Trung Nguyen Coffee

[PHAM THI QUYNH MAI – PHTQP13 ]

Business Strategy – PM1006

Table of Contents Table of Contents............ ......................... ......................... ........................ ......................... ......................... ................................ ............................. ......... 1 How has Trung Nguyen coffee company expanded in market? marke t?............ ........................ ...................... .......... 2 Introduction Introduc tion ........... ....................... ........................ ....................... ....................... ........................ ....................... ....................... ................. .......... ......... ......... ..... 2 Internall environ Interna environments ments ........... ....................... ....................... ....................... ........................ ....................... ................ .......... .......... .......... .......... ....... .. 2 Management Manage ment ............ ....................... ....................... ........................ ....................... ....................... ...................... ............... .......... .......... .......... .......... ....... .. 2 Suppliers Suppli ers............ ........................ ....................... ....................... ........................ ....................... ...................... ................ .......... .......... .......... .......... .......... ....... .. 4 Externall factors - PESTEL Analysis ........................... Externa ................ ....................... ........................ ....................... ....................... ............... ... 5 Economic Economi c factors ........... ....................... ........................ ....................... ....................... ........................ ....................... ................... ............. .......... ....... .. 5 Social/cultu Social /cultural ral factor factors s........... ....................... ....................... ....................... ........................ ....................... ....................... ................. .......... ........ ... 6 Legal constraints ............ ....................... ....................... ........................ ....................... ....................... ........................ ................. .......... .......... ......... .... 6 Core competences competen ces.......... ...................... ........................ ....................... ....................... ........................ ....................... ....................... .................. .......... .... 6 Competitive Compet itive advantages advantag es.......... ...................... ........................ ....................... ....................... ........................ ....................... ...................... ............. .. 7 Product differentia diffe rentiation tion ............ ........................ ....................... ....................... ........................ ....................... ....................... .................... ........... ... 7 Service Servic e diffe differentia rentiation tion ............ ........................ ....................... ....................... ........................ ....................... ................. ........... .......... .......... ....... .. 7 Quality Qualit y........... ....................... ....................... ....................... ........................ ....................... ....................... ........................ ....................... .................. ............ .......8 The global perspective............ ......................... ......................... ........................ ......................... .............................................. ................................. 8 Some restriction restri ction of Trung Nguyen and Recommenda Recom mendation tion ........... ................... ............. .......... .......... .......... ........ ... 9 Conclusion Conclu sion............ ....................... ....................... ........................ ....................... ....................... ........................ ....................... ................. ........... .......... ........ ... 10

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How has Trung Nguyen coffee company expanded in market?

Introduction As the second largest export, coffee plays an important role in the Vietnamese economy (Dang, 2004). According to ICARD and Oxfam research (2002), it is cultivated mainly in the highland places like Dak Lak, Lam Dong and Gia Lai. Although coffee is a crucial commodity, it cannot bring high income because Vietnam mainly exports bean coffee. In 1996, Vietnam exported 480,000 tons but it gave 380 million dollar back. In this context, Mr. Dang Le Nguyen Vu wanted to sell a kind of coffee that could bring more benefit than bean coffee. Therefore, he and his friends established Trung Nguyen Coffee Corporation in 1996. His company produces, manufactures and sells coffee. It consists of six members and it will have ten members in the near future. Besides this, Trung Nguyen is the pioneer in franchising in Vietnam. By the end of 2010, Trung Nguyen had established over 1000 coffee shops and franchising shops in Vietnam and other countries. The most important thing is that it has expanded its market in 40 countries over the wold (Witzel, 2011). This essay will examine thoroughly Trung Nguyen Coffee, focus on the internal and external factors that have impact on the business in order to understand more about business theory.

