Question

INDIVIDUAL CASE STUDY President Store Corporate operated around 300 Starbucks coffee outlets in Taiwan under a joint venture arrangement in 2013. It also ran over 2,000 of its own City Cafe outlets across Taiwan. Both enjoyed good market share and there appeared to be little cannibalization. What could be the reason for this in the competitive coffee landscape in Taiwan? STARBUCKS Starbucks was founded in the U.S. in 1971 and its main product was Arabica coffee beans. In 1987, Howard Schultz took over Starbucks and introduced the roasting technologies and ambience of the Italian cafe. By May 2014, Starbucks had over 23,180 stores worldwide 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 and instant coffee in 2009. In 2010, Starbucks started selling beer and wine in some outlets in the U.S. In 2011, Starbucks introduced the Trenta, a 31-ounce cup of coffee. Starbucks ventured into the juice bar business in 2013. In January 1, 1988, the President Starbucks Coffee Corporation in Taiwan was officially founded as a joint venture between Starbucks Coffee International, Uni-President Enterprise Corporation, and the President Chain Store Corporation. Many people have suggested that Starbucks, as an international brand, has basically transplanted the American coffee culture into Taiwan. The concept appears to be good quality coffee at high prices to be enjoyed in a leisurely manner with friends. Coffee on offer includes cafe latte, vanilla latte, hazelnut latte, caramel macchiato, cafe mocha, and cappuccino with a price range of NT$75 (US$2.46) to NT$155 (US$5.08). However, subtle differences can be observed. The pastry cases look similar but their contents are different 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 three are specialty Taiwanese teas). By 2013, Starbucks had almost 300 outlets. Over the past three years, Starbucks in Taiwan has opened 20 to 30 new stores each year, and all stores have achieved their revenue targets and contributed to 10 percent sales growth over the last few years. A research study has concluded that Western culture adoration was an important dimension in coffee consumption for Taiwanese customers at 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 Cafe Americano through its 7-Eleven chain stores. In 2004, the company began to shift from the American style Americano concept to the new 24-hour Italian City Cafe concept without closing the Americano outlets already in the 7-Eleven outlets. By 2005, there were 500 CITY CAFE outlets, 1,000 in 2007, and 2,000 in 2009. Television advertising was used to build brand awareness and image. The theme used was, “The entire city is my coffee shop;” targeted at students and workers aged between 20 and 40. The concept appears to be a local coffee brand offering low priced coffee anytime and anywhere. Coffee on offer includes latte, cappuccino, and City blend, with prices from NT$25 (US$0.82) to NT$45 (US$1.48). CITY CAFE started a Music Conservatory in the Hankyu Department Store outlet in Taipei where aspiring local singers and performers can showcase their talents. Performers in March 2014 included Taipei Soul Brothers, featuring five musicians from three different generations, and Lin Ling, a local Taiwanese girl who has been performing since the age of five. The success of the CITY CAFE coffee bar concept has resulted in many convenience chain stores and fast food chain stores near schools, offices, hospitals, subway stations, and train stations duplicating the idea. Examples of concepts by convenience stores include 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 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 offers excellent coffee with a large variety of beans. They have varied origins, create their own blends, and roast their own coffee. They sell beans and offer a mix of espresso and brewed coffee. The baristas 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 in Taichung. 3. Specialist Cafe Chain This group offers excellent coffee but with a more limited range. They sell beans and offer mainly 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 in Taipei and Cama Cafe across Taiwan. 4. Taiwanese Cafe This group serves a variety of coffee from different regions in Taiwan. The cafes are operated by single owner and they roast in small batches. They are often in business for a long time (over 15 years) and they have a small group of loyal customers. They offer mainly brewed coffee, but they have espresso as well. The price range 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 no other options. They serve mainly espresso though some may offer drip or brewed coffee. Some baristas may receive training but quality 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 cheap Taiwanese roasts of unannounced origin. Prices range from NT$25 (US$0.82) to NT$60 (US$1.97). Examples of coffee entities in this group are City Cafe by 7-Eleven and Mr. Brown Coffee by Family Mart. Three main groups have been identified: Coffee Connoisseur It is primarily interested in discovering new, high quality brews of coffee. He is very price insensitive and would frequent specialty cafes with baristas who are experts and know their coffee in a passionate way. Café Hangout The Café Hangout Coffee drinker values his coffee as an aspirational drink, to be drunk with a group of friends or to be seen consuming the beverage by others. He is relatively price insensitive, valuing the brand of the Café over the coffee type. The ambience and mood of the café is important to him. He would prefer to have food options available with his coffee as well. This group is a mix of students, who visit cafes as a place to hangout or study at, and working professionals, who value the café as an informal place to relax. Coffee Fix The Coffee Fix Coffee drinker values his coffee as his daily sustenance, requiring the energy boost which caffeine from the coffee provides. He may drink up to several cups a day and is not overly concerned with the quality of the coffee. He is also price sensitive as he is not after a premium product. A survey found that the Taiwanese drink coffee in the following frequencies per day: one cup-46 percent, two cups-13 percent, and various frequencies depending on day and occasions-36 percent. 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-29.1 percent and City Cafe-29.1 percent. Areas in which Starbucks must improve: prices-68.1 percent, promotional offers-15.3 percent, charity activities-9.2 percent, quality-6.9 percent, and refreshments- 6.1 percent. Areas in which City Cafe must improve: quality-29.4percent, refreshments- I4.7percent, promotional offers-14.0 percent, store ambience-13.3 percent, and peripheral merchandize-9.8 percent. Why is the President’s group able to dominate the coffee market in Taiwan with the Starbucks and City Café concept rather than cannibalise itself with two brands in the same market?

Answer 1

Answer: Here the main motive behind this is both of them are targetting different peoples in different segments, hence it is not possible for them to cannibalize each other. The city cafe franchise-owned by the president group keeps it's pricing strategy at very low for reaching low-end customers, Further, it also opened mass outlets for ease of access to them.

On the other side, Starbucks has established itself as a premium coffee franchise. The prices it offers are comparatively higher for normal people and are on the higher side compared with other players in the market, Hence its majority of its customers are affluent people. Before the purchase of Starbucks by President group It was a key player on the market for low-end customers. After including Starbucks a premium franchise in its president group elevated its position in the market, it can be able to fulfill the needs of high-end customers by offering premium coffee and imported beans. As a combination of both resulting in fulfilling the needs for a variety of consumers in different income segments, hence it is profitable for them to operate jointly rather than cannibalizing with other brands in the market.