Coffee chains still tussle for attention

Starbucks Reserve Han Thuyen, one of the most strategically located stores in the heart of District 1 of Ho Chi Minh City, unexpectedly announced its closure on August 26 after seven years of operation.

Coffee chains still tussle for attention

The departure concludes the presence of the store model in Ho Chi Minh City. Following its closure, the American coffee and beverage chain will only retain one Reserve store in Hanoi.

According to brand expert Vo Van Quang, the Starbucks Reserve brand had endured losses each year to cover rental costs at Han Thuyen, estimated at VND750 million ($31,000) per month.

“Starbucks Reserve offered some unique coffee blends, but the store’s decor and visual effects were not particularly distinctive and still followed the counter-ordering and payment style. This was an unsuccessful experimental version of Starbucks in the premium coffee segment, with average drink prices starting from VND100,000 ($4),” Quang explained.

Starbucks has been present in Vietnam for 11 years and currently operates just over 100 stores as of mid-year. However, several of the company’s regular stores have closed down in recent years, both in Hanoi and Ho Chi Minh City.

The Coffee House, another well-known beverage brand in the mid-range segment, has also been forced to scale back operations due to declining business performance.

At the end of July, outlets in the Mekong Delta city of Can Tho announced their closure. In August, the chain’s remaining three outlets in Danang were also planning to close down.

As of August 26, The Coffee House had 115 shops nationwide, down 24 per cent from the 150 it had at the end of 2023. According to a representative, the scaling down of operations was meant to minimise costs and improve business operations to adapt to changing conditions.

“In the current context, optimising costs to improve operational efficiency has become a priority for us. This decision aims to adapt to market changes and ensure overall business efficiency across the system,” said the representative.

Expert Vo Van Quang noted that closing expensive locations in central areas to move to new, modern urban areas and increase access to younger customer segments is becoming a trend in the food and beverages sector. “Central locations will be given to high-end brands with a legacy, cultural, artistic, and aesthetic value,” he added.

Several observers also have noted that high space rentals in big cities are the main reason. Bui Son, director of an office coffee shop in Ho Chi Minh City’s Tan Binh district said, “The cost for space should account for only 30 per cent, but the rentals of premises in the two big cities are very high, even making up to half of the total cost.”

The closure of some coffee chains is a part of the bleak picture of the food and beverages (F&B) industry. At least 30,000 F&B stores nationwide closed in the first half of this year, while new openings remained limited, according to a report published in mid-August by the iPOS.vn platform. The report surveyed nearly 1,000 F&B business owners, more than 2,360 diners, and 1,300 employees in Vietnam.

It revealed that Ho Chi Minh City experienced the most significant closures, with a 6 per cent decrease in the number of F&B stores.

The report also shows that spending on cafés decreased sharply in the reviewed period. The proportion of people who spent over $4 per cup of coffee dropped from 6 per cent to 1.7 per cent. The mid-range price of $1.70 to $2.90 per cup became more popular with local customers.

iPos.vn’s Vietnam F&B Market Report 2023, published in March, shows that Vietnamese people are still willing to spend significantly on coffee-related activities. Nearly 60 per cent of respondents, up 2 per cent compared to the previous survey, said they were willing to spend $1.70 or more for a coffee break in 2023.

Around 42 per cent of survey participants reported regularly visiting coffee shops 1-2 times per month. Especially, the number of people going to cafés outside with a frequency of about 1-2 times per week also increased compared to 2022, accounting for 30.4 per cent of the total survey participants. Within the survey group, up to 6.1 per cent of participants admitted to visiting coffee shops every day.

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