2015), based on Law enterprise 2014, it takes 14 days and procedures to start a business in Vietnam, including business registration, tax invoice purchase, bank account opening, and Trade Union registration As for Japan, the country simplifies the procedures by narrowing down the four steps (notary office, legal affairs bureau, tax office, pension office) to one unified Japanese Business Support Center (Prime Minister’s Office of Japan, 2018) For that reason, in World Bank’s “Ease of doing business”, Vietnam ranked 69th (Mah, 2018) while Japan ranked up to 29th (Prime Minister’s Office of Japan, 2018) Due to an ineffective policy, many foreign brands in Vietnam have to incur extra cost and fail to sustain their businesses Regarding technology, another reason for the collapse of foreign corporates is the outdated technology in Vietnam As a result, despite an increase in FDI projects, investment efficiency does not happen as desired (SGT, 2016) Meanwhile, the biggest competitive advantage of Japan lies in the innovation and technology (Foreign Policy, 2015) Therefore, it is easier for foreign companies to apply advanced technology to run and govern their business effectively in Japan COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET In terms of political-technological analysis, Vietnam is becoming more open to foreign investment with lower tax rate than that of Japan However, complicated administrative procedures can become a barrier for those who want to establish a business there Besides, restrictions of technology make it hard for overseas investors to manage their business efficiently in Vietnam, partly contributing to their failure ECONOMIC ANALYSIS Vietnam is regarded as the most active emerging market in the region with remarkable achievements in three areas, namely economy, FDI, and demographics GDP in Vietnam is expected to reach $327 billions in 2022 with the real GDP growth rate of 6.2% over the period of 2016-2022, comparatively higher than that of ASEAN in general and Singapore exclusively (Linh, 2018) With such bright economic outlook and rising income of Vietnamese people, they are willing to increase their demand and consumption for normal goods such as coffee Along with the coffee consumption per capita expected to reach 2.26 kg in 2021 (Quynh, 2017), Vietnam becomes a potential market in the eyes of many foreign coffee chains Middle class is an important part in Vietnam’s demographics Having an average monthly income of $714, this segment in Vietnam is set to have 44 million people by 2020, with an annual growth rate of 18% (ANT Consulting Co., 2017) Also, according to this source, there will be a shift from saving to spending in their perspectives However, brands going to Vietnam usually target people in the high-class segment (Tranmai, 2017) Positioning themselves as a high-end brand, these brands locate their shops at department stores or places in the center, running them at a higher rental fee, leading to higher operation cost and higher product price As a result, they suffer from store closing because their target market in Vietnam is not large enough to help them operate the business properly and also because they have missed the potential middle-class people who are reported to be loyal consumers Besides, Vietnam is the world’s largest Robusta exporter with the share of 46% worldwide and is also the second largest coffee exporter after Brazil (Vietnam Briefing, 2014) With a large amount of Robusta available, Vietnamese people prefer strong and Robusta coffee to the Arabica one that is often served in Western coffee shops, creating an advantage for domestic coffee chains that use Robusta as a main ingredient Also, these brands benefit from the lower cost of ingredient transportation whereas foreign chains may have to incur higher transportation cost, risk ingredient shortage, and deal with lack of preference for Arabica coffee among Vietnamese consumers Along with the trend of eating out more frequently (Euromonitor International, 2018), people become more selective and cost-sensitive in their choices of restaurants Regarding Japan, the country has been familiar with Arabica coffee since the estimated share of imported Arabica coffee bean was up to 70%, compared to 28% of Robusta one (The Coffee Guide, 2010) Thus, Japan opens up opportunities for foreign coffee chains serving Arabica coffee to grow, in which Starbucks has become a leader, making up for 48% of Japanese market share (Rosszell, 2018) Another disadvantage for foreign coffee chains opening in Vietnam is the inflation rate and currency value Vietnam has an inflation rate of 3.5%, comparatively higher than that of Japan, which is 0.5% (World Bank, 2017) Also, Japanese Yen is a stronger currency than Vietnamese dong with US dollar’s convert rate to the former of 1:113 and that to the latter of 1:23,283 (XE, 2018) Therefore, Japan offers a more secure and profitable market for overseas businesses to operate than Vietnam In terms of economic analysis, although Vietnam is an active emerging market with a bright economic