FT: Case study - Trung Nguyen coffee

Case study: Trung Nguyên coffee

By Morgen Witzel

Published: April 27 2011 23:08 | Last updated: April 27 2011 23:08

Mr Vu positioned his brand as part of a Vietnamese tradition

The story. Coffee cultivation in Vietnam began under French colonial rule in the 19th century and soon became a staple industry. By the mid-1990s, the country had become one of the three biggest coffee producers in the world.

Much of it, however, was low quality and sold at cut prices overseas. Vietnamese-American entrepreneur Dang Le Nguyen Vu believed high-quality Vietnamese gourmet coffees could be produced and sold profitably. So, in the mid-1990s, he launched Trung Nguyên, a coffee manufacturer and café chain.

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The challenge. Vietnam is an emerging market. In 1995, per capita income was only $250 (the 2010 figure was $1,200). This was one reason why Mr Vu chose to develop a luxury brand that would appeal to both domestic and export markets.

To do so, he would have to persuade the home market that his expensive product offered value, and convince overseas customers that Vietnam could produce gourmet coffee.

The home market. As the owner of a coffee-processing business, Mr Vu could improve the quality but there was no efficient distribution network. The answer was to set up a chain of coffee shops, modelled in part on Starbucks, that would also sell coffee beans for home consumption.

The branding of Trung Nguyên was carefully planned. To counter competition from big multinationals, whether coffee shops or brands such as Nescafé, Mr Vu positioned it as part of a Vietnamese tradition. A Trung Nguyên museum tells the history of coffee-making in the country.

One of Trung Nguyên’s best-known products is kopi luwak or “weasel coffee”, made from coffee berries that have passed through the digestive tract of a civet cat. Marketing this expensive delicacy, which is harvested only in south-east Asia, helps identify Trung Nguyên with Vietnam’s coffee culture.

Combining heritage and modernity is at the heart of the brand, whether in the packaging or the styling of the coffee shops. Straplines such as “Bringing creativity into coffee” suggest innovation.

By pricing the coffee high, Mr Vu appealed to the aspirations of Vietnamese people. An emerging middle class took to the brand and the coffee shops became important social centres. The first Trung Nguyên coffee shop opened in Ho Chi Minh City in 1998, and by 2010 there were more than 1,000 across Vietnam.

Trung Nguyên has also diversified into decaffeinated and instant coffee and tea production.

The overseas market. Export was part of the strategy from the start. Trung Nguyên now markets its coffee in more than 40 countries, including the US and the UK.

Most of the brand’s appeal is to niche markets, to consumers interested in exotic coffees and, especially in the US, to visitors to Vietnam who have seen the brand there. Most of the coffee is sold online through franchisees. Sales volumes are very small compared with those in Vietnam.

Attempts to replicate the domestic coffee shop branding strategy and set up Trung Nguyên outlets overseas have met with mixed success. There are now two stores in Singapore and a few elsewhere in the world. But, generally, in spite of its success in Vietnam, the Trung Nguyên brand is not well-known elsewhere.

Current challenges. Trung Nguyên must expand its export market if the company is to continue to grow. Although rising prosperity in Vietnam means there are opportunities for domestic growth, Trung Nguyên is under pressure from competitors.

Key lessons. Creating a luxury brand in an emerging market might seem contradictory. But the Trung Nguyên case shows how it can be done. By appealing to national culture and values, and creating an aspirational brand with which rising middle classes could identify, it transformed the coffee market in Vietnam.

However, Trung Nguyên has also learnt that extending the brand overseas will take longer, and require more finessing.

The author is honorary senior fellow at the University of Exeter Business School

Copyright The Financial Times Limited 2011.