INDIVIDUAL CASE STUDY President Store Corporate operated around300 Starbucks coffee outlets in Taiwan under a joint venturearrangement in 2013. It also ran over 2,000 of its own City Cafeoutlets across Taiwan. Both enjoyed good market share and thereappeared to be little cannibalization. What could be the reason forthis in the competitive coffee landscape in Taiwan? STARBUCKSStarbucks was founded in the U.S. in 1971 and its main product wasArabica coffee beans. In 1987, Howard Schultz took over Starbucksand introduced the roasting technologies and ambience of theItalian cafe. By May 2014, Starbucks had over 23,180 storesworldwide in 64 countries. Starbucks outlets primarily sell coffee,but also offer other hot and cold beverages, pastries, sandwiches,and snacks. Starbucks introduced low calorie coffee in 2008 andinstant coffee in 2009. In 2010, Starbucks started selling beer andwine in some outlets in the U.S. In 2011, Starbucks introduced theTrenta, a 31-ounce cup of coffee. Starbucks ventured into the juicebar business in 2013. In January 1, 1988, the President StarbucksCoffee Corporation in Taiwan was officially founded as a jointventure between Starbucks Coffee International, Uni-PresidentEnterprise Corporation, and the President Chain Store Corporation.Many people have suggested that Starbucks, as an internationalbrand, has basically transplanted the American coffee culture intoTaiwan. The concept appears to be good quality coffee at highprices to be enjoyed in a leisurely manner with friends. Coffee onoffer includes cafe latte, vanilla latte, hazelnut latte, caramelmacchiato, cafe mocha, and cappuccino with a price range of NT$75(US$2.46) to NT$155 (US$5.08). However, subtle differences can beobserved. The pastry cases look similar but their contents aredifferent and include offerings such as curry chicken cannoli.There are numerous tea options including rose fancy tea, green tea,jinxuan oolong, bi luo chun, and oriental beauty (the latter threeare specialty Taiwanese teas). By 2013, Starbucks had almost 300outlets. Over the past three years, Starbucks in Taiwan has opened20 to 30 new stores each year, and all stores have achieved theirrevenue targets and contributed to 10 percent sales growth over thelast few years. A research study has concluded that Western cultureadoration was an important dimension in coffee consumption forTaiwanese customers at Starbucks. Overall, Starbucks engages inexperiential marketing, with the consumer associating the brandwith specific smells, tastes, visual elements, and sounds. CITYCAFE In 1986, the President Chain Store Corporation launched CafeAmericano through its 7-Eleven chain stores. In 2004, the companybegan to shift from the American style Americano concept to the new24-hour Italian City Cafe concept without closing the Americanooutlets already in the 7-Eleven outlets. By 2005, there were 500CITY CAFE outlets, 1,000 in 2007, and 2,000 in 2009. Televisionadvertising was used to build brand awareness and image. The themeused was, “The entire city is my coffee shop;” targeted at studentsand workers aged between 20 and 40. The concept appears to be alocal coffee brand offering low priced coffee anytime and anywhere.Coffee on offer includes latte, cappuccino, and City blend, withprices from NT$25 (US$0.82) to NT$45 (US$1.48). CITY CAFE started aMusic Conservatory in the Hankyu Department Store outlet in Taipeiwhere aspiring local singers and performers can showcase theirtalents. Performers in March 2014 included Taipei Soul Brothers,featuring five musicians from three different generations, and LinLing, a local Taiwanese girl who has been performing since the ageof five. The success of the CITY CAFE coffee bar concept hasresulted in many convenience chain stores and fast food chainstores near schools, offices, hospitals, subway stations, and trainstations duplicating the idea. Examples of concepts by conveniencestores include Mr. Brown Coffee of Family Mart and OK Cafe of OKMart. McDonalds also launched the McCafe. According to a review,the coffee scene in Taiwan can be categorized accordingly: I.Foreign Cafe Chain This group is currently dominated by Starbucks.They offer mainly espresso coffee at very high prices of NT$90(US$2.95) to NT$180 (US$5.90). 2. Specialist Cafe This group offersexcellent coffee with a large variety of beans. They have variedorigins, create their own blends, and roast their own coffee. Theysell beans and offer a mix of espresso and brewed coffee. Thebaristas are experts and know their coffee in a passionate way.Prices of their coffee range from NT$60 (US$1.97) to NT$150(US$4.92). Examples of such cafes are Orsir and Mojo Coffee inTaichung. 3. Specialist Cafe Chain This group offers excellentcoffee but with a more limited range. They sell beans and offermainly espresso, though they do have limited brewed coffee options.They have trained baristas, and the price range is NT$30 (US$0.98)to NT$70 (US$2.30). Examples of such cafes include Wilbeck inTaipei and Cama Cafe across Taiwan. 4. Taiwanese Cafe This groupserves a variety of coffee from different regions in Taiwan. Thecafes are operated by single owner and they roast in small batches.They are often in business for a long time (over 15 years) and theyhave a small group of loyal customers. They offer mainly brewedcoffee, but they have espresso as well. The price range is fromNT$70 (US$2.30) to NT$120 (US$3.93). 5. Taiwanese Cafe Chain Thisgroup serves a single unannounced blend of coffee with no otheroptions. They serve mainly espresso though some may offer drip orbrewed coffee. Some baristas may receive training but quality isuneven. The prices range from NT$35 (US$1.15) to NT$75 (US$2.46).Examples are 8S°C and Bakery. 6. Convenience Store Coffee Thisgroup offers bean to cup machine coffee. They use cheap Taiwaneseroasts of unannounced origin. Prices range from NT$25 (US$0.82) toNT$60 (US$1.97). Examples of coffee entities in this group are CityCafe by 7-Eleven and Mr. Brown Coffee by Family Mart. Three maingroups have been identified: Coffee Connoisseur It is primarilyinterested in discovering new, high quality brews of coffee. He isvery price insensitive and would frequent specialty cafes withbaristas who are experts and know their coffee in a passionate way.Café Hangout The Café Hangout Coffee drinker values his coffee asan aspirational drink, to be drunk with a group of friends or to beseen consuming the beverage by others. He is relatively priceinsensitive, valuing the brand of the Café over the coffee type.The ambience and mood of the café is important to him. He wouldprefer to have food options available with his coffee as well. Thisgroup is a mix of students, who visit cafes as a place to hangoutor study at, and working professionals, who value the café as aninformal place to relax. Coffee Fix The Coffee Fix Coffee drinkervalues his coffee as his daily sustenance, requiring the energyboost which caffeine from the coffee provides. He may drink up toseveral cups a day and is not overly concerned with the quality ofthe coffee. He is also price sensitive as he is not after a premiumproduct. A survey found that the Taiwanese drink coffee in thefollowing frequencies per day: one cup-46 percent, two cups-13percent, and various frequencies depending on day and occasions-36percent. The most frequently consumed coffee is: latte-48 percent,Americano-19 percent, cappuccino-17 percent, cafe mocha-4 percent,others-12 percent. Their favorite coffee venue is: Starbucks-29.1percent and City Cafe-29.1 percent. Areas in which Starbucks mustimprove: prices-68.1 percent, promotional offers-15.3 percent,charity activities-9.2 percent, quality-6.9 percent, andrefreshments- 6.1 percent. Areas in which City Cafe must improve:quality-29.4percent, refreshments- I4.7percent, promotionaloffers-14.0 percent, store ambience-13.3 percent, and peripheralmerchandize-9.8 percent. Why is the President’s group able todominate the coffee market in Taiwan with the Starbucks and CityCafé concept rather than cannibalise itself with two brands in thesame market?