Why is Taiwan Unification Group willing to withdraw from Shanghai Starbucks? Is it foresight or is it forced by the situation?

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In late July, Taiwan Unification Group announced a "stock swap" deal with Starbucks of the United States, in which it sold a total of 50 per cent of Starbucks in Shanghai and bought a 50 per cent stake in Starbucks in Taiwan. From then on, Starbucks of the United States has 100% control of the operation of Shanghai. Unification has a 100% stake in Starbucks in Taiwan.

Although the two deals have allowed the Unification Group to make a net profit of nearly NT $30 billion, "this is tantamount to the fastest-growing dream of selling China's re-investment business," commented a local brokerage executive. In particular, among the reinvestments of Uni-President Super, Shanghai Starbucks is the most profitable. Once it is lost, it can barely break even, so on the first trading day after the news was released, the share price completely collapsed, with the explosion falling by about 7.8% on that day.

See another opportunity?

In China, a market with an annual growth rate of 15% and the fastest growing market in the world, Starbucks was lost, but Luo Zhixian, chairman of Uni-President Group, laughed at the press conference. "at this stage, I feel fair and very satisfied with the cooperation between the two sides," Luo Zhixian, chairman of the Unification Group, responded easily to the media. " "if you lose this business in the short term, you have to make up for it from other opportunities."

After all, how does the head of Taiwan's largest food group plan this game? It turned out that what he called "other opportunities" was a dream of a long-term "coffee bean king".

First of all, shortly after Luo Zhixian officially took over as chairman of the Shanghai Starbucks Group in 2013, there were rumors that the US headquarters intended to take back the agency of Starbucks in Taiwan. At that time, the media reported that in order to preserve the right of operation of Starbucks in Taiwan, consider following the Hong Kong Meixin Group model and exchange Starbucks in Shanghai for Taiwan.

Unified aides revealed that two years ago, the trading model of giving up Shanghai and taking all over Taiwan had been decided, and only the price had not yet been agreed.

Why did Luo Zhi first hand over the big market and ensure the small market?

To make coffee through the whole process.

Originally, acting as a brand business is the "wife's life". No matter whether it is good or bad, the power of life and death is always in the hands of the parent company, so for Luo Zhixian, this withdrawal battle of Shanghai Starbucks is a strategy for small losses to win. Keeping Starbucks in Taiwan is of more strategic significance to Luo Chih-hsien's dream of being the "king of coffee beans."

According to the analysis of unified aides, Luo Chih-hsien's business style is "big but not small." by selling his stake in Taiwan's MUJI for more than NT $1 billion to Japan's Muji, stopping acting as Afternoon Tea and other brands, he is letting go of the idea of small business. As a result, Luo Zhixian also wants to make up for the loss of Shanghai Starbucks, which has an annual revenue of 28 billion yuan.

Luo Chih-chih often talks about "focusing on his own industry", while the unified industry is to import raw materials, process and produce, and then sell arbitrage through channels such as super commerce. Therefore, the business of coffee has to be bigger, and compared with the agent brands that help people marry, the one-stop