How to do business in Sai Gon A closer look on take-away coffee market

HOW TO DO BUSINESS IN SAIGON

A closer look on take-away coffee market

Tien Phi NGUYEN Business Academic Class Night 1, MBUS 2011 Jan 9th 2012 Professor Patrick Cole

How to do business in Sai Gon A closer look on take-away coffee market

INTRODUCTION According to Harrison, globalization has far-reaching consequences for the way people live their lives. It exposes people to unfamiliar cultures and practices. There is a view that the Western or American culture is increasingly becoming dominant (Harrison, 2010). Since Vietnam joined WTO in 2006, the appearance of variable foreign investors and enterprises which have internationalized many industrial sectors in Vietnam. As a result, food and beverage services were not the exception, people were getting interested in western-style one. Vietnam is known as one of the countries which have the biggest volume in coffee exporting with the total production reached 18.200 thousand bags (number in 2009). However, the domestic consumption was just only 1.583 thousand bags. It means that the Vietnamese was only using less than 10 percent of the coffee they produce. With a country which has population of more than eighty eight million this

number is still very small and Vietnam can be a very potential market for coffee industry (International Coffee Organization, 2009) In Vietnam, many foreign caf models such as Gloria Jeans, Coffee Bean, NYDC, Angle In Us have been set up by famous foreign enterprises and became a hot trend in this country. However, not all people can afford for the new caf style since the target of these introducers is just the premium customers. The price of about four dollars per cup is too costly for most of Vietnamese people. The difference between new caf model and the Vietnamese traditional caf is about the way making the products. In new caf model, the baristas use the coffee machines in associated with Western techniques to make many kinds of drink such as espresso, cappuccino, frappuccino, latte, smoothies, Italian soda... Meanwhile,

How to do business in Sai Gon A closer look on take-away coffee market

Vietnamese traditional coffee is the kind of mixture of corn, betel nut and coffee which not only makes the quality go down but also loses the consumers confidence. Furthermore, since 2000 and its forecast was made to 2010 that the Vietnam population is still a young one with about 50% distributed between the ages of 18-25 (AC Nielsen statistic). Thus, this research paper would focus especially on how to run a take-away caf service in Sai Gon the young people (18-25 years old) as the target customer.

WHAT AFFECTS DOING BUSINESS IN SAI GON? Every market has its own barrier for newcomers. However, it is listed generally in four impacts: political impact, economic impact, social impact and tenological impact. Firstly, let s look at the political impact. Since there is minimum barrier from the government policies, the political do not directly impact to caf business. However, the changes in government policies have a great impact in the coffee market. Some important policies include multi-section economy orientation and shifting; allowing house-holds and small farm-owners to have their own coffee plantations; handling land usage right to farmers; and many new investment and loan policies along with national socio-economic programs such as accommodation and cultivation settlement. These innovation policies are seen as the advantages for the rapid development of coffee industry over the last few years now. The result of these changes is that Vietnamese has become the second coffee producer in the world. Next, the outlook for Vietnam market remains very promising, thanks to high economic growth. The nominal GDP was estimated at US$90.07 billion in 2009, meanwhile, GDP per capita was estimated at US$1,064. This growth trend is expected to

How to do business in Sai Gon A closer look on take-away coffee market

continue. In addition, a developing tourism industry and a large young population both may have a strong impact on consumption growth (Vietnam financial review, 2010) 2005 Nominal (US$bn) Population (mm 83.5 people) GDP per capita 633.53 (US$) Table: Vietnam s economy perspectives As the result of the growth in the macro-economy, the living standard of the Vietnamese people is also increase in recent years. It can lead to the higher demand for high quality products. Another factor in the economic can impact directly to take-away caf market is the price of the materials, which is greatly effect by the import/export activities. Since Vietnam is ranked as the second position in the coffee bean exporters (International Trade Center, 2011), the coffee price is control by the global trend and it is not stable. It is showed on the below chart (International Coffee Organization, 2009). 722.75 828.74 954.54 1023.52 1064.69 84.4 85.6 86.8 88 89.2 GDP 52.9 2006 61 2007 70.94 2008 84.59 2009 90.07 2010 94.97

How to do business in Sai Gon A closer look on take-away coffee market

Figure: Coffee prices through the periods Thirdly, there is a huge advantage in the social aspect toward take-away caf business. According to Harrison, globalization has far-reaching consequences for the way people live their lives. It exposes people to unfamiliar cultures and practices. There is a view that the Western or American culture is becoming dominant (Harrison, 2010). At least, it is happening in Vietnam. The consumer trend is changing from the loyalty in traditional products to the acceptance new western ones. Consequently, the Vietnamese people are changing their coffee style and habit. Another factor is the increase in personal income. The customers nowadays have more conditions and they are willing to pay to satisfy their need. Furthermore, consumers are more aware about the heath issue. The high caffeine rate in the traditional coffee can be a reason for the switching and this trend is spread widely. In conclusion, the social factors are providing a potential image for take-away caf industry in the future.

How to do business in Sai Gon A closer look on take-away coffee market

Contrary to the social aspect, the technology has minimum impact to this market. Coffee machine is first developed in the 30s of the twenty century and still very stable up to now.

