Why Starbucks Did Not Do Well in Vietnam?

This blog serves as a comprehensive exploration of the challenges faced by international brands attempting to establish themselves in foreign markets, particularly Vietnam. Through personal anecdotes and key insights, it highlights the critical importance of understanding local consumer preferences, cultural nuances, and market dynamics.
Cayden Chang

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5 Key Lessons To Learn

🌱 1) Arabica vs Robusta - Most international chains of café serve Arabica Beans which are milder than Robusta beans used in Vietnam, but Vietnamese prefer a strong taste. That's why the older generation of people here still prefers Kopi to the coffee in coffee chains.

🌱 2) Fierce competition between local cafes vs international chains - If you have been to Vietnam, there are tons of local shops selling Vietnamese coffee. The price is cheap and the taste suits the locals more. So sometimes it's not a competition between international chains but a competition between different options.

A few years ago, I found an undervalued company called Fonar Corporation (Ticker: FONR). Even though its key product was the only Upright MRI Machines in the world, but the company just could not sell this machine to make money. If it's the only Upright MRI Machine in the world, why don't their machines sell? It's because it's not only competing with other types of MRI machines, but it also needs to compete with X-rays, CT Scans, etc.

Eventually, the company only managed to sell just less than 5 machines in the entire year.

🌱 3) Understanding the Affluence Level - Same mistake I made. Middle class and Upper Class still form a small percentage of the population. Thus we can't expect the lower-income group to buy a cup of expensive Starbucks.

🌱 4) Perception - Robusta Beans take up about 97% of the total production in Vietnam and the remaining 3% to Arabica. Unfortunately, International Chains do not like Robusta Beans because it gives a perception of low quality and it may contradict the premium brand of Starbucks.

🌱 5) Investor Vs Entrepreneurs - there are some similarities and also differences between the 2 categories. One of the key differences between the 2 is entrepreneurs get their hands dirty. They are on the ground fighting the battle and know their business inside out. No matter how well one can interpret the financial statements or calculate the intrinsic value, one might not know the business as well as the founders/entrepreneurs themselves. 

In a nutshell, venturing into new territories requires a thorough understanding of the local audience. I have learned the hard way when I ventured into many cities such as Phnom Penh in Cambodia, Yangon in Myanmar, Ho Chi Minh in Vietnam, etc. 

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