Internal environments Management `First of all, Mr. Vu has abilities enough to become a successful leader. The fact is that his coffee brand was planned carefully and he put strong effort to fulfil them. For instance, he could persuade the customers about coffee quality but there was no effort to distribute the coffee network. To deal with this problem, Mr. Vu applied the chain of coffee models of Starbuck Coffee (3). In addition, to face with the foreign brand name, Mr. Vu added the Vietnamese tradition as a marketing campaign. What is more, Mr. Vu positioned every his coffee shop as a place where everyone can come and enjoy coffee with Trung Nguyen’s style. Customers are allowed to drink many kinds of coffee, distinguish the difference between them and give their comments. As a result, his brand was more well-known and was welcomed by the domestic market and also the exotic market. Another example is that in 1998 when the director of Tien Dat company- a kind of tea trademark refused his coffee brand to become the supplier, Mr.Vu announced that he will buy 2



this brand. By 2001, he bought it and transformed it into one of Trung Nguyen Corporation – Tra Tien (10) Secondly, he has a great strategic vision. He set a right way for Trung Nguyen coffee to develop. Khoinghiep claimed that when Trung Nguyen was still young, he opened 3 coffee shops near together (14). By this tactic, the manager could control easily his shop and adjust on time with the trend of market. Besides this, he soon realizes that the way to gain the Vietnamese consumers is the value of tradition in each coffee cup. Hence, he campaigned many programmes to attract customers such as “The party of Coffee” in order to get easily a certain position in the domestic market. Moreover, he conceives the role of the brand name in world coffee trade so he decide to build the Heaven of Coffee in Buon Ma Thuot – the high land in Vietnam where coffee is grown popularly. The aim of this project is that he will apply the most advanced method to product, process and sell coffee firmly and make Trung Nguyen become the number one of coffee in the world (12). The third characteristic of the head of Trung Nguyen is that Mr.Vu has never stopped created. With his passion and dedication, he led Trung Nguyen to create G7 instant coffee to counter the biggest multinationals – Nescafe – the most widespread foreign coffee in Vietnam. In “G7 Instant Coffee Festival” in 2003, 89% of 13000 coffee testers voted in favour of G7 while 11% selected Nescafe(16). What is more, Passionate coffee for women which is decafein and added collagen and vitamin P is created and attracts the interest of many women. Now, women can drink their coffee comfortably without worry about the harm of coffee a lot (17). Last but not least, Mr. Vu has a strong belief and motivation to support another. In 1996, when Trung Nguyen was young, he did not have enough money to invest into his company.Thereby, his friends suggested that even if we do in 20 years we could not do as well as the other did in six months. He opened 10 days drink coffee free. His way was welcomed strongly by customers. One of the customers said that:”I have drunk coffee for ten years. This is the first time I can drink coffee free”. The fact proves that he can do it well. Within 6 months, he made Trung Nguyen coffee became popular in Tay Nguyen - a large plateau of Vietnam (19). His success is the dream of many coffee businessmen in the same period and it is the firm step to expand Trung Nguyen coffee brand name in Vietnam and foreign market. Moreover, he always talk about his passion about coffee and the development of Vietnamese economy, bring inspiration to the young Vietnamese generation(appendix 1). Because of his aspiration to coffee, he process three product coffee companies in Dak Lak, one factory that produces tea in Lam Dong, one breeding 3



farm in Ma D’rak and the famous brand name coffee Trung Nguyen by the end of 2005 (10). It is really the big growth.

Customers Customers are one of the affects on the expansion of Trung Nguyen coffee. They are the judges and decide the fat of one brand name. In order to conquer their customers, Trung Nguyen added the traditional value into their products. If customers come to Trung Nguyen coffee shop, they are introduced the way to drink coffee in Trung Nguyen special style and have the change to taste different types of coffee without charging. Moreover, they continuously create the tasty coffee product such as the instant G7 coffee. Thanks to this product, Trung Nguyen coffee is well-known not only in Vietnam but also Singapore and Japan for example.

