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

1.. The segment variable can be used to piece the coffee exhibit in Taiwan. The compensation got by each buyer changes, with some having a more noteworthy portion of the fiscal pie. By dividing the coffee publicize as showed by the salary level of the clients, the coffee chains can all the more probable worth their things through headways to make clear thoughts as observed by the buyers, remaining with the pay of the tolerably consistent. For example, to oblige coffee darlings in the lower monetary social event, the bistro chains can truly finish headways, for instance, "accumulate 5-stamps to recuperate 1 free refreshment" to appeal the lower pay people to buy their coffee as clients would now envision that it is an uncommon game plan by and by to get 6 drinks with the expense of 5. Concerning those in the higher money related assembling, bistro chains can truly create some faithfulness program on the recently referenced progression to hold their customer base of those with higher purchasing influence, making them become standard customers over the long haul since the lower-compensation pack buyer base can be all the more sincerely to hold.

2.. Starbucks in Taiwan focuses on the individuals who lean towards having their light dinners to go with present day coffee instead of standard coffee, similarly as Taiwan's specialty teas in a cheerful manner. Starbucks conveys incredible quality coffee utilizing generally excellent quality Arabica coffee beans. Regardless, there is no compensation pack that Starbucks truly center through its wide extent of expenses for its things (from NT$75 to NT$155). As can be seen from Appendix B, Starbucks is truly stretching out its target social occasion to the people who are getting logically prosperity insightful through its new commitments of low-calorie coffee in 2008 and normal item presses in 2013. Starbucks offers wide collections of coffees sustenance to consider the necessities of their proposed intrigue gathering. It moreover associated with incalculable clients, for instance, the people who love hazelnut, caramel, mocha yet may not be coffee darlings at the start. The availability of prepared products and sandwiches grant their target social affair to take advantage of their refreshments when they are enthusiastic too. The prepared products offered are not all westernized heated merchandise, for instance, cakes, waffles, scones. The curry chicken cannoli offered shows that Starbucks target bundle isn't only extensive of the people who are more westernized, they furthermore center around the people who regardless of everything love Chinese sustenance, or even the people who love the two sorts of sustenance on the off chance that they mentioned a latte with curry chicken cannoli.

3.. Starbucks and city bistro didn't tear separated against each other as a result of different reasons. Directly off the bat, notwithstanding, they were in a comparable market, their target gathering didn't cover one another. Additionally, the thought the two organizations used to work their business differs.Firstly, due to the way that Starbucks and city bistro targets unmistakable get-together of people, the arrangements that every association get truly starts from different groupings of people with different necessities. In that limit target horde of Starbucks would not make a purchase with city bistro considering the way that the last can't satisfy the prerequisites of them. The converse in like manner applies. Starbucks revolve more around the idea of coffee, considering the people who are explicit about it and wouldn't worry paying even more just for the satisfaction they give indications of progress quality coffee. Displaying exercises taken to progress and emphasize this property had therefore made consistent salary for Starbucks. City bistro, of course, base more on ensuring that its coffee is continually open to its social occasion of target swarm, who are typically less requesting about the idea of their customers. The need normal for these customers that consume city bistro is commonly low, moderate worth, which Starbucks in unable to fulfill this need. Taking everything into account, city bistro's expected intrigue gathering would not go to Starbucks to address their issues. Clearly, due to the non-covering needs and demands of the different target social occasions, these two bistro chains didn't destroy against each other, as the two of them give different characteristics and moved toward it in fulfilling the necessities and requirements of their own customer base, in this manner successfully holding them to become standard customers. In that limit, even with the simultaneousness of these two bistro, the arrangements of each brand of the coffee isn't undermined. Furthermore, the thought these two bistro used to work their business change immensely. The possibility of city bistro, on the other hand, means to offer solace to its expected intrigue bunch through steady openness of its coffee at each edge of the country, at moderate expenses. That being expressed, paying little heed to what time, what place, what occasion the purchaser needs to drink city bistro's coffee, it is continually open. As can be seen, the fixation and position of each bistro are extremely one of a kind, accordingly engaging them to offer specific sorts of help that their expected intrigue bunch is truly paying extraordinary psyche to. Starbucks' specific qualities are not given by city bistro and the other way around, in that limit cannibalization of arrangements would not occur.

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