outlook, the nation is still developing with a high inflation rate, a weak currency, and a low spending rate affected by money constraint among consumers Two main problems related to the failure of overseas business are targeting the wrong COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET segment and the love for Robusta over Arabica coffee among Vietnamese people While in Japan, the country already offers them a potential market with a great number of Arabica fans with a strong economic performance SOCIO-CULTURAL ANALYSIS In Vietnam, the ratio between in-home coffee consumption and out of home coffee consumption is almost the same, 49% and 50% respectively (Brands Vietnam, 2012), suggesting Vietnam is a potential market for foreign coffee chains to enter Also, according to this source, the most popular drinking time is from to o’clock when people start going to work Thus, most of them have taken this advantage by adapting their opening hours in accordance with this habit Specifically, one of the most successful brands in Vietnam, Starbucks, even has some stores open from am to fully meet consumer demands and create a competitive advantage Besides, not only Vietnamese people drink coffee in the morning but they also consume it with banh mi (Vietnam Coffee, 2018) However, foreign brands prefer to serve Western dishes rather than banh mi mainly because they are not used to making this traditional and street food in Vietnam Whereas in Japan, the people there are familiar with Western breakfast such as toast with butter and jam (Finn, 2018) Therefore, the morning sets of foreign chains are more favored by the Japanese than by the Vietnamese, partly contributing to their success in the former’s market Moreover, the Vietnamese have their own way of drinking coffee, very different from that of foreigners Rather than a quickly consumed drink, Vietnamese people consider coffee as a sipping drink (VnCharm, 2012) They often combine drinking coffee with reading newspapers, listening to music, or chatting with friends This habit poses as a challenge for foreign coffee chains because their target market has a high requirement for both the products and services, in which customers are always put at the core Thus, compared to Vietnamese chains, foreign brands are at risk due to a lack of understanding of Vietnamese market While in Japan, the busy lifestyle of the people there narrows down the duration of their coffee shop visits and increases their demand for coffee on-the-go (Japan Today, 2011), suggesting the focus be on the products Another reason for their failure in Vietnam market lies in the localization process, often seen as a big problem for a brand going global According to Tranmai (2017), most of Vietnamese consumers still favor traditional coffee since they are not familiar with Western-style coffee but fond of 100% Vietnamese one Not only that, due to some transportation difficulties and cost-saving purposes, some drinks are made of Vietnamese ingredients but followed foreign recipes, resulting in losing their original taste and failing to attract local consumers (Tranmai, 2017) Compared to Vietnam, Japan has an advantage of large coffee imports from Western countries, indicating its people are used to their taste Also, the Japanese coffee culture is greatly influenced by Western countries, making most of the coffee recipes there have Western names, such as espresso and latte (Japan Info, 2015) Thus, expanding business to Japan is much easier since there is no need to put lots of effort in converting the coffee fans there into Western coffee drinkers In terms of socio-cultural analysis, two main problems facing foreign coffee chains when expanding to Vietnam include adapting to their lifestyle and localization In an attempt to address them, understanding customers is the key to success However, the cultural diversity creates market entry barriers to these brands; whereas in Japan, their coffee culture has lots of similarities with that of Western countries These lead to their failure to compete in such a harsh environment with many flourishing Vietnamese coffee chains COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET Based on the P.E.S.T analysis, businesses will face both opportunities and threats expanding to Vietnam Most of the Western style coffee brands entered the Vietnamese food and beverage market with big plans, probably thanks to their success in other Southeast Asia markets, such as Singapore, Malaysia, and Thailand They take a leading role in opening coffee shop chains in Vietnam, but they are not flexible enough to adapt to this market, resulting in their loss of market share and failure in a competitive environment with local brands It is showing that a company is not able to achieve success without a deep understanding of the consumers there Brands expanding to Japan benefit from the Japanese familiarity with Western style coffee and Arabica coffee beans, whereas in Vietnam, people are used to enjoying the taste of Robusta coffee beans in a traditional way COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET REFERENCES ANT Consulting Co (2017) The Middle Class of Vietnam Increased Sharply Retrieved from http://www.antconsult.vn/news/the-middle-class-of-vietnam-increased-sharply.html Brands Vietnam (2012, August 21) Thị trường cà phê Việt Nam hội cho doanh nghiệp nước Brands Vietnam Retrieved from http://www.brandsvietnam.com/146-Thi-truong-ca-phe-Viet-Namva-co-hoi-cho-doanh-nghiep-trong-nuoc Euromonitor International (2018) Coffee in Vietnam Retrieved from Passport database Finn, C (2018) Bargain Breakfasts: Morning Sets to Make Your Day Retrieved from https://tokyocheapo.com/food-and-drink/breakfast-tokyo-morning-set/ Foreign Policy (2015) Japan Is a Technology and Innovation Leader Retrieved from https://foreignpolicy.com/sponsored/japanus/discovery/ Hung, V (2015) Solutions to raise the Vietnam's index of starting a business to a higher position Retrieved from https://dangkykinhdoanh.gov.vn/en/News/615/4427/solutions-to-raise-the-vietnam-sindex-of-starting-a-business-to-a-higher-position.aspx International Trade Administration (2018) Vietnam - Trade Agreements Retrieved from https://www.export.gov/article?id=Vietnam-Trade-Agreements Japan Info (2015) Japanese Coffee Culture and the Terms You Need to Know Retrieved from http://jpninfo.com/30536 Japan Today (2011, October 24) Japan's coffee culture Japan Today Retrieved from https://japantoday.com/category/features/opinions/japans-coffee-culture Joe, E (2018) How to start https://visajapan.tokyo/2018/04/18/restaurants/ restaurants in Japan Retrieved from Linh, L (2018) Việt Nam - kinh tế động khu vực Retrieved from http://taichinhtoandien.com/tin-tai-chinh/viet-nam-nen-kinh-te-moi-noi-nang-dong-nhat-khu-vuc.html Mah, K (2018, November 16) Vietnam Ranked 69th in Ease of Doing Business Rankings Vietnam Briefing Retrieved from https://www.vietnam-briefing.com/news/vietnam-ranked-69th-in-ease-of-doingbusiness-rankings.html/ Nguyen, T & Trang, H (2018, 24 April) Why does Vietnam have to sign many FTAs? Customs News Retrieved from https://customsnews.vn/why-does-vietnam-have-to-sign-many-ftas-6737.html Prime Minister’s Office of Japan (2018) Invest Japan Retrieved from https://www.youtube.com/watch?v=KjkqCnuz44&list=PLoj1Ym89bkavGUd98uxAUIdRKXcNz0 K7f&index=2 COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET Quynh, D (2017, September 8) Tiêu thụ cà phê Việt Nam tăng gấp lần vòng 10 năm Cafef Retrieved from http://cafef.vn/tieu-thu-ca-phe-viet-nam-tang-gap-3-lan-trong-vong-10-nam20170908105628705.chn Rosszell, M (2018) Why Japan Chose Starbucks Retrieved from https://blog.btrax.com/why-japanchose-starbucks/ SGT (2016, December 24) Vietnam involved in 16 FTAs Vietnamnet Bridge Retrieved from https://english.vietnamnet.vn/fms/business/170059/vietnam-involved-in-16-ftas.html The Coffee Guide (2010) Japan Retrieved from http://www.thecoffeeguide.org/coffee-guide/themarkets-for-coffee/Japan/ Trading Economics(1) (2018) Vietnam Corporate https://tradingeconomics.com/vietnam/corporate-tax-rate Trading Economics(2) (2018) Vietnam Social https://tradingeconomics.com/vietnam/social-security-rate Tax Rate Retrieved from Security Rate Retrieved from Tranmai (2017) Foreign café chains facing competition from local outlets Retrieved from http://cep.com.vn/cac-chuoi-cua-hang-ca-phe-nuoc-ngoai-phai-doi-mat-voi-su-canh-tranh-tu-cua-hangdia-phuong-4917.html Vietnam Briefing (2014, August 7) Vietnam Could Become World’s Largest Coffee Producer and Exporter Vietnam Briefing Retrieved from https://www.vietnam-briefing.com/news/vietnam-becomeworlds-largest-coffee-producer-exporter.html/ Vietnam Coffee (2018) Nét đẹp văn hóa thưởng thức cà phê người Việt Nam Retrieved from https://vietnamcoffee.vn/vi/ca-phe/van-hoa-ca-phe-viet-nam/net-dep-trong-van-hoa-thuong-thucca-phe-cua-nguoi-viet-nam-81.html VnCharm (2018) Văn Hóa Cà Phê Người Việt Retrieved from http://tuhaoviet.vn/ca-phe/van-hoaca-phe-nguoi-viet-p13.html World Bank (2016) Food safety risk management in Vietnam: Challenges and opportunities Retrieved from http://www.worldbank.org/en/country/vietnam/publication/food-safety-riskmanagement-in-vietnam-challenges-and-opportunities World Bank (2018) Inflation, consumer https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG prices (annual %) Retrieved from XE (2018) XE Currency Converter: USD to JPY https://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=JPY Retrieved from XE (2018) XE Currency Converter: USD to VND https://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=VND Retrieved from .. .COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET The story of Vietnamese coffee market is not only the competition of Western style coffee. .. related to the failure of overseas business are targeting the wrong COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET segment and the love for Robusta over Arabica coffee among Vietnamese people While... flourishing Vietnamese coffee chains COMPETITION LANDSCAPE OF VIETNAMESE COFFEE MARKET Based on the P.E.S.T analysis, businesses will face both opportunities and threats expanding to Vietnam Most of the