Suppliers Suppliers can increase their power and also make an impact onto the industry by increasing supply’s price or lowering the supply’s quality. Trung Nguyen has many advantages to make their supply become more competitive. Firstly, in 506,000 hectares used for growing coffee Robusta coffee-the most famous type of coffee in Vietnam occupies 26,000 hectares. About 3/4 Vietnam’s coffee production is in the Highlands places where has many relevant condition for growing coffee. Table 1: Primary coffee producing areas Province Dak Lak Lam Dong Gia Lai Kon Tum Dong Nai Robusta Total Son La

Planted Area in Hectares 234,00 100,000 75,000 11,000 60,000 480,000 3,5000

As can be seen from the table above, the two largest producting provinces are Dak Lak 234,000 hectares and Lam Dong 100,000 hectares. Trung Nguyen was built in the uprooting areas above so it can make use of advantages such as saving transportation cost. What is more, with the available the local labours have experience in processing coffee, Trung Nguyen can hire them without paying high. Therefore, Trung Nguyen made a good qualitative coffee to sell but they did not need to spend much money on production cost.

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Almost farmers living in the high land is the coffee househould. Their income is from mainly coffee. However, it is not staintable when the coffee price is declined while they have to get bank loan to expand their farm (21). Trung Nguyen known this problem of farmers so they promised to pay the high price with the coddition that farmes have to sell the good product to them. By this way, Trung Nguyen established the firm relationship with their suppliers. Trung Nguyen always had priority to buy the best coffee bean.

External factors - PESTEL Analysis Gillespie. A (2007) stated that “There are many factors in the macro-environment that will affect the decisions of the managers of any organisation”. External environment has impact on the growth of a firm. It brought not only opportunities but also challenges to Trung Nguyen Coffee and therefore it is important for managers to examine to give visionable decisions. PESTEL Analysis below will conduct external factors that have impact on the development of Trung Nguyen Coffee.

Economic factors The changes in recent years have in part contributed to a coffee crisis that affects more than 50 coffee producing countries, several of which are dependent on coffee as their main source of export revenues. As a result, Vietnamese economy underwent some difficulties although it was modest. Some regional economic shocked when coffee revenues dropped significantly combined with increased government expenditure (10). However, Trung Nguyen was not affected a lot when it continuously opend franchising shops in Singapore 2001, Cambodia and Thailand 2003, Japan 2004 and established the biggest contribution network G7 Mart. The reason to explain the success of Trung Nguyen is that firstly Vietnamese economic scale was small, meaning that it was affected by crisis modestly. It was An advantage for not only state company but also private enterprises, especially Trung Nguyen Coffee. Secondly, Trung Nguyen with the difference from competitor such as service and productions, Trung Nguyen had firmly position in the market. Thirdly, coffee was very in favour of customers when it was consider the most favourite drink. As analysis above, Trung Nguyen could overcome obtacles and less suffered from crisis than the others.

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Social/cultural factors Vietnam is densely populated and agricultural land officially accounts for 28 percent of its 33 million hectares and coffee occupied 4.16 percent of total agricultural cultivating area. Thereby, coffee is an important part of the rural economy. It directly employs 600,000 workers. (10). According to the General Statistic Office (2003) about 2.6 million people in Vietnam cultivated coffee. These characteristics of social environment support to the growth of Trung Nguyen in these first steps because Trung Nguyen had a relevant place to cultivate coffee and the cheap available work force. Trung Nguyen, therefore, could gain more benefit and become more competitative.

Legal constraints The government had some decision to support import. In 1998, the government allowed private firms to import fertilizer and removed quantitative import restrictions (Decision 242/1999/QDTTg) and quotas (Decision 46/2001/QD-TTg) in 1999. Import taxes on fertilizers have been reduced to five persent. The Government has encouraged expand coffee export through award policy. It has implemented some policies to reduce transportation costs by 10% and some unnecessary proceduces such as police examination of goods. Besides this, in order to reach the high productivity, the Government delete the taxes on using ground water for growing coffee in Dak Lak (21). Thereby, Trung Nguyen can decrease the irrigation time and production cost. Hence, they can increase profits and productivity more effectively when they have a company which culture coffee as well. Another competitive policy is that exchange rate is adjusted significantly by the Government (21). This helps the coffee business suffers from crisis less than other countries which has lower exchange rate.

