Challenges Faced by Foreign Coffee Companies in Vietnam

This article discusses the challenges faced by foreign coffee companies in Vietnam, with a focus on the failure of Gloria Jean's Coffee. The analysis highlights the reasons behind the failure, including tough competition from domestic brands, unsuitability of business models, and high rents. The article also provides recommendations to improve business performance, such as modifying the business model, setting up stores in normal locations, and modifying products according to local tastes. The article concludes that designing products based on native consumer habits is the key to success in the Vietnamese coffee market.

RMIT International University Vietnam
BUSM 3311 – International Business
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Subject Code: BUSM3311
Subject Name: International Business
Location & Campus RMIT Vietnam , HCMC / Hanoi
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Title
Challenges faced by Foreign Coffee companies in Vietnam
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Contents
Introduction.................................................................................................................................... 4
Analysis.......................................................................................................................................... 4
Recommendations.......................................................................................................................... 6
Conclusion...................................................................................................................................... 6
Reference List................................................................................................................................ 8
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Introduction
Gloria Jean’s Coffee is a franchised speciality coffeehouse company based in Castle Hill, Australia and has
opened more than 1000 coffee houses across 39 global markets which include over 460 in Australia itself. The
company is named after Gloria Jeans. The company was purchased by the Retail Food Group for $163.5 million
in 2014. The company serves and sells a range of products such as hot and cold beverages along with various
other coffee accessories. The company focuses on offering the world’s highest quality speciality coffee
experience to their customers.
Analysis
Gloria Jean’s Coffee opened in Vietnam in 2006 when a local Vietnamese company entered in to franchise
contract expecting that it would perform well in Vietnam same as Thailand and Malaysia. The company
expected successes in Vietnam market by taking into consideration that it served Arabica coffee, which was
considered as relative novelty in regions dominated by Robusta beans.
According to Business Wire (2017) Vietnam acquires second place after Brazil, in terms of coffee production in
the world and it has also one of the fastest growing coffee retail markets. But Gloria Jean’s was successful in
only establishing six outlets in Ho Chi Minh City of Vietnam and one outlet in Ha Noi City during its first six
years of operation. Nguyen Phi Van, the first franchise of Gloria Jean’s, perceived that the demise of the
company in Vietnam was a result of adopting a model for their businesses which was developed for local and
regional market of Australia. As stated by PR Newswire (2017) in the later period, when Gloria Jean’s allowed
its Vietnam franchises the power to modify its products for adapting to tastes of local people, the performance
still remained very tough for variety of reasons which includes tough rivalry from various foreign and domestic
brands such as Starbucks, The Coffee House, Phuc Long, Urban Station and Trung Nguyen. Gloria Jean’s
Coffee is not only coffee franchise which has failed in Vietnam market as there are several other international
companies which has failed too in country such as New York Dessert Café.
The insiders of coffee industry have stated that in food and drink sector, particularly in coffee, it is very difficult
for foreign companies such as Gloria Jean’s Coffee, to be successful in Vietnam, even if they possesses various
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famous brands. The main reasons which resulted in closure of stores of Gloria Jean’s in Vietnam were slow rate
of expansion, unsuitability of business model and high rents associated with stores in prime locations.
According to Sarirahayu and Aprianingsih, (2018) various foreign coffeehouse chain such as Gloria Jean’s
Coffee cater to their usual customers in the countries to which they belong but only affluent ones in Vietnam
and therefore they mostly chose elite and busy locations in major cities of country for sake of their stores which
led to increase in rents and overheads and therefore prices of their products were two to three times greater than
local chain. According to Knowles (2015) attractiveness of coffee products which are non-native in nature also
gets impacted by their localization, as various beverages are produced based on foreign formulas by using
domestic materials which means that they are perceived as non-authentic and therefore they fail to attract
foreign customers in Vietnam and local natives dislike coffee which are produced using local formulas.
Therefore they have tendency towards visiting cafes which are domestic in nature. The increasing fierce rivalry
from domestic coffee chains such as Coffee House, Urban Station, Highlands Coffee, Phuc Long etc. is another
factor which had resulted in failure of Gloria Jean’s Coffee. The domestic companies also make significant
investment in designing and decoration of their cafes which has resulted in attracting more customers towards
them and as a result foreign companies such as Gloria Jean’s Coffee have failed in Vietnam market.
As stated by Asia News Monitor (2016) another reason which had contributed to the downfall of Gloria Jean’s
in Vietnam is absence of local comfort foods in menus of cafes while domestic companies have included
various comfort food in their café menus such as vermicelli soup, rice, bread and rice noodle soup which have
helped in attraction of large number of customers.
As per Asia News Monitor (2015) one of the main reasons which contributed to failure of Gloria Jean’s Coffee
in Vietnam is that they only focused on expanding network and not paid attention towards taste demand of local
natives. Gloria Jean’s also failed to understand customer habits, in Vietnam which resulted in failure.
