Many like to describe the "coffee miracle" thus: In 1995 two things happened in the US economy-the Internet, and Starbucks.
Starbucks was founded in 1971, but in the 1990s it reinvented itself by changing its marketing strategy from franchising to directly controlled outlets, and forming alliances with other retail channels such as airlines, bookstore chains and supermarkets. When the company began to go global in 1995, it had 676 outlets. By the end of the year it had expanded to 1015-almost double-including branches in Japan and Singapore.
In 1997, when Starbucks was advancing into countries throughout Asia, many large companies stepped forward hoping to represent the chain in Taiwan. Leading local firms such as the Far Eastern Group, President Chain Store Corporation, the Tailung Group, the Quanta Group and Pacific Acme were all keen to capture this golden goose.
However, the US company came across as having an overbearing attitude, so when after several reversals the President Group won the Starbucks license through its construction subsidiary Prince Housing and Development Corporation, other companies watched with relish to see how President, one of Taiwan's foremost companies, would put up with the Americans' arrogance.
Even today, President Coffee Corporation, the Starbucks license holder, has not received permission from the American company to set up its own Starbucks website, and all its marketing strategies are subject to control from the US. But President Coffee's president, John Hsu, says that the President Group has learned a great deal in the process of getting two large international companies to work together.
In fact, at the outset Starbucks misjudged Taiwan's commercial environment. They believed that a construction company would make the best partner, being financially stable and easily able to secure premises for new outlets, so they ignored the interest of various major companies. At that time John Hsu approached Starbucks as the representative of President Chain Store Corporation to discuss licensing, but got nowhere. Nettled by being brushed off, he even thought that if President created its own brand, it would surely be in no way inferior to Starbucks, so why should they have to take this treatment? But Hsu Chung-jen, president of President Chain Store, insisted on going after Starbucks. Hsu Chung-jen said that just as previously with 7-Eleven, if President was to go into this line of business at all, it had to be with the number one brand.
Recalling Hsu Chung-jen's words at the time, John Hsu agrees that this insistence alone was enough to make them winners.
Although the management of President Coffee, a joint venture of Starbucks and the President Group, is entirely the responsibility of the Taiwanese partner, matters large and small from marketing strategy right down to the paper coffee cups are completely controlled from the US. Many people might find this style of collaboration insulting, but John Hsu prefers to interpret it as "respect."
"If they are the best in the field, then their supervision, and the things they insist on, are our opportunity to learn." For example, says Hsu, at the outset President wanted to follow the same route as it had with 7-Eleven by recruiting franchisees, but Starbucks resolutely opposed this. Looking back, Hsu concedes that this is why the Starbucks chain in Taiwan was able to achieve consistent quality in all its outlets, and to expand rapidly.
"If a chain is directly operated, management and control is easier. The fact that we were able to become profitable with Starbucks in Taiwan within three years, establish the brand, and complete preparations for the future, has everything to do with the fact that we manage the chain directly," he says.
As the level of mutual understanding and agreement between the two companies has deepened, Starbucks has delegated more and more authority to its Taiwanese partner. The enthusiastic consumer response to the "Regular Customer Coupons" and "Coffee On the Go" that were planned and launched in Taiwan, also made the US company realize President Coffee's marketing ability, and in the future these marketing devices will be used in Starbucks chains throughout the world.
"What gives me the biggest sense of achievement from doing Starbucks is that 10-15% of our employees started out as faithful customers, and joined our team because they liked us. And 70% of our clientele are regular customers too." John Hsu says that President has learned from Starbucks, and Starbucks has learned from President.
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In little more than three years, 68 Starbucks branches have opened in Taiwan. This rapid expansion, which has continued despite the economic slowdown, has put the brand in first place among the island's coffee shop chains.
(photo by Hsueh Chi-kuang)
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