Taiwan coffee giant to take on Starbucks

08:51, November 10, 2010      

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Gourmet Master Co, operator of Taiwan's largest coffee-shop chain, plans to increase its outlets in the mainland more than sixfold to 1,000 to challenge Starbucks Corp in the fastest-growing major economy.

The company will use proceeds of a planned initial public offering in Taipei to open stores in cities such as Shenzhen, Chengdu and Wuhan, aiming to reach its expansion target by 2015, Chairman Wu Cheng-hsueh said in a phone interview on Monday.

Gourmet Master, whose 85C outlets sell coffee for about half the cost of Starbucks, will seek to gain market share by targeting "high foot traffic" street corner locations and continuing to offer lower prices than competitors, Wu said. Starbucks has said it plans to open "thousands" of coffee shops in the mainland as rising incomes spur demand.

"Gourmet Master has a strong image of a quality Taiwan brand and this coupled with its competitive pricing will help attract mainland consumers," Horatio Lin, an analyst at Grand Cathay Investment Services Corp, said on Tuesday. The growing incomes of mainland consumers "will help cultivate a coffee culture and attract more chain operators", he added.

Coffee chain operators are expanding in the mainland to get a bigger share of the market where per capita consumption of the brew is 22 grams a person, compared with an estimated 3.3 kg in Japan, according to data from roaster Key Coffee Inc.

China Resources Enterprise Ltd, owner of Hong Kong's second-biggest coffee chain, last month said it plans to open as many as 1,000 Pacific Coffee shops in the mainland.

The mainland has had average monthly retail sales growth of 18.3 percent this year with middle-income and affluent consumers probably almost tripling in 10 years with the bulk of the increase coming from smaller cities, Boston Consulting Group Inc said on Monday.

Wu said he will "continue the strategy" of offering coffee and pastries at cheaper prices than his competitors, even as the world's fastest-growing economy boosts the wages of Chinese consumers.

About 60 percent of Gourmet Master's stores in the mainland are on street corners.

Gourmet Master's 85C outlets offer a 16-ounce serving of latte at NT$65 ($2.15) compared with NT$110 at Starbucks. Gourmet Master sells American coffee for NT$50 for a 16-ounce serving compared with Starbucks' NT$95 Caffe Americano.

Wu faces a challenge from convenience-store chains, Linda Huang, a Taipei-based analyst at Macquarie Capital Securities Ltd, said in a note to clients in September. President Chain Store Corp sells latte for NT$50 at the more than 4,700 7-Eleven stores it operates in Taiwan.

Gourmet Master has 325 stores in Taiwan, of which 41 are wholly owned, compared with 231 directly owned outlets for closely held President Starbucks Coffee Corp, a joint venture established in 1998 between the world's biggest coffee-shop chain, Uni-President Enterprises Corp and President Chain Store Corp.

President Starbucks aims to have 235 stores in Taiwan by the end of the year, it said in an e-mailed response to questions.

Wu, 43, aims to raise the number of his stores in the mainland to 170 by the end of this year from 150 now. The native of southern Taiwan's Yunlin county, who left school at 14, opened the first 85C store in 2004 and expanded to Australia in 2006, where he now has four outlets. He opened his first branch in the mainland in Shanghai in 2007.

Starbucks Chief Executive Officer Howard Schultz said in April the Seattle-based company expects to eventually have "thousands of stores" in the Chinese mainland, where it now has about 380.

Gourmet Master may raise as much as NT$2.57 billion ($85 million) publicly selling shares equal to a stake of about 11 percent and aims to start trading on Taiwan's stock exchange by the end of the month.

Wu directly owns about 16 percent of Gourmet Master, spokeswoman Michelle Hsieh said.

About 37 percent is held by investment companies on behalf of Wu and Gourmet Master employees and at least 10.8 percent is held by overseas investors, she said.

Gourmet Master had sales of NT$6.37 billion in the first nine months of the year with a net income of NT$634 million, according to a statement from underwriter Yuanta Securities Co.

Profit more than doubled to NT$758 million in 2009 from the previous year on increased sales from the mainland.

Source:China Daily


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