The business model which is followed by Gloria Jean’s Coffee is franchising model, where they partnered with
other businesses to sell their products under their brand name. The franchising model which was being followed
by Gloria Jean’s Coffee was Master Franchise program, which was combination of single and multi-store
operator and in case of international markets does not sell single unit franchises. As opined by Higdon (2016)
adoption of master franchising program business model had also contributed to failure of Gloria Jean’s in
Vietnam market as it increased agency cost and decreased control of franchisors over franchisees which created
problems regarding operations.
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Recommendations
The first and foremost recommendation to Gloria Jean’s Coffee to improve performance is modifying business
model to that being followed in Vietnam. As opined by Baldi. (2016) Gloria Jean’s should follow franchise
business model instead of master franchise business model as it will enable to control operations in smooth and
effective manner. The franchise model can also be considered as appropriate business model than master
franchise business model as it will involve lesser legal problems and help in preventing overly long contracts
which will help Gloria Jean’s to focus mostly on identifying requirements of customers so as to improve their
business performance. As stated by Bravo-Monroy, Potts and Tzanopoulos (2016) another recommendation to
Gloria Jean’s Coffee, to improve their performance is to set up stores at various normal locations rather than
prime locations such as shopping malls which increases expenses in the form of increased rents and overheads
and therefore by setting up stores in suburb location, Gloria Jean’s can reduce their expenses and increase
profitability. The other recommendation is to modify products according to taste requirements and nutritional
requirements of customers which will help in attracting more customers towards Gloria Jean’s. As stated by M2
Presswire (2018) Gloria Jean’s must also focus on introducing various popular comfort foods in menus of cafes
to seek attention of native customers. The final recommendation to Gloria Jean’s Coffee, regarding improving
their performance is to focus on providing an unmatched experience and atmosphere to customers in café stores
in order to attract customers through not only products but also on virtue of atmosphere and experiences
associated with visiting stores of Gloria Jean’s.
Conclusion
From the analysis of case study regarding Gloria Jean’s Coffee, it can be stated that it will be very hard and
challenging for them to improve business performance, owing to threats offered by domestic competitors rather
than international competitors but still Vietnam can be considered as suitable country to invest in coffee
industry owing to coffee habits of natives and due to presence of prospective market segment. Further from
analysis regarding Gloria Jean’s Coffee, it can be stated that change in business model alone cannot guarantee
the success in Vietnam market as main factor which determines success of a company in Vietnam market, is
designing of products based on native consumer habitats.
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Reference List
Asia News Monitor (2015). Vietnam: Vietnam's coffee industry loses global market share. Asia News
Monitor [Online] Available at https://search.proquest.com/docview/1744812525?accountid=30552 Accessed as
on 22/11/2018
Asia News Monitor (2016). Vietnam: A sad year for Vietnam’s coffee industry. Asia News
Monitor[Online] Available at https://search.proquest.com/docview/1768626920?accountid=30552 Accessed as
on 22/11/2018
Baldi, F. (2016). Multi-unit franchising strategies: A real options logic. Economia e Politica
Industriale, [Online] 43(2), 175-217. Available at doi:http://dx.doi.org/10.1007/s40812-016-0031-z Accessed
as on 22/11/2018
Bravo-Monroy, L., Potts, S. G., and Tzanopoulos, J. (2016). Drivers influencing farmer decisions for adopting
organic or conventional coffee management practices. Food Policy, [Online] 58, 49. Available at
doi:http://dx.doi.org/10.1016/j.foodpol.2015.11.003 Accessed as on 22/11/2018
Business Wire (2017). Research report on coffee industry in Vietnam, 2017-2021: Robusta and arabica are the
main trees planted in Vietnam - research and markets. Business Wire[Online] Available at
https://search.proquest.com/docview/1895280287?accountid=30552 Accessed as on 22/11/2018
Higdon, B. (2016). Strategies independent coffee shop owners require to survive beyond five years. Business
Premium Collection. [Online] Available at https://search.proquest.com/docview/1756780263?
accountid=30552 Accessed as on 22/11/2018
Knowles, E. C. (2015). Marketing strategies to increase profits from retailing fair trade coffee. Business
Premium Collection. [Online] Available at https://search.proquest.com/docview/1751292520?accountid=30552
Accessed as on 22/11/2018
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PR Newswire (2017). Vietnam coffee industry research report 2017-2021 - research and markets. PR
Newswire [Online] Available at https://search.proquest.com/docview/1896995672?accountid=30552 Accessed
as on 22/11/2018
Presswire (2018).Vietnam coffee market - comprehensive study on size, status & key players Unilever Tchibo
coffee ,Starbucks,power root with future scope by 2025. M2 Presswire [Online] Available at
https://search.proquest.com/docview/2093291198?accountid=30552 Accessed as on 22/11/2018
Sarirahayu, K., and Aprianingsih, A. (2018). Strategy to improving smallholder coffee farmers
productivity. The Asian Journal of Technology Management, [Online] 11(1), 1-9. Available at
doi:http://dx.doi.org/10.12695/ajtm.2018.11.1.1 Accessed as on 22/11/2018
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