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.

Question 1

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

Question 2

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

Question 3

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? (15%)

Answer 1

Answer:-

1) The segment variable can be used to part the coffee feature in Taiwan. The compensation got by each buyer changes, with some having a more noteworthy portion of the money related pie. By fragmenting the coffee publicize as indicated by the income level of the customers, the coffee chains can all the more probable worth their things through progressions to make evident thoughts as observed by the buyers, staying with the income of the reasonably consistent.

For instance, to oblige coffee sweethearts in the lower financial gathering, the bistro chains can truly finish progressions, for instance, "gather 5-stamps to recuperate 1 free drink" to charm the lower pay individuals to buy their coffee as customers would now imagine that it is an extraordinary plan directly to get 6 refreshments with the expense of 5.

Concerning those in the higher financial gathering, bistro chains can truly create some endurance program on the recently referenced headway to hold their customer base of those with higher buying power, causing them to become standard customers in the since a long time ago run since the lower-pay bundle buyer base can be all the more genuinely to hold.

2) The objective market in Starbucks is continued to grow, with low-calorie coffee and organic product juices focused at the individuals who are aware of the wellbeing. The business bunch additionally parts the objective market in Taiwan, as the rates conversely with City Café are extensively higher. We likewise focus on individuals who like a little coffee or tea in combination with cost.

That is the reason Starbucks import Arabica coffee beans and convey a wide assortment of menus from West Tea to conventional Taiwanese Teas like Jinxuan Oolong, Bi Luo Chun and Oriental Beauté. Furthermore, they import Arabica coffee beans.

The scope of determination permits the buyers who appreciate coffee and tea to have choices when ordering and furthermore causes connect with a bigger crowd who may not be coffee darlings yet appreciates hazelnut, caramel and so on. All of who seems, by all accounts, to be "top of the line" customers. Nonetheless, City Café is targeting the lower end customers as their value go is from $0.82 - $1.48, which is similarly low to Starbucks.

Explicitly targeting understudies and laborers with the age of 20 – 40 years of age. This objective gathering is consistently progressing so they concocted the theme of "the whole city is my coffee shop" conveying that their outlets can be found in numerous area around the city which enables the objective gathering to snatch some coffee whenever it might suit them.

3) Reason is that, since they target totally different customers and markets, they don't tear apart each other on a similar part. The President's Group claims City Café from the beginning and focuses on low pricing of merchandise and mass outlets for lower end-customers.

On the inverse, Starbucks was later bought as an establishment by the President's Group as an extravagance coffee retailer to provide food by costly merchandise and imported beans to the better quality customers. Generally, both offer to an assortment of income segments that permit the two brands to prevail without overwhelming one another.

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