Brewing up plan to take on Western coffee chains

There is French coffee, spiked with cognac; Irish coffee, with whisky; and Russian coffee, with vodka.

Now, Raymond Tong wants you to have a taste of Chinese coffee.

Take your pick: a cafe mocha with hua diao rice wine, bearing the lyrical name hua hao yue yuan (blooming flowers, full moon).

Or, if you are feeling man enough, an ice-blended juice with a slug of er guo tou, the potent sorghum spirit with an alcoholic content of over 60 per cent - and the rather apt name tie han rou qing (tough guy, tender heart).

Call it gimmicky. But it is with such "East meets West" tactics that Tong hopes to differentiate his company from the likes of American behemoth Starbucks, British chain Costa Coffee, snazzy Italian players Lavazza and illycaffe and even Singapore's own Coffee Bean and Tea Leaf, all of which are eyeing the growing Chinese market.

The chief executive of Hong Kong's Pacific Coffee chain has ambitious plans to go from 116 outlets in the Chinese mainland to 1,000 within the next five to eight years, challenging top dog Starbucks, which now has 700 outlets.

It does not stop there.

Asked about his vision for his company, the boyish-looking 38-year-old said: "If American coffee companies can do it, so can we. My dream is that we'd build Pacific Coffee into a strong brand in China and Asia, and potentially, one day, we will go IPO (initial public offering)."

Pacific Coffee was founded in 1992 by American technology executive Thomas Neir when he arrived in Hong Kong and could not find a good cuppa. In 2005, he sold it to Chevalier Pacific Holdings, which in turn sold it to mainland state-owned enterprise China Resources Enterprise, which operates the Suguo supermarket chain and makes China's best-selling Snow beer.

It is now the second-largest coffee chain after Starbucks in Hong Kong, with 118 outlets. It also has four outlets in Singapore, nine franchises in Malaysia and one in Cyprus - from which Tong hopes to leapfrog into the Middle Eastern market.

But it is China that his eye is firmly on.

While still largely a nation of tea-drinkers, China's coffee market is on a caffeine high, thanks to its growing ranks of young professionals, for whom lounging in a cafe or holding a disposable Starbucks cup - a latte costs 30 yuan (US$4.81) - and strolling on the street denotes a modern, Westernised lifestyle.

Data from Euromonitor International indicates that the number of coffee shops in China more than trebled from 391 in 2006 to 1,214 last year.

The market is set to froth further. Sales are set to jump 55 per cent to 4.5 billion yuan in 2015, estimates the market research agency.

To get its hands on some of that, China Resources hired Tong when it acquired Pacific Coffee two years ago.

Though young, he already boasted a varied resume: He was a vice-president for private equity company Sumitomo Corporation Equity Asia, and prior experience included stints at management consultancy McKinsey & Co and working in Wuxi for a semiconductor manufacturing company.

Thanks to a government scholarship, the son of a civil servant and a housewife earned double degrees in finance and electrical engineering from the University of Pennsylvania.

Under his watch, Pacific Coffee rapidly boosted its presence in the mainland from three outlets to 116. It now has about 8 per cent of the market share, after market leader Starbucks and three others.

He knows he has an uphill task trying to compete against the giant names from the West.

His strategy is to move in as quickly as possible, including franchising. "Speed is key, to get the best locations, so as to build brand awareness."

This is while courting coffee lovers with "better, fresher, stronger" coffee than its competitors. It uses organic fair trade coffee, and keeps the beans for under two months after roasting, unlike others who may keep them for six to nine months, he said.

Another twist is in the brand's Hong Kong genesis.

"We promote ourselves as a Hong Kong name, because in China there is recognition that the Hong Kong brand is unique," he said.

This explains the fusion element that includes "Chinese coffee" and decor that places Oriental lantern lights next to comfortable couches. Food is localised too: grilled pork panini in Beijing as northerners prefer starch, more desserts in Shanghai, where the preference is for the sweet, and "something spicier" in Sichuan.

But will this work, given that young Chinese are flocking to coffee chains for the Western culture and lifestyle?

Tong believes so. "As the middle class grows, they are also becoming prouder of local brands and customs."

So far, it appears to be working. He does not want to reveal the numbers, but said sales are in "high double-digit growth".

Going ahead, one possible crutch is to install kiosks and cafes in the Suguo supermarket chain, which has 4,000-plus outlets. While not ruling it out, he says he wants to resist this route, not wanting Pacific Coffee to be known as a "supermarket coffee cafe".

Plans are afoot instead to market the brand on social media, including WeChat, the popular Chinese version of WhatsApp. He also does not rule out producing expensive television commercials - an unconventional route for coffee chains.

Dressed in a smartly cut suit, the father of two knows well the importance of branding to conquer the Chinese coffee cafe market.

"We are not just selling coffee," he said. "We are selling a unique lifestyle."