Tue, Mar 09, 2004 page10

• Taiwanese coffee chains tread carefully in China

  • REUTERS
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  There's a change brewing in China.

  In a country steeped in millennia-old traditions of drinking tea, the younger generation in fast-developing coastal provinces is switching to coffee as part of their drive to embrace Western tastes.

  As the legions of converts sip their trendy brews, coffee retailers from Taiwan are building up a major presence in the Chinese market, hoping to cash in by weaning more and more Chinese off tea.

  "Chinese tastes are constantly changing, which is especially clear in white-collar workers aged between 20 and 40 who live in the fast developing cities," said Gao You-zhi (高有志), head of the business planning division of Taiwan's SPR Coffee.

  When SPR opened its first store in the northern coastal city of Qingdao in May 2001, most of the customers were foreigners or people from Taiwan and Hong Kong, Gao said.

  Since then, the firm has opened 87 more outlets and Chinese customers now occupy half the seats in its stores, he said.

  SPR's sole investor is Taiwanese businessman Lee Chien-li (李進利), who has extensive real estate holdings in Qingdao.

  Taiwanese-backed companies like SPR are among a growing number of foreign cafe chain stores entering the Chinese market including US-based The Coffee Beanery, Japan's Manabe Coffee and the ubiquitous global market leader, Starbucks.

  Taiwanese investors hope to repeat the rapid growth of coffee consumption in their home market where local and foreign chains have proven a huge hit.

  Despite their common culture, coffee drinkers in China and Taiwan seek different experiences, forcing retailers to tweak their business plans.

  "In Taiwan, people prefer express stores where they can grab and go. But in China, they like to get a seat inside so they can buy a coffee and stay the rest of the day," said Jennifer Chien (簡瑞瑩), investment relations manager for President Chain Store Corp(統一超商).

  President Chain -- along with group flagship Uni-President Enterprises Corp (統一企業) -- operates 38 Starbucks stores in Shanghai as part of a joint venture with the US coffee retailer. The venture aims to open five to 10 stores per year.

  Starbucks has 100 stores across China in separate ventures with President and local partners.

  Making a visit worthwhile is important in China, considering the average cup of coffee at Starbucks costs about 20 yuan (US$2.40), while the average monthly income is only around 1,000 yuan.

  That's why the coffee retailers are staying close to where the money is -- major cities along the east coast such as Shanghai, Beijing and Guangzhou.

  "We must be in markets which have a certain GDP and Shanghai has the highest GDP compared to other urban centers," Chien said.

  Long term, the rewards could be huge for coffee retailers if they succeed in weaning even a tiny percentage of China's 1.3 billion people off tea.

  Per capita roasted coffee consumption in China is estimated at around a gram, based on data from the International Coffee Organization (ICO), which promotes coffee around the world.

  In Taiwan it is 300 grams per person, while Americans consume an estimated 4kg per year.

  The ICO estimates domestic consumption in China is growing by 20 percent a year.

  "In China, the coffee business is only in the infant stage. It took us two years to break even in Shanghai but three years to break even in Taiwan," Chien said.

  SPR's Gao says the company has set a target of 200 stores by the end of this year, which he says shouldn't be a problem considering the 70 to 80 people they get every month inquiring about opening franchised stores.

  But while Starbucks has the experience and resources to drive ahead in the Chinese market, some Taiwanese retailers -- who are market leaders at home -- are taking a cautious approach.

  "At last year's shareholder meeting everyone was saying we should immediately set up stores in China otherwise it will be too late," said Sophie Fang (方淑宜), president of Taiwan's No. 2 chain, Taiwan Dante Coffee (丹堤).

  The company did set up two stores in Shanghai last year. But, according to Fang, further expansion will be dependent on how fast the market develops.

  "The Chinese market is still stuck back at the stage Taiwan's was seven or eight years ago. The coffee drinking population is still small," Fang said.

  "The risk of expanding too quickly is too large," she said.
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