It's famous for a thick, heavy brew sweetened with condensed milk, a cup

of traditional cà phê sữa đá is made with robusta beans, which have a

sharper, bitter flavor and higher caffeine content than more mild Arabica

beans. The drink is available all over Vietnam, served at roadside cafes,

restaurants and at home.

But you won't find the traditional style in a Starbucks.

That's because most international coffee chains only serve Arabica beans,

which are more mild than robusta beans.

And while that may work for customers in many countries in Vietnam,

serving only Arabica is a problem.

It's one reason big coffee chains have struggled to grow there, despite

the country's more than $1 billion market for specialty coffee and tea

shops. Starbucks is a global brand with more than 30000 stores around the

world. Australian chain Gloria Jeans Copies has close to 760 cafes in over

55 countries, but they haven't cracked the market in Vietnam.

Gloria Jeans exited Vietnam entirely in 2017 after 10 years in the market.

While Starbucks has grown since it entered Vietnam in 2013, the number of

Starbucks per capita is low compared to neighboring markets.

There's just one Starbucks per 1.7

million people in Vietnam.

That means the competition is fierce.

As international chains go head to head with local chains on the whole,

local chains are expanding faster and performing better than their

international counterparts.

With its long coffee history, an abundance of high quality Joe on every

corner, coffee in Vietnam is a way of life, with mom and pop coffee shops

still occupying a large share of the coffee market in Vietnam.

A big question remains Do international chains stand a chance in Vietnam?

Living in the world's second largest coffee exporter, Vietnamese people

have tons of local options when it comes to coffee.

The market is highly fragmented, with small family owned and independent

shops making up the bulk of coffee sales.

There are over five hundred and forty thousand restaurants in Vietnam and

over 430000 of them are street stalls.

Even the five largest coffee chains in Vietnam collectively hold just a

fraction of the market.

Fifteen point three percent.

The popular Highlands coffee tops the list with seven point two percent.

Filipino fast food giant Jollibee has a majority stake in Highlands.

And even though Starbucks holds the number two spot in sales, it's still

less than 3 percent of the entire coffee market in Vietnam.

At those small roadside shops, coffee costs less than a dollar there fast,

and some provide services like Wi-Fi and shoe shines.

And their biggest advantage?

There are thousands of them.

Analysts say a cup of coffee at a Vietnamese Starbucks typically costs

substantially more than a similar drink at a local chain like Highland's.

In general, Vietnamese consumers spend about two and a half times more

money at Western outlets than they do at Asian outlets.

Office workers are able to afford a cup of Starbucks coffee.

They are also willing to pay a premium for Starbucks unique in Stice

appearance, and especially so it's like a way to pamper oneself every once

in a while. And on the other hand, the local coffee place would cost enjoy

higher purchasing frequencies as the coffee is much more affordable in a

Starbucks coffee. Vietnam has developed rapidly over the last 30 years

from one of the world's poorest countries to a lower middle income

country. The middle class is growing too, but it's still small compared to

other countries. Part of Gloria Jean's problem in Vietnam was failing to

recognize that middle to upper class consumers were still a relatively

small segment of the population.

And I think that when the international brands, when they come to Vietnam,

they bring their own new coffee enjoyments.

But at the same time, we still love our tradition.

Vietnam's economic transformation is thanks to a policy called Doi Moi,

which was a series of economic and political reforms that led to rapid

growth. It also introduced a set of policies that encouraged international

companies to set up shop in Vietnam despite strong population growth and

urbanization. Vietnam is predominantly agricultural and rural outside of

cities. Experts say coffee culture looks a little different.

It's easy to say Hodgeman City, Saigon is the focus of coffee consumption

or Hanoi is the new focus of coffee consumption or some of these growing

cities on the Central Coast.

These are coffee consuming cities and Vietnam.

But to do that is to forget that there's a lot of people who don't live in

those cities and there's a lot of people in Vietnam who don't have the

money to spend even a Highland's Cafe, which are relatively

expensive compared to those street same cafes or a local cafe.

There are two main types of coffee being traded internationally, Arabica

and Robusta. Vietnam is famous for its robusta coffee, which has a sharper

flavor and a higher caffeine content than the more mild Arabica bean.

Most coffee consumed from chains in the U.S.

is brewed from Arabica beans.

Robusta beans typically cost less than Arabica beans because producing

them is less resource intensive.

In Vietnam, robusta beans account for about 97 percent of the country's

total coffee production.

But international chains like Starbucks and Gloria Jeans have long shunned

the use of robusta beans.

It's perceived as a lower quality, cheaper alternative to Arabica and is

often used in instant coffee and espresso blends.

But most Vietnamese consumers look for the taste and energy bill of high

caffeine robusta beans, not to mention the fact that many drinks sold at

international chains like lattes and flat whites don't resemble anything

close to traditional Vietnamese coffee.

Vietnamese coffee offers more variety than just coffee, Suda.

There are varieties made with egg yolk, yogurt and even fruit.

While some chains attempted to adapt to local tastes, they didn't go for

it 100 percent of the way.

For instance, Gloria Jeans added condensed milk to replicate traditional

drinks, but it still served.

Being coffee, which lacks the punch of robusta, Starbucks also added

Arabica being coffee with condensed milk and ice to its menu.

But there's a shift in some corners of Vietnamese coffee culture thanks to

the so-called third wave coffee movement.

That's a global coffee trend that focuses on quality and sourcing of the

coffee bean. Third, wavers in Vietnam, for example, are experimenting with

the Arabica bean to other right to their coffee habit.

In Vietnam's urban centers like Coachmen City and Hanoi, analysts say the

interest in third wave coffee and specialty coffees is on the rise, but

it's still a small portion of the population.

And menu differences between local and international chains go beyond just

the type of bean. I think local chains understand a customer much better

than international chains, and hence they are more responsive to adapting

change when customer preference evolve or shift.

So I think this flexibility of the local chains over the international has

been reflected in the frequency of changing their menus.

In Vietnam, some of consumers top reasons to visit Western chains are to

try something new. Celebrate a special occasion or treat themselves.

Asian chains are visited due to convenient location and good value for the

price. In other words, Western outlets are visited less frequently than

Asian outlets across the board, according to.

Search firm decision lab when locals do go to international chains to

spend a lot on fancy coffee.

They're also paying for the experience.

Analysts say a recognizable brand name, an Instagram experience draws in

curious customers.

It's high profile brand may have been what set Starbucks apart from some

of its other international competitors.

Starbucks brand recognition gives it an edge on other foreign chains.

In Vietnam, Starbucks loyalty program and smartphone app also appeal to

young, tech savvy Vietnamese consumers.

Starbucks, a unique and welcoming environment, remains one of its

distinguishing features in a crowded market.

While Starbucks doesn't break out financial results by country, it's been

adding new stores in Vietnam slowly and steadily building its presence

there. So what does the future look like for international coffee chains

in Vietnam? Vietnamese Gen-Z consumers who were born between 1994 and 2002

spend a higher proportion of their money on eating out about $40 a month.

They're also more likely to try foreign chains.

But there is bad news for coffee chains that generation drinks more tea

and milk than coffee.

According to research firm Decision Lab Gen-Z, consumers are responsible

for the boom in bubble tea in Vietnam, a product most international coffee

chains don't offer.

And local chains have another advantage here.

It's easier for them to adapt their menu quickly to local tastes.

Vietnam is a coffee market full of challenges and competition.

And it's not just the type of being that international chains can change

to appeal to consumers.