STiR Tea & Coffee International / October 2014
By Larry Luxner
TAIPEI — Mention a traditional Taiwanese beverage, and tea — not coffee — comes to mind. Yet coffee consumption is ramping up here as local chains battle Starbucks and other global rivals for business across this freewheeling, coffee-gulping island nation of 23 million.
One of the most successful companies in this booming sector is Mr. Brown Coffee, based in the capital of Taipei. Mr. Brown is a subsidiary of Taiwan’s King Car Food Industrial Co. Ltd., which besides ready-to-drink coffee also produces dietary fiber beverages, instant noodles and various brands of whisky.
Recently, we caught up with Yi-Ling Wu, chief of King Car’s research and development division; she also heads the 300-member Taiwan Coffee Association.
“When our company was launched in 1980, Taiwanese people weren’t drinking coffee, only tea health drinks,” Wu explained. “Our president, Tian Tsai Lee, wanted to create a coffee product, so the marketing people had to think of a name. He thought, ‘coffee is black, sugar is white, and mixing them together is brown.’”
Nostalgia also helped the company settle on not only its name, but its mascot too, turning the ubiquitous bearded Mr. Brown — in his white suit and Panama hat — into the Taiwanese equivalent of Colombia’s Juan Valdéz.
“When we learn English, our first lesson is ‘Good morning, sir. This is Mr. Brown. This is Mrs. White. So everybody already know who Mr. Brown was,” she said. “That’s why we named the company Mr. Brown Coffee.”
From that humble beginning, Mr. Brown has grown to 68 retail outlets across Taiwan. It began exporting to the United States in 1986 and in 2008 expanded its retail operations to mainland China, where it now has two shops there, both in Shanghai.
In Taiwan itself, Mr. Brown commands a 65% share of the NT$5 billion ($167 million) market for RTD canned coffee.
King Car, the parent company, has annual sales of around NT$10 billion ($335 million). Coffee accounts for roughly 50% of the total, while whisky sales make up 25% and the remainder comes from the sale of health supplements, cleaning detergents, mosquito repellant and other household goods. Of the conglomerate’s 2,500 employees, the coffee division accounts for 1,500; the shops themselves average 7-10 workers each.
Wu, 52, joined King Car at the age of 22 — a milestone not only for her but for the company as well.
“Thirty years ago, only males could apply for such jobs. I saw the advertisement and thought, ‘why only males’? So I applied. The supervisor interviewed so many people but in the end, they chose me.”
As chief of R&D, Wu travels frequently throughout Asia, Europe and the Americas. The company sources its coffee from Indonesia as well as the Central American nations of Guatemala, Honduras, Panama, Honduras and El Salvador.
This partially explains why Taiwan’s commerce with those five countries — all of which have free-trade agreements in place — totaled $778.35 million in 2012. That was a 103% increase over 2003 figures.
In late June, journalists from each of those nations participated in a week-long press trip to Taiwan that included meetings with government officials and visits to ports, factories and cultural attractions in Taipei, Taichung, Kaohsiung and elsewhere. Also invited on the trip — sponsored by Taiwan’s Ministry of Foreign Affairs (MOFA) — were correspondents from the United States, Brazil, Canada, Chile, Colombia and several Middle Eastern and Asian countries that enjoy diplomatic relations with the People’s Republic of China while maintaining business and commercial links with Taiwan, which Beijing considers a breakaway province of China.
“For more than 50 years, most of Central America has recognized the existence of Taiwan,” said Victor Chu, senior secretary of MOFA’s Department of Latin American and Caribbean Affairs. “We appreciate this kind of relationship, but you cannot say that means we have more business or investment from those countries. We have lots of investment in Vietnam, for example, but no diplomatic relations with them.”
In fact, despite its relative political isolation — only 22 countries have full-fledged embassies in Taipei — Taiwan is now the world’s 20th largest exporting nation, and its 18th largest importer. Last year, total trade came to $575 billion, with exports at around $305 billion. And Taiwan’s inhabitants enjoy an annual per-capita income of roughly $21,000, compared to $6,800 for mainland China.
That prosperity largely explains the proliferation of coffee shops all over Taiwan, whose population density of 642 people per square kilometer makes it the 16th most crowded nation in the world.
The average Mr. Brown shop is smaller than its Starbucks counterpart, measuring between 40 and 50 square meters and seating anywhere from 10 to 100 patrons. Its largest outlet by far is at the King Car whisky distillery in Yilan, a two-hour drive from Taipei. This shop is quite popular with tourists from the Chinese mainland, which can often be found crowding the gift shop or posing for pictures with the Mr. Brown mascot.
Starbucks entered the Taiwanese market in 1998 and now has 284 outlets in a joint venture with Uni-President Enterprises Corp. and President Chain Store Corp. According to a recent article in China Daily, President sells latte for NT$50 at the 4,700 or so 7-Eleven stores it operates throughout the island.
Another competitor, Gourmet Master, has 325 outlets under the 85C brand, where it offers a 16-ounce serving of latte for NT$65. That compares with NT$110 for the same latte at Starbucks, and NT$120 at Mr. Brown. Other items that can be enjoyed for NT$130 at Mr. Brown include hazelnut café latte, vanilla café latte, chocolate toffee café latte, café mocha, iced coffee float, espresso ice cream, espresso frappe, mojito mint chocolate frappe and honey citron frappe.
