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RMIT International University Vietnam BUSM 3311 – International Business A2

Subject Code:

BUSM-3311

Subject Name:

International Business

Location & Campus

RMIT Vietnam, HCMC

Class Group Number:

Group 5

Student Name:

Le Cong Minh

Student Number:

S3824313

Your Teacher:

Ngan NM

Word Count:

1313

1

The failure of Gloria Jean’s coffee in Vietnamese market Introduction: Gloria Jean’s coffee is a very famous coffee brand in Australia however, it was founded in a small town in the North of Chicago, USA in 1979. Gloria Jean Kvetko, who was the founder of the company, desired to provide high-quality coffee with a charming environment to people across the US. After gaining success in the American market, it was bought by Nabi Saleh- coffee expertise and his friend Peter Irvine via Master Franchise for Australian market in 1996. The first Australian coffee shop was opened in Sydney in 1996, but until 2006, the business owned and operated over 200 coffee stores throughout Australia, then they launched their expanse back to America. In the end of 2008, the coffee chain started to dominate the American market again with 102 coffeehouses in 24 states by affiliation or acquisition. Currently, the coffee brand has operated more than 1000 coffeehouses all over the world (Gloria Jean’s coffee n.d). In 2006, after recognizing Vietnam as a potential market like Thailand and Malaysia, the coffee chain approved of cooperating with a Vietnamese local company by a franchise contract. In 2012, they had already opened 6 coffeehouses in Ho Chi Minh city however, all stores in Vietnam were closed at the end of 2016 (Nga 2017). This paper will analyze the reason for Gloria Jean’s coffee’s failure and mention some recommendation to alleviate those issues. Finally, conclusion will sum up key information of this case. Analysis: Misunderstanding to capture the demand of local consumers in the target market One of the most successful franchises in Viet Nam, Hoang Khai stated that the lack of market insight is considered as the main reason leading to business’s loss due to the constant change and cutthroat of the country’s coffee shop market as well as the preference of consumers (Saigoneer 2017). More tellingly, that means no matter it is a local, international, or global brand, both utilitarian factors and sociological aspects will influence the customer’s choice (Cleveland et al 2016). In this case, after entering the Vietnamese market, the same Australian model was applied for this market as its global strategy, which aims to manufacture standardized products addressing the worldwide demand volume of customers (Grünig & Dirk 2016). According to Ajami & Goddard (2017), a high level of global efficiency was recognized as the advantage of this strategy whereas its disadvantage was related to the deficiency in local responsiveness and adaptability. In term of its global strategy, instead of using Robusta beans, which is dominant in the local market, this coffee chain focused on serving one of the most common coffee beans called Arabica to differentiate its brand from other existing competitors (Nga 2017). Therefore, compared to the Starbucks’s failure in the Australian market, the withdrawal of Gloria Jean’s coffee is regarded as the same defeat. Based on Patterson, Scott & Uncles research (2010), the breakdown of Starbucks was relevant to the unsuccess of adapting the product as well as the customer experience to the local market. Specifically, with the rapid expanse, the Australian drinkers were not offered an opportunity to develop an appetite for this American coffee’s brand (Ashley Turner 2018). Like Starbucks, Gloria Jean’s coffee was unable to provide any intimacy, personalization, and familiarity to the local customers despite its differentiated products. The local consumers were expected to pay more attention to this novelty however, due to the difference in culture, Vietnamese people tend to enjoy the cup of coffee with the local taste as well as a more affordable price. Hence, this approach of Gloria Jean’s coffee failed to be recognized as a competitive advantage. 2

