Coffee franchises steam ahead

A cup of Vietnamese drip coffee. Photo by Shutterstock/Tongchana Hongcharoen.

The coffee franchise market’s booming, but investing in a shop franchise is fraught with risk, given high initial costs.

A franchise consultant of a major chain who did not want to be named said store location accounts for up to 50 percent of an business’s ability to recoup investment.

A good location needs to have wide frontage and large space to attract many people, he said. However, with the rapid expansion of small and medium businesses, such locations were becoming less available in big cities such as Hanoi and Ho Chi Minh City, he added.

This is why large brands such as Highlands Coffee require an initial investment of VND3-5 billion ($129,000-215,400) to get good locations.

Although most brands say that it takes about two years for a franchisee to recoup their investment, there are many roadblocks on the long journey.

One of them is the large initial investment. A Cong Ca Phe outlet requires an investment of VND2.5-3.8 billion ($107,000-163,600), while that of Aha is VND1.6-2.2 billion ($68,900-94,800).

Hoang Tien, founder of Coffee Bike chain, said that an owner needs to know about costs apart from the initial franchise fee, as they will determine the success of the store.

If business goes well, some landlords demand higher rents and even take back the place to run the business on their own.

Hoang Anh, an Aha franchisee owner on Hanoi’s Dong Tac Street, said that many franchisees he knows only make enough to pay the rent.

Another challenge is that the number of customers can dwindle after the first few days when many people try out a new place. Making regular customers out of those who come in the beginning is not easy.

The top five coffee chains in Vietnam all posted double-digit growth in revenues last year, according to research firm Vietnam Industry Research and Consultancy JSC (VIRAC).

The Cao Nguyen Coffee Service JSC, which owns Highlands Coffee, recorded revenues of VND1.6 trillion ($68.67 million) in 2018, an increase of 32 percent from 2017.

Revenue of The Coffee House chain grew 93 percent to VND669 billion ($28.7 million) last year, while that of Starbucks increased by 32 percent to VND600 billion ($25.7 million).

With the rapid growth of coffee chains, coffee consumption by Vietnamese has also risen sharply in recent years.

According to a study by BMI Research, a subsidiary of ratings firm Fitch, consumption grew from 0.43 kg per person in 2005 to 1.38 kg in 2015. This is the highest growth rate of any global coffee exporter, and the figure is forecast to reach 2.6 kg by 2021.

By Quynh Trang / VnExpress