“More than 50 years ago, people started drinking coffee because of the Japanese occupation of Taiwan,” Wu said. “My grandfather and my father drank coffee, and so my generation got into the coffee-drinking habit too.”
In absolute terms, the Japanese are Asia’s most avid coffee drinkers, consuming 7.13 million bags in 2012, according to the London-based International Coffee Organization. That compares to Indonesia (3.58 million bags), Philippines (2.17 million bags), South Korea (1.71 million bags), Vietnam (1.58 million bags), China (1.07 million bags), Thailand (1.05 million bags) and Taiwan (396,000 bags).
In its latest report, the ICO says Taiwan’s per-capita coffee consumption jumped from 0.4 kg in 1990 to its present 1.0 kg, while the island now has more than 10,000 coffee establishments.
“Taiwan also has an increasingly urbanized population, which is conducive to further growth in the market,” said the ICO. “Most imports are of green coffee (67% in 2012), but soluble coffee played a key role in developing the coffee market in the late 1990s. Futhermore, the market share of Arabica in the Taiwanese coffee market is one of the highest in the region, estimated to have exceeded 60% on average since 2000.”
Even so, average per-capita coffee consumption in Taiwan, while higher than Thailand, Indonesia and Malaysia, is way behind Brunei (4.3 kg), Japan (3.4 kg), South Korea (2.1 kg) and the Philippines (1.3 kg) — so there’s clearly plenty of room to grow.
“Young people don’t drink tea as much anymore. Now coffee shops are more popular,” Wu said, adding that while Starbucks has a much larger presence in Taiwan than does Mr. Brown, true coffee connoisseurs know the difference.
“We are a 100% Taiwanese company, and we make our own everything,” she told us. “We import the green beans, roast in our own factory and deliver to our shops every week. Starbucks roasts its coffee in America or Europe, then imports it to Taiwan. Sometimes they keep the coffee for months, so it’s not fresh. Our coffee is always fresh.”
Wu said Mr. Brown roasts all its coffee at a factory in Chungli, which is near the country’s main international airport, about 40 minutes south of Taipei. Wu says the company roasts about 3,000 kilograms of coffee daily. The factory utilizes two lines of high-speed filling machines manufactured by Japan’s Mitsubishi; each line produces 1,500 cans per minute.
“We have to work very hard, because so many companies are getting into this market, and we want to stay number one,” she said.
Yet it hasn’t always been smooth sailing for the jolly, ever-grinning Mr. Brown.
In September 2008, a Chinese scandal involving milk tainted with the industrial chemical melamine made worldwide headlines — including in the New York Times — after 50,000 children in China were sickened. King Car was forced to recall seven brands of canned instant coffee and tea exported to the United States after testing showed that the products were contaminated with melamine.
The U.S. Food and Drug Administration alerted consumers about the voluntary recall. Ever since that scare, Mr. Brown has been sourcing its milk from New Zealand.
“The issue was that our supplier in mainland China was putting melamine in its nondairy creamer and exporting it to Taiwan. We recalled everything and destroyed it all,” she said. “This was a bad issue for us, but we were honest in telling people about it.”
Even so, China — with its 1.4 billion consumers and rapidly growing middle class — offers an enormous growth potential for Mr. Brown and its Taiwanese rivals.
In fact, mainland China now ranks as Taiwan’s largest trading partner, accounting for 28 percent of total trade and 39 percent of total exports. In second place is the 10-nation ASEAN bloc (Association of Southeast Asian Nations), followed by Japan, the 28-member European Union and the United States.
Things have definitely changed since May 20, 2008, when Ma Ying-jeou took over Taiwan’s presidency from his predecessor, Chen Shui-bian, who was openly hostile to Beijing. Within three months of taking office, Ma launched direct weekend charter flights between the People’s Republic and Taiwan, opened the island to mainland Chinese tourists and eased restrictions on Taiwanese investment in mainland China.
As a result, last year 2.8 million Chinese citizens visited Taiwan on tourist visas, cramming such popular tourist attractions as the Taipei 101 skyscraper and Taipei’s National Palace Museum. Likewise, 5.3 million Taiwanese visited China in 2013 — up from two million in 2007. That year, there were no flights at all linking the two Chinas; now, 858 scheduled flights cross the Straits of Taiwan each week.
A direct flight from Taipei to Shanghai now takes only 90 minutes, compared to the six or seven hours a passenger would have spent flying that route via Hong Kong just a few years ago.
Wu said that while the Chinese market is indeed lucrative, she’s rather focus on coffee sales to consumers than retail shops.
“I wouldn’t like to expand the shops too much because this takes lots of manpower,” she explained. “Also, the Chinese market is difficult. Maybe in big cities like Beijing or Shanghai, they know coffee, but in most of China, the coffee market is not really mature. Rather, I want to supply more convenient coffee for them, such as RTD espresso, or individual drinks like our three-in-one, which contains coffee, sugar and creamer. We can create different flavorings, and you can take these anywhere, and when you’re traveling, just add water.”
Mr. Brown has eight branch offices in the mainland — including Beijing, Hong Kong, Guangzhou and Shanghai — as well as in New York, Los Angeles and elsewhere.
“Business is business,” Wu said. “The [mainland] Chinese want to protect their industries, but right now they need our food industry. In Taiwan, the food industry is safer and more creative, and our technology is more mature. In the last two years, so many Chinese government people have visited us to see our factories, and know what we are doing. They want to learn how to control everything.”