Vietnam Coffee Chain Trung Nguyen Targets Starbucks on Home Turf

Trung Nguyen Group Corp., Vietnam’s biggest coffee retailer, wants to buy bean roasters in the U.S. and open shops in Seattle, New York and Boston this year, just after Starbucks Corp. (SBUX) debuted in Ho Chi Minh City.

The company plans to fund U.S. acquisitions by selling a stake of as much as 15 percent, Dang Le Nguyen Vu, founder of the coffee roaster, processor and retailer, said in an interview. Starbucks, the world’s biggest coffee-shop chain, opened its first Vietnam store on Feb. 1.

Trung Nguyen’s plan to enter the U.S. follows the company’s climb to become the biggest roaster and packaged-coffee retailer in a country with a brewing tradition dating from 19th century plantations by French colonists. The chain’s 60 shops across the country serve Vietnamese-style individually brewed cups, along with varieties including Italian espresso and Turkish-style coffees, a mix Vu expects to sell in the U.S. as well.

“U.S. customers should be able to enjoy cups of authentic coffee,” said Vu, a farmer’s son who founded the company in 1996 and is its sole owner. “Their level of coffee appreciation is probably not high yet, but we’ll work on that.”

Vu’s focus on specialty beans and roasting includes a variety called “Legendee” created to mimic the flavor of coffee brewed from beans recovered from the feces of civets, a weasel-like rodent. Civet coffee is considered a delicacy.

‘Magical Flavor’

The coffee roaster discovered enzymes that mimic civet digestion and developed a process to give the coffee the same “magical flavor,” according to the company’s website.

Trung Nguyen sales jumped 32 percent in 2012 to $200 million and will probably double this year on rising demand for packaged coffee in China and Southeast Asia, Vu said. Sales will probably climb to $1 billion by the end of 2016, Vu said.

Vu said he intends to build a global brand and a “coffee empire” within the next 10 years, rivaling Starbucks. He said that the company is also considering an initial public offering and has yet to decide on its timing.

“If they stick to their core, and what they’re all about, and just try to appeal to consumers’ desire to have different taste profiles, especially from different countries, they may be able to open a select group of stores and be successful,” said Jack Russo, a St. Louis-based analyst at Edward Jones & Co., who covers consumer goods companies including Starbucks (SBUX).

“The U.S. is certainly open to different types of brands, from different countries, different ethnic cultures,” he said.

Student Entrepreneur

Vu, who earned a medical degree before starting his roasting business, grew Trung Nguyen from a shop he founded as a student into a coffee retailer with more than 3,000 employees. He plans to increase cafes in Vietnam to 200 in the next two years. The company also operates five stores in Singapore.

Starbucks is also tapping Vietnam’s rising coffee demand. Its first store in the country looks onto one of Ho Chi Minh City’s busiest roundabouts and is less than a mile from a new Burger King restaurant and Ben Thanh Market, the center of the city’s tourist trade.

“We will aggressively grow” in Vietnam and there will be “hundreds of stores for Starbucks,” John Culver, president of the company’s China and Asia Pacific region, said in a telephone interview. He didn’t give a time frame for the expansion.

Vu said he’s ready to compete against Starbucks with a plan he’s developed over the past three years.

Challenging Starbucks

To help the company’s U.S. entry, Trung Nguyen will take on partners with coffee-industry expertise that share the company’s vision for global expansion, Vu said. Investors will have options to buy a maximum 15 percent stake, which could gradually increase to 30 percent in 10 years, he said. The company is in talks with “key players” in the industry, he said, declining to name them.

“Just to say you want to be bigger than Starbucks or McDonald’s, it’s easy to say but not very easy to do,” said Peter Saleh, a New York-based analyst at Telsey Advisory Group, who covers food and beverage companies including Starbucks. “It’s going to require a lot of money, a lot of people, a lot of know-how.”

Vu said the company’s first U.S. store, which may be rebranded under a different name, will be in an “iconic” location.

His newest cafes in Vietnam are reminiscent of Starbucks, with oversized armchairs, contemporary music and a menu offering coffee drinks, smoothies and snacks. Some stores feature shelves lined with books that customers are encouraged to browse, including “The Seven Habits of Highly Effective People” and a biography of Apple Inc. (AAPL) co-founder Steve Jobs. Vu says he personally selected some of the titles to inspire and encourage young Vietnamese patrons.

“Starbucks no longer has the personality it had when it first started,” Vu said. “That regime will soon end. We are trying to be the one who replaces them.”

To contact Bloomberg News staff for this story: Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net

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Packages Trung Nguyen ground coffee are on sale in Buon Ma Thuot City, Vietnam.

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Photographer: Claire Leow/Bloomberg

Packages Trung Nguyen ground coffee are on sale in Buon Ma Thuot City, Vietnam. Close

Packages Trung Nguyen ground coffee are on sale in Buon Ma Thuot City, Vietnam.

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Women sit at a store selling coffee and snacks at Ben Thanh market in Ho Chi Minh City, Vietnam. Close

Women sit at a store selling coffee and snacks at Ben Thanh market in Ho Chi Minh City, Vietnam.

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Customers sit inside a Trung Nguyen Coffee outlet in Ho Chi Minh City, Vietnam. To help the company’s U.S. entry, Trung Nguyen will take on partners with coffee-industry expertise that share the company’s vision for global expansion. Close

Customers sit inside a Trung Nguyen Coffee outlet in Ho Chi Minh City, Vietnam. To help the company’s U.S. entry,... Read More

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Starbucks is also tapping Vietnam’s rising coffee demand. Its first store in the country, seen here, looks onto one of Ho Chi Minh City’s busiest roundabouts and is less than a mile from a new Burger King restaurant and Ben Thanh Market, the center of the city’s tourist trade. Close

Starbucks is also tapping Vietnam’s rising coffee demand. Its first store in the country, seen here, looks onto one... Read More

Photographer: Hoang Dinh Nam/AFP/Getty Images

Employees work at an instant coffee factory of the Trung Nguyen Coffee Group Corp. in the northern province of Bac Giang, Vietnam. Close

Employees work at an instant coffee factory of the Trung Nguyen Coffee Group Corp. in the northern province of Bac Giang, Vietnam.

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