Coffee chains crushed in retail premise war

A coffee & sweet cake chain with a French name located at a big shopping mall in Hanoi left the market after one year of operation.

It had attracted many Hanoi’s young people when it debuted. However, the number of visitors decreased gradually. The shop’s revenue was not high enough to cover the operation cost.

The manager of the café revealed that to have retail premises with an area of 100 square meters, large enough to serve 50 clients at the same time in the central business district, the rent is at least VND1 billion. It takes at least VND100 million a month in operation cost and at least 2-3 years to make a profit. Meanwhile, the retail premise rent has been increasing rapidly.

An analyst commented that the competition among coffee chains does not lie in the drink quality, but in retail premises. The rents in Hanoi and HCM City’s central business districts are believed to be among the highest in the world. Meanwhile, the coffee chains targeting high income earners cannot be situated in the suburbs because of the low purchasing power there.

A branding expert said he knows a coffee chain which has had to resign itself to the high rent of VND320 million a month.

He said that the high rent was the major reason which forced NYDC in HCM City to leave the market. Trung Nguyen, a big coffee maker, also runs coffee chains, but cafes do not bring attractive profits to the company.

A report of Cushman & Wakefield showed that the average retail premise rent in the central area in HCM City is much higher than in other large cities in the world, about VND34 million per square meter.

The rent for the retail premises in district 1 in the central area of HCM City is just lower than that in Shanghai, Taipei, Singapore, Tokyo and Seoul, while it is a bit higher than in Dubai, 50 percent higher than Doha and far higher than Bangkok and Kuala Lumpur.

Since coffee chains all want retail premises in the central business districts, this leads to a short supply and pushes the rents up.

In Hanoi, in order to obtain retail premises in areas near Hoan Kiem Lake, renters must pay VND2.5 billion a year.

The marketing director of a coffee chain complained that he recently found a retail premise in the ancient quarter in Hanoi with sky-high rent of VND300 million a month. However, since he was late to sign the contract, the retail premise fell into the hands of another investor who agreed to pay a higher rent.