Starbucks Expected to Grow Local Coffee Culture

 Cambodia Daily | 13 January 2016

Despite the threat of increased competition, Phnom Penh’s coffee shops are embracing the arrival of global giant Starbucks, which is expected to add impetus to the country’s maturing coffee culture.

“Starbucks are a tough competitor. But what we have seen globally is that when it enters, they actually end up expanding the market,” said Shabbir Godil, director of operations at Express Food Group, which oversees franchise operations for the U.K.’s Costa Coffee chain in Cambodia.

Young Cambodians meet over coffee at Brown Coffee and Bakery’s Norodom Boulevard branch in Phnom Penh on Tuesday. (Jens Welding Ollgaard/The Cambodia Daily)

– Business Analysis

“They will expand for sure. When they enter a market, they always attempt to saturate it,” Mr. Godil said on Monday. “We could expect a Starbucks at every key location in Phnom Penh.”

Starbucks unveiled its first Cambodian location at Phnom Penh International Airport on December 22, part of a drive by the Seattle-based coffeehouse chain to expand into burgeoning Asian markets.

Last year, Starbucks announced that it had entered a licensing agreement with Coffee Concepts, a subsidiary of Hong Kong Maxim’s Group, to manage its Cambodia operations.

With its first shop tucked away in the airport’s departure area—inaccessible without a flight boarding pass—Starbucks is expecting to open a second outlet in central Phnom Penh in early 2016, Coffee Concepts marketing manager Teresa Wong said in an email on Tuesday.

Neither Ms. Wong nor other representatives of Starbucks responded to additional questions about the company’s expansion plans in Cambodia.

Starbucks joins an abundance of international coffee brands already in Cambodia, including Costa, South Korea’s CaffeBene, Australia’s Gloria Jean’s and the Los Angeles-based Coffee Bean & Tea Leaf.

In the absence of Starbucks, both foreign and Cambodian coffee brands—including the rapidly expanding Brown Coffee and Bakery chain and numerous smaller cafes—have blossomed in Phnom Penh over the past few years, benefiting from a young, coffee-conscious population and growing urban middle class, said Luu Meng, president of the Cambodia Hotel Association.

“As the economy continues to grow, I think lifestyles will continue to change—people would want to taste different types of coffee,” Mr. Meng said. “Coffee culture has grown throughout Asia, and it will become more popular here among our young people.”

With about 70 percent of the population under the age of 30, Mr. Meng expects Starbucks to increase competition for the country’s trend-sensitive youth demographic.

And for students like Chhour Chheng, 16, who regularly studies with friends at Brown’s Street 214 outlet over a few mocha frappes, Starbucks is an attractive possibility.

“If Starbucks opened in the city, I think a lot of my friends would prefer to go there, because Starbucks is popular, and we want to try something new,” he said. “Younger people prefer Western brands, because it means we can be associated with new trends.”

Young consumers might even be willing to shoulder the additional expense of a cup of coffee at Starbucks, if only for its brand appeal.

“Even though the prices are cheaper at Brown, I still think that people my age will try Starbucks to see if they like it,” Mr. Chheng said.

According to a recent survey of Cambodian consumers between the ages of 16 and 60 conducted by market research firm TNS, brand awareness is not solely a youth phenomenon.

“A defining feature of this new middle class is their social awareness, with 82 percent feeling that position and status in society is the most important aspect of their life,” the TNS report says. “[People] are more brand-conscious, feeling that big names help define where they sit in the social hierarchy—62% say they chose their brands to showcase their success.”

Starbucks is likely to face its stiffest competition from Brown Coffee, an entrenched staple of Phnom Penh’s coffee culture. Since launching in 2009, the chain has opened 11 branches across the capital and whetted Cambodians’ appetite for cappuccinos and lattes.

Chang Bunleang, managing partner and co-founder of Brown Coffee, is confident that Cambodia’s incumbent coffee shops, including Brown, will only benefit from the growth in consumer coffee knowledge brought by Starbucks’ entry and prospective expansion.

“It’s just another coffee shop. Yes, it’s an international brand—whether it’s Gloria Jean’s, Costa Coffee, we are still in good shape,” Mr. Bunleang said last week.

“I think it will bring more education to the market, and will actually allow customers, even younger people, to become more mature—they will begin to look at price, understand coffee tastes better, and consider things like store ambiance.”

Mr. Bunleang conceded, however, that with Starbucks’ expertise entering the market, Brown would need to innovate, adapt and expand its business to weather the giant’s entrance, and that others would have do the same.

“We’re looking to buy more local products, source new coffee beans, push research and development on coffee tastes and improve customer service,” he said. “In 2016, we’re also looking to add four or five more stores—including one in Siem Reap.”

Mr. Godil of Express Food Group added that the loss of customers to Starbucks, particularly among young Cambodians, was not a foregone conclusion so long as coffee shops could adapt their offerings to accommodate more discerning customers.

“Costa will improve its own brand. We have set up a training program for baristas and we are also upgrading to better hub locations and adapting our store designs,” he said. “We hope to add a drive-through coffee store soon, which is new territory for Asia.”

“Initially, there will be some excitement, and people will try out Starbucks,” he added. “But soon, everyone will get used to the new culture and continue to try other stores as coffee shop offerings grow.”