Core competences Core competency is the one of strong points to overcome the competitors.

Clear and distinctive product that

focus on customer group is one of core

competencies helping Trung Nguyen has a firm position in coffee market. With various types of coffee, Trung Nguyen gives more choice for their customers.Trung Nguyen created G7 instant coffee to counter the biggest multinationals – Nescafe – the most widespread foreign coffee in Vietnam. In “G7 Instant Coffee Festival” in 2003, 89% of 13000 coffee testers voted in favour of G7 while 11% selected Nescafe (16. Bùi, 2010). What is more, Passionate coffee which is the 6



coffee for women appeared the first time in Vietnam has added collagen and vitamin P. It attracts the interest of many women. Now, women can drink their coffee comfortably without worry about the harm of coffee a lot. Weasel coffee for the rich class who wants to discover the unique favour of the King of coffee (25. Lê, 2010). It is clear to say that Trung Nguyen sastisfiy their customers from all classes with different jobs.

Difficult to copy that means the company has a unique difference to conquer customers and can decrease the risk of the new entrants. Trung Nguyen has various types of coffee that has focused on the wide ranges of customer. With the rapid expansion, Trung Nguyen has closely saturated the market. Therefore, it is putting the brakes on further domestic expansion and has more protection itself from the new entrants to market. It is also difficult for copycats to imitate the Trung Nguyen imagine because copycats cannot persue customers easily when they are familiar with Trung Nguyen’s name and flavour.

Competitive advantages Product differentiation To be more competitive, Trung Nguyen designs their coffee shops with the style of Tay Nguyen where coffee is derived from. When customers come to Trung Nguyen shop, they can expose into the original coffee environment and try the different tastes of coffee. Moreover, they can compare and give recommend about the tasty coffee. By this point, customers feel very interested in Trung Nguyen brand. That marks the success of Trung Nguyen when they want to expand in market.

Service differentiation Besides the unique Tay Nguyen style to drink coffee, Trung Nguyen makes the flexible way to sever customers. Each coffee has a distinct style and atmosphere that reflective of the local community and region. For example, café shops in the center of Ho Chi Minh City are decorated with colour. Because it aimed at the young, pop music in trend are played loudly. In comparision, café in conservative city – Hanoi is designed in traditional style. Waitresses dressed in the traditional flowing tunic of Vietnamese women – Ao Dai. The music atmostphere is in soft flute music and bamboo and rattan décor. This service difference can sever customers’ favour relevantly, giving them the interest and comfort in drinking coffee.

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Quality It seems that the coffee market is now saluted when customers nowadays have many brand names to choose. As a result, they are ready to give up Trung Nguyen to taste other coffee brands. Therefore, quality becomes very important when it is one of factor to conquer customers. Trung Nguyen (2010) states that they “chooses four different regions where the most delicious coffee growed: Robusta in Buon Ma Thuot, Vietnam, coffee from Ethiopita, Arabica from Jamaica and coffee from Brazil. With the support of the cutting-edge technology and the secret of Oriental making coffee in grounding, Trung Nguyen coffee products are so special and different from another one”. That makes Trung Nguyen coffee more competitive and gain more benefit.

The global perspective The globalisation processes are driven by three main factors, international trade, investment and the use of information technology. In an economics’ view, countries will become borderless and governments will be marginalised in regards to the economic markets (Silicon, 2010). Its founders also think that “The key is to invest in brand and overseas” (Rowse 2002). In 2002, Trung Nguyen opened its first café in Tokyo, Japan. Reuters (2002) stated that “If we succed in Tokyo, that will accelerate Trung Nguyen’s expansion plans abroad”. However, when entering to Japanese market, Trung Nguyen had to face with the famous coffee brand Stabuck. By the end of 1996, Stabuck had set up a beachhead in Japan seven years. Up till now, coffee market in Japan has been crowed with 38 Stabucks outlets and 74 outlets of lesser-known others. Trung Nguyen Coffee chose the Coffee Retailer Daisu to open a franchising shop in Japan. Moreover, Daisu had responsibilities for up-front investment of retail space rental, equipment, décor and employee salaries. This arrangement minimized the financial risk of Trung Nguyen Coffee. With the strategy of selling the image of Vietnam combined with some similarities in culture, Trung Nguyen had more advantage when compare to Stabucks. Café will feature a romantic, idealized vision of Vietnam. The coffee itself differentiates the brand from other coffeehouses. It is a bitter-tasting brew that can flavoure with sweetend condensed milk and served over ice. Supprisingly, the Japan franchise has priced the coffee 50 persent higher per cup than Stabuck and 25 percent higher than other domestic coffeehouses. It meant that Trung Nguyen positioned its brand in Japanese market confidently. After the success in Japan, Trung Nguyen opened more franchised shops in Thailand, China and Cambodia. The reason Trung Nguyen chose to open in 8



Asia is that these countries have some similarities in culture and style to drink coffee. Coffee industry does not develop in these countries as well. Trung Nguyen then focus on the top ten countries which are exported market of Vietnam. Table 2: Top ten markets for Vietnamese coffee at its export peak 2002 Country Germany United States Spain Italy Belgium Poland France Japan South Korea United Kingdom

Volume (mt) 112,739 89,288 59,777 56,263 51,170 47,500 33,956 29,162 26,162 25,799

Avg.price (US$/mt) 363 355 352 375 375 376 361 364 364 338

Share of total (%) 15.8 12.5 8,4 7.9 7.2 6.7 4.8 4.1 3.7 3.6

As can be seen from the table above, Japan, South Korea and United States were main export markets of Vietnamese coffee. Trung Nguyen knew that and they conquered these markets first when the people in these countries are familiar to Vietnamese coffee. In 2011, Trung Nguyen exported 1,400 million coffee into United States and 200 million tons into E-mart retail chains in Korea (Thenewpaper, 2012). This is a change for Trung Nguyen to promote G7 brand and Vietnamese brands in general.

Some restriction of Trung Nguyen and Recommendation There success of Trung Nguyen case is not denied. In only three years, Trung Nguyen from a small shop became popular over Vietnam. It is the second holder in istant coffee market in Vietnam. However, there are some difficulties which Trung Nguyen needs to consider in order to expand in global. Trung Nguyen is till a small and young company from a developing country. It is not avoidable to the invasion of the giant coffee holders in global market such as coffee Nero from Italy and Stabuck coffee from America. The taste of Trung Nguyen coffee is not unique enough to compete with the flavour of Italian coffee – Nero. G7 instant coffee is considered a strategic product to expand into global market. However, this production just serves generally the majority of customers. Therefore, Trung Nguyen cannot empression its image to customers and its image as well. Another obstacle that Trung Nguyen need to overcome is that Trung Nguyen 9



should learn the way to adapt in competitive environments with different languages, cultures, laws and business practices. The name Trung Nguyen seems that it is difficult to pronounce in the common language English. It is really mouthful. “So we may have to change it,” said Dang (2002). He would change it to something simple, like “TN”. In addition, it is clear to say that many franchised Trung Nguyen coffee shops do not keep the image and style which Trung Nguyen desires. Now, customers can drink coffee or another type of drink in a Trung Nguyen coffee shop.

Conclusion In conclusion, these are factors that influenced on the development of Trung Nguyen internally and externally. Leadership, customers, social factors and legal policy supported Trung Nguyen coffee to expand. By dint of having wide range of product and special style, Trung Nguyen is strong enough to cope with their competitors. That is their core competencies and competitive advantage. However, there is no doubt that Trung Nguyen needs to refresh the network of franchised shops to keep their image

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Trung Nguyen Coffee

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