January 14, 2013

Starbucks faces local brands and tastes, expense in Vietnam debut

'The cool factor' and 'the ambience' – not the coffee – are expected to be the draw for Vietnam's upwardly mobile under-35 generation.

Bloomberg News

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A sign outside a Starbucks hangs over the Riverwalk in San Antonio, Texas, in a 2010 file photo. Starbucks, which will make its debut in Vietnam next month, will join foreign food chains including Burger King Worldwide and Yum Brands KFC in the Southeast Asian country.

2010 File Photo/The Associated Press

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Coffee beans are stored in glass bins at a shop, one of thousands in Hanoi, Vietnam, in 2006. Starbucks will battle local brands, entrenched tastes, international rivals and thousands of neighborhood coffee shops in opening its first Vietnam locations.

Paul Haigh/Bloomberg News

Starbucks will price its products in a "premium position" that is competitive, Culver said. Prices may still be less than the U.S. because of lower income and operating costs, according to Sara Senatore, a New York-based analyst at Sanford C. Bernstein & Co.

She expects local Starbucks prices to be closer to India than China. A short cappuccino costs 95 rupees ($1.74) in India, compared with about $4 in China. A cup of drip coffee at a corner shop in Hanoi's streets and neighborhoods can cost as little as 10,000 dong (48 cents). A cappuccino at Trung Nguyen costs 65,000 dong ($3.12).

"Starbucks doesn't compete directly with the local coffee shops, just the same way that McDonald's or KFC doesn't compete directly with the local fast-food vendors," Senatore said. "There's a premium that people are willing to pay for a clean environment, for consistent products, good service."

Thuan Pham, a Vietnamese-American who now lives in Ho Chi Minh City, surfed the Internet on his iPad while sipping a 70,000 dong ($3.30) cappuccino at Coffee Bean & Tea Leaf in Hanoi. He expects to be a frequent Starbucks visitor and said he will be surprised if it doesn't succeed in Vietnam.

"The cool factor is crucial. It's important for those young people to be seen at those places," said Pham, a commercial airline pilot. "The coffee is not that great."

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