A SURVIVAL GUIDE TO RUN A GOOD BUSINESS IN SAI GON To run a good business in Sai Gon, especially in the take-away caf segment, the very first and top most requirement is location. The statistic about how people choose a location of caf can help enterprise to answer the question that whether they should invest to open the store in a nice location in the main road of the city or not.

60.00 50.00 40.00 30.00 20.00 10.00 -

39.33

44.00

56.00 34.00 14.00 38.00

Figure: Response about favorite location. This figure shows that location is not the matter of customers when drinking caf, 56% people don t care about the location of a caf. Besides that, 44% customers prefer to choose a caf which is on the way to school or office, 39.33% and 38% customers prefer the caf which is near my home and near my office. (This result is created based on 100 anwsered questionaire about location where people usually have their caf)

How to do business in Sai Gon A closer look on take-away coffee market

Actually, to find a good location in Sai Gon for a take-away booth or shop is not an easy task. Investors have to pay a big amount of money if they want to stand visibly on a crowded street, and of course their profit would inevitably decrease because of the renting cost. According to a CBRE report on October 2011 about space leasing price in Ho Chi Minh city, if investors want an affordable yet easy-to-find place, they have to pay around $110-$120 per square meter per month. A booth or a small take-away shop is at least around 5-6 square meters, so it will cost an investor about $700 a month for renting (14M VND).

Table: Leasing price in Ho Chi Minh city (Retail Market)(CBRE Vietnam, October 2011) The second thing to care about when running a business in Sai Gon is pointing out the right customer for your service. The research of Nielsen about the consumer behavior of the young people (2009) has pointed out four groups of young people in Vietnam today. Those are Saigon cool, Traditional, Kid with big head and hard- working bee. Besides that, the take-away caf model is quite new to the market, where people only pay for the price that they had to pay triple at the another caf during the two years ago. But not any one know about this take away caf model and in the

How to do business in Sai Gon A closer look on take-away coffee market

introduction period of this trend, take-away caf firms should focus on two groups of Saigon cool and Kid with big head because of some characteristics of these groups. - Saigon cool: As its name, most of this group are living in Ho Chi Minh city, and place on many different social classes. Their characteristic is the combination of Eastern and also Western style, modern life style, liberal and easy to accept the culture. And the traditional values are also accepted by them easily. But they know which is suitable and unsuitable to them. Their loyalty about a brand is so low because of their opened-mind. They can change their future goal easily. - Kid with big head: This group rarely makes decision for their future. They don t care about anything in the long time, so the loyalty of this group is also low. They focus too much on the physical need and less on the others. They don t have any special favorites or special characteristics. However, they always say that they are good and the most important person in the friends. Their low loyalty means that they are easy to try a new product or new service. Thus, in addition to focusing on these two groups, caf firm should increase the loyalty of these groups by increase the innovation in the value chain of the firm. Thirdly, labor force plays an important role in a service business. However, labor force in Ho Chi Minh city is not a big problem. According to General Statistics Office of Vietnam, in 2010, population in Sai Gon is around 7,4 million. More than 52%, which is around 3,9 million, is in working age (more than 15 years old). Therefore, finding labor source to do simple job in take-awy caf booth or shop is easy. Cost for each person is about 1,8 - 2 million VND for partime and 4 - 4,5 million VND for fulltime.

CONCLUSION

How to do business in Sai Gon A closer look on take-away coffee market

Take-away caf is walking on the new road, exploiting a new segment and introducing a new lifestyle to the Vietnamese people. Although there are many challenges which it has to face with, there also exists a huge opportunity. The first and also the biggest challenge is the barrier in the customer s habit. It may take a time to educate the customers to switch from the traditional coffee style to the new Italian coffee style. Secondly, when this new trend is spreading widely, many competitors can jump into this market. Some of them can be very aggressive with strong financial base and good management resources. However, the challenges come along with golden opportunities especially when investors follow and satisfy every customer s need. That s the key factor for a successful and solid business.

How to do business in Sai Gon A closer look on take-away coffee market

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APPENDIXES Questionaire on customer habit for caf in Sai Gon Which location would you prefer ? ( you can choose one or many answers) 1 2 3 4 5 6 It s near my house It s on the way to school/work The one your friends recommend It s on the frontage road It s near your school/ office The location doesn t matter, as long as i like it Tick

How to do business in Sai Gon A closer look on take-away coffee market

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REFERENCE Harrison, A. (2010), Business Environment in a global context. Oxford University Press. CBRE Vietnam (Oct, 2011), Space Leasing Price in Ho Chi Minh City. International Coffee Organization (November, 2011), Export by exporting coutries to all destinations, from http://www.ico.org/prices/m1.htm. Nielsen (Mar 2009), Boom or Doom in Vietnam in 2009, Nielsen Report. Asian Development Bank (2010), Vietnam economic: from http://www.adb.org/VietNam/main.asp International Coffee Organization (2009): Country datasheet: from http://www.ico.org/profiles_e.asp?section=Statistics Index mundi (2011), Vietnam demographics profile 2011: from http://www.indexmundi.com/vietnam/demographics_profile.html General Statistics Office of Vietnam (2011), Population in each province/city, from http://www.gso.gov.vn/default.aspx?tabid=387&idmid=3&ItemID=11503 General Statistics Office of Vietnam (2011), Labor Force in each province/city, from http://www.gso.gov.vn/default.aspx?tabid=387&idmid=3&ItemID=11469