Fierce competition from other existing brands The requirement of three factors including: ownership specific advantages, location-specific advantages, and internalization needs to be satisfied as soon as a business begins internalizing into a new market (Grünig & Dirk 2016). Nonetheless, Gloria Jean’s coffee did not meet the standard in case of location-specific advantages due to the higher average price of beverages compared to other cafés like Phuc Long, Trung Nguyen, Highland coffee, where offer a more affordable price (VOV 2017). Since being founded, the position of the coffee brand has been considered as a high-end brand targeting high-income customers. Thus, it resulted in its numerous appearances in downtown locations to advertise and appeal to consumers, which leads to the high rental costs. Therefore, so as to cover the rental costs, it decided to boost the price higher. Besides, CEO of VF Franchise Consulting, Sean T Ngo indicated that the import of Arabica beans by several international coffee brands contributed considerably to the higher beverage costs in the domestic market (Khoa 2018). According to the study implemented by Schuiling and Kapfere (2004), it proved the dominance of local brands compared to the international in Vietnamese market. For instance, the awareness of reputation of international brands is lower than the local data (73% compared to 85%). Moreover, the level of trust of local brands is also slightly stronger than the foreign data (25.3% compared to 24.3%). In addition, they also point out that the local price is much lower than the international one, so it becomes more attractive even though the better value, the higher price. As the result, Gloria Jean’s coffee chain jumped to the decision to close nearly entire coffee shops, which only had 2 stores left in Vietnam at the end of 2105 due to the shortage of operation costs caused by the dramatical decline in the number of customers (Nga 2017). Recommendations: Applying multidomestic strategy Particularly, carrying out the multidomestic strategy means the firms view itself as a collection of relatively independent operating subsidiaries, which were assigned to focus on a specific domestic market with adaptive local flexibility (Meyer and Su 2015). Therefore, it is considered as autonomous and local responsive, which will support the performance of companies with low export orientation effectively. In Gloria Jean’s coffee case, if it implements the multidomestic strategy, it can approach the Vietnamese coffee market more easily with a variety of flexibility despite the market fluctuation. For example, the business can divide its menu into two groups including local and foreign receipt by using both Robusta and Arabica coffee beans. Take Starbucks as a typical example, after adapting the Japanese culture and market, it started serving smaller and less sweet matcha Frappuccino for the local customers than American ones (Day translation 2019). Furthermore, in attempt to enhance the local responsiveness as well as gain more revenues, the coffee chain can add breakfast or lunch to diversify its menu. Last but not least, marketing research team plays a crucial role of approaching and expanding the market, so it is integral to corporate with a team which has a deeper understanding about the local preferences and expectations. Targeting the right customer segments According to Banerjee & Thevaranjan (2019), targeting the right customer segments will result in the higher sales as well as reduce resources and efforts. Therefore, segmenting targeted customers can offer the coffee chain a chance to update its mean and prices to meet customer’s standards. For Gloria Jean’s coffee, instead of aiming the high-income customers, it should focus on attracting the middle class. Based on Nielsen-market research firm, it claimed that about 44 million Vietnamese people, who is 3

recognized as the middle class, can earn $714 per a month in 2020. However, this number will continuously increase in next 10 years and approximately reach 95 million in 2030 (BMI market report 2018). Hence, if the company decides to change its target to this customer segment, the considerable amount of money and resources spent on renting expensive locations and broadening the customer database will decrease, which can contribute to the investment on expanding more locations and market shares. Conclusion: Overall, global business has become more and more complicated and dynamic where a minor event can trigger extensive outcomes (Andersen 2017). As a result, before promoting FDI into new market, every company should analyze clearly the advantages and disadvantages to set out a suitable strategy. In this case, due to the lack of effective research on the local customer demand as well as its local competitors, Gloria Jean’s coffee faced several difficulties but cannot overcome them leading to its failure in Vietnamese coffee market. However, in case of improvement the issues, the business can consider applying the multidomestic strategy and also tailoring the customer segment policy. Reference list: Ajami, R. A & Goddard, G. J 2017, Global business: Competitiveness and sustainability, Taylor & Francis Group, Routledge. Andersen, T. J. 2017 The Responsive Global Organization: New Insights from Global Strategy and International Business. Emerald Group Publishing. Anh, N 2017, ‘International coffee brands quit Vietnam due to filtered down profits’, VNexpress International, 22 October, viewed 6 July 2020, . Banerjee, S & Thevaranjan, A-P 2019, ‘Targeting and salesforce compensation: When sales spill over to unprofitable customers’, Quantitative Marketing and Economics, vol.17 (1), p.81-104. Cleveland, M, Rojas-Méndez, J-I, Laroche, M, & Papadopoulos, N 2016 ‘Identity, culture, dispositions and behavior: A cross-national examination of globalization and culture change’, Journal of Business Research, vol. 69, pp. 1090-1102. Day translations 2019, ‘How Starbucks adapts to other cultures’, blog post, 17 January, viewed 8 August 2020, . Gloria Jean’s Coffees n.d, About us, viewed 25 July 2020, . Grünig, R & Dirk, M 2016, Developing International Strategies, Springer Berlin, Heidelberg. IBM 2018, Market report, viewed 7 August 2020,. Khoa, D 2018, ‘Global chains suffer as Vietnamese coffee lovers vote with their feets’, VNexpress International, 16 August, viewed 7 August 2020, 4

. Meyer, K-E & Su, Y-S 2015, ‘Integration and responsiveness in subsidiaries in emerging economies’, Journal of World Business, vol. 50, pp. 149-158. Nga, M 2017, 'Gloria Jean's Coffee quits Vietnam after a decade of slow-drip expansion', VNexpress International, 28 April, viewed 6 July 2020, . Patterson, P-G, Scott, J, & Uncles, M-D 2010, ‘How the local competition defeated a global brand: The case of Starbucks’, Australasian Marketing Journal (AMJ), pg. 41-47 Schuiling, I & Kapferer, J-N 2004, ‘Executive insights: real differences between local and international brands: strategic implications for international marketers’, Journal of international marketing, vol.12(4), pg.97-112.

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