High rent for retail premises cuts into profits for coffee chains

Analysts question whether high-end coffee chains can make profits when paying high rent for retail premises.


                                                     Coffee King Dang Le Nguyen Vu

Sources said that Starbucks has to pay VND320 million a month in rent for retail premises for its first shop near the New World Hotel.

Meanwhile, the rent of the first Caffe Bene shop, located on Dong Khoi street, is approximately VND400 million a month.

Highlands Coffee reportedly pays VND100-200 million a month on Trang Tien street in the central area of Hanoi. Trung Nguyen, also positioning itself as a luxury brand, sets up its shops in central business districts which have high rents and investment of $300,000-500,000.

When bringing Gloria Jeans Coffee brand to Vietnam under a franchise contract, Nguyen Phi Van, managing director of the chain, estimated that, one shop could receive 200-300 customers daily, while some shops may receive 600-800 customers.

As such, with the initial investment rate of $250,000 for every shop, the breakeven time would come after two years.

However, the time for breaking even and making profit remains unknown for Gloria Jeans Vietnam.

Van said Gloria Jeans Coffee had not earned revenue as high as expected because of the high retail rents in HCM City. Besides, it also has to pay fairly high salaries to hire workers and other additional expense items.

Highlands Coffee does not make any official statements about revenue, but sources said though its shops are crowded, the shops cannot bring satisfactory profits to the investor because of the high retail premises.

However, Dang Le Nguyen Vu, the owner of Trung Nguyen, still values Trung Nguyen coffee chain, saying that the chain distributes roasted coffee effectively and helps polish the image of Trung Nguyen.

According to Hoang Van Thuy, the owner of Paris Coffee, distributing roasted coffee is the aim of nearly all coffee chains, so every shop reserves space for displaying coffee products bearing their own brands.

Half a kilo of Paris Coffee is priced at VND217,000, while Starbucks can sell up to VND425,000.

The strong rise of small cafe chains

Following the success of Passio, the take-away coffee chain, many Passio-style chains have been opened, including Star Up, Urban Station, Milano, Phuc Long and Mario. Even Trung Nguyen has joined the market with the Brain Station Coffee chain.

The common characteristics of take-away coffee chains in HCM City are designs in a modern style suitable to youth, office workers and busy people. Each cafe has an area of between 30 and 200 square meters.

Kim Chi / vietnamnet