As more brands venture into café business, are they getting into hot water?

Muji, agnes b. and Fiat have opened cafés in Hong Kong, and Conde Nast is launching a Vogue Club in Singapore. The National Basketball Association has opened an NBA restaurant in Manila, and even CNN and Wall Street Journal have opened cafés in Seoul.



Campaign Asia-Pacific talked to a few industry experts to seek their opinions on this brand extension trend into the café and restaurant business.

Graham Hitchmough, regional director of The Brand Union Singapore, said this has been a noticeable trend for many years, but it has escalated in the past three years with the coffee culture extending to cafés as meeting places.

David Meredith, founder of Tas’Mania, pointed out that department stores probably pioneered the idea of food and restaurants as brand experiences. The tea room at Fortnum & Mason in London famously showcased exotic teas and foods from around the world, while Harvey Nichols has long celebrated its quirkiness in its fifth floor restaurant in Knightsbridge. Meanwhile, Ikea serves its Swedish meatballs in a typically spartan setting. So the trend is not exactly new.

Meredith said that people are now looking for that third space to hang out in, relax, enjoy social media, alone or with friends, or just to be around people, but added that cafés like Starbucks are getting crowded and looking a bit tired. “So, appealing to your target by offering a space where people aware of the brand can congregate and potentially, even passively, socialise with like-minded people is a big plus," he said. "And you get to immerse them in a brand experience and interact—it’s a pop up brand.”

Janice Tam, marketing and communications manager of Quintessentially Lifestyle, added that one of the benefits for a luxury brand of creating a café or restaurant is that it allows everyone to experience the luxury lifestyle.

Tam cited the example of agnes b., which in the past was seen as not being very accessible, whereas after it started building its cafés, non-luxury brand shoppers were able to access the luxury world by only spending HK$100-200 (US$13-25). This concept is even more applicable to higher-end brands, such as Armani, which has its own bars and restaurants.

Are these brands in danger of diluting their business, especially if their food and coffee quality is cheap and maybe not very good?

Meredith believes there are huge dangers, particularly for premium brands. "We are all very sophisticated about coffee; the barista is the new sommelier," he said. "Woe betide the coffee shop that does not have premium organic sustainably farmed hand-roasted beans from the certified non-rain forest reaches of Peru."

Tam added that this could potentially cheapen the premium brand, as it may not attract the right people to the shops. It is difficult to filter the type of clientele by inviting the masses in with mass prices.

Can these brands compete with mainstream café brands such as Starbucks, Illy, Costa Coffee and COVA, which have better economy of scale?

Meredith said that if brands go into it to build a coffee business, they will fail in the areas of category focus, buying clout, access to training and trained staff, retail studies on space utilisation traffic flow, and brand breadth and depth.

“The big question is how many do you need to plan for?” asked Meredith. “What are your objectives? For retailers like Muji and Ikea, it's a matter of developing a space within an existing business. Going outside to lease space, outfit and operate can be very costly and hazardous to the bottom line. Alfie’s is one restaurant in Dunhill. That’s all they need."

Tam said that given the inflated prices, most people would prefer the likes of Starbucks or Illy, which specialise in food and beverage products, rather than newspaper or cars.

What difficulties do these brands face in the F&B marketing industry. After all, it is their side business and customers are getting more picky, as they are spoiled for choice?

Tam said customers, especially in Hong Kong, know their food, They also care about brands and luxury. It seems the obvious decision to have a café named after their favourite brands. However, they care more about food and value. If the brand does not provide quality dishes, or at the very least, a redeemable cup of coffee, the likelihood of return business is miniscule.

Meredith said the problems usually relate to being outside your core competency. The Wall Street Journal people do not know anything about the food business. Muji and Agnes b. are lifestyle brands, so presumably they are closer to knowing that business. Plus it can be a distraction and money loser. And if you outsource, chances are the risk to your brand could outweigh the benefit.

Are there any successful cases?

Tam cited Bulgari, which has completely bypassed cafes and restaurants and is going straight for the hotel business, with a fifth hotel to open in Shanghai next year. Meanwhile, Harrods has multiple cafés and is opening its first hotel in Kuala Lumpur next year.

Hitchmough cited the Magnum M Café in Jakarta, which initially opened in 2011 as a pop-up restaurant with full menu and has now extended to Bangkok.

What advice would you give to these brands aiming to jump on the café bandwagon?

Meredith says F&B is a highly specialised area, so he would urge brand owners to do an awful lot of research before embarking on this route. "It’s a very fickle area, prone to fashion whims and moving demographics, so what is today's macaroon and tapas, is soon so yesterday."

He added that it is a field for experts, "so hire the experts to do it for you and know why you are doing it".

While Tam said that not every brand is suited to having a café or restaurant. "Establish the brand first, and if it makes sense, then start with a pop-up café," she said.

"Not all brands are suited to the F&B business. When Fiat Caffé first opened, I had people asking me whether it was an auto dealership or coffee shop. And when they realised it was both an auto dealership, plus a charging coffee shop, they were a little shocked."

Tam added that coffee while shopping for a vehicle should be complimentary. "If most of the auto world doesn’t charge for a cup of coffee, why is Fiat Caffé comfortable with it? It’s important to recognise what is appropriate for your brand and survey regulars to see what they think."

Hitchmough said that many brands set up cafés, not as a revenue generator, but rather as part of the ecosystem of the brand experiences, and that most do not compete with mainstream café brands like Starbucks in terms of quantity.

Hence quality control is crucial, as is sustaining interest. "It should act as another media to bring the brand experience alive and not just use the café as a cross-selling environment," he said.

He predicts there will be more co-branded cafés in future.

However this has already happened in Hong Kong, where Starbucks has already co-branded two of its cafés with G.O.D. and local artists.

Richard Leong, marketing director, Pizza Hut Hong Kong added that at the end of the day it depended on the power of the brand. "Each brand has its brand's personality, whether they extend into F&B or clothing line, they need to fulfil their customers' expectations. For example if you go into a Muji cafe, you are expecting something organic, minimalistic and functional. Likewise, if you go to the Harrods Hotel, you expect the look and feel like their department store and not like a W Hotel."