INDIVIDUAL CASE STUDY

President Store Corporate operated around 300 Starbucks coffeeoutlets in Taiwan under a joint venture arrangement in 2013. Italso ran over 2,000 of its own City Cafe outlets across Taiwan.Both enjoyed good market share and there appeared to be littlecannibalization. What could be the reason for this in thecompetitive coffee landscape in Taiwan?

STARBUCKS

Starbucks was founded in the U.S. in 1971 and its main productwas Arabica coffee beans. In 1987, Howard Schultz took overStarbucks and introduced the roasting technologies and ambience ofthe Italian 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 Starbucks Coffee Corporationin Taiwan was officially founded as a joint venture betweenStarbucks Coffee International, Uni-President EnterpriseCorporation, and the President Chain Store Corporation. Many peoplehave suggested that Starbucks, as an international brand, hasbasically transplanted the American coffee culture into Taiwan. Theconcept appears to be good quality coffee at high prices to beenjoyed in a leisurely manner with friends. Coffee on offerincludes 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 300 outlets. Over the past threeyears, Starbucks in Taiwan has opened 20 to 30 new stores eachyear, and all stores have achieved their revenue targets andcontributed to 10 percent sales growth over the last few years. Aresearch study has concluded that Western culture adoration was animportant dimension in coffee consumption for Taiwanese customersat Starbucks. Overall, Starbucks engages in experiential marketing,with the consumer associating the brand with specific smells,tastes, visual elements, and sounds.

CITY CAFE

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 a Music Conservatory in the Hankyu DepartmentStore outlet in Taipei where aspiring local singers and performerscan showcase their talents. Performers in March 2014 includedTaipei Soul Brothers, featuring five musicians from three differentgenerations, and Lin Ling, a local Taiwanese girl who has beenperforming since the age of five.

The success of the CITY CAFE coffee bar concept has resulted inmany convenience chain stores and fast food chain stores nearschools, offices, hospitals, subway stations, and train stationsduplicating the idea. Examples of concepts by convenience storesinclude Mr. Brown Coffee of Family Mart and OK Cafe of OK Mart.McDonalds also launched the McCafe.

According to a review, the coffee scene in Taiwan can becategorized accordingly:

I.     Foreign Cafe Chain

This group is currently dominated by Starbucks. They offermainly espresso coffee at very high prices of NT$90 (US$2.95) toNT$180 (US$5.90).

2.    Specialist Cafe

This group offers excellent coffee with a large variety ofbeans. They have varied origins, create their own blends, and roasttheir own coffee. They sell beans and offer a mix of espresso andbrewed coffee. The baristas are experts and know their coffee in apassionate 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 MojoCoffee in Taichung.

3.    Specialist Cafe Chain

This group offers excellent coffee but with a more limitedrange. They sell beans and offer mainly espresso, though they dohave limited brewed coffee options. They have trained baristas, andthe price range is NT$30 (US$0.98) to NT$70 (US$2.30). Examples ofsuch cafes include Wilbeck in Taipei and Cama Cafe acrossTaiwan.

4.    Taiwanese Cafe

This group serves a variety of coffee from different regions inTaiwan. The cafes are operated by single owner and they roast insmall batches. They are often in business for a long time (over 15years) and they have a small group of loyal customers. They offermainly brewed coffee, but they have espresso as well. The pricerange is from NT$70 (US$2.30) to NT$120 (US$3.93).

5.    Taiwanese Cafe Chain

This group serves a single unannounced blend of coffee with noother options. They serve mainly espresso though some may offerdrip or brewed coffee. Some baristas may receive training butquality is uneven. 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

This group offers bean to cup machine coffee. They use cheapTaiwanese roasts of unannounced origin. Prices range from NT$25(US$0.82) to NT$60 (US$1.97). Examples of coffee entities in thisgroup are City Cafe by 7-Eleven and Mr. Brown Coffee by FamilyMart.

Three main groups have been identified:

Coffee Connoisseur

It is primarily interested in discovering new, high qualitybrews of coffee. He is very price insensitive and would frequentspecialty cafes with baristas who are experts and know their coffeein a passionate way.

Café Hangout

The Café Hangout Coffee drinker values his coffee as anaspirational 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 drinker values his coffee as his dailysustenance, requiring the energy boost which caffeine from thecoffee provides. He may drink up to several cups a day and is notoverly concerned with the quality of the coffee. He is also pricesensitive as he is not after a premium product.

A survey found that the Taiwanese drink coffee in the followingfrequencies per day: one cup-46 percent, two cups-13 percent, andvarious frequencies depending on day and occasions-36 percent. Themost frequently consumed coffee is: latte-48 percent, Americano-19percent, cappuccino-17 percent, cafe mocha-4 percent, others-12percent. Their favorite coffee venue is: Starbucks-29.1 percent andCity Cafe-29.1 percent. Areas in which Starbucks must improve:prices-68.1 percent, promotional offers-15.3 percent, charityactivities-9.2 percent, quality-6.9 percent, and refreshments- 6.1percent. 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.

Question 1

What variables should be used to segment the coffee market inTaiwan? (10%)

Question 2

What group is Starbucks targeting in Taiwan and how do Starbucksofferings fit their requirement? How do Starbucks and City Caféposition themselves in the market and what do they communicate totheir target customers? (25%)

Question 3

Why is the President’s group able to dominate the coffee marketin Taiwan with the Starbucks and City Café concept rather thancannibalise itself with two brands in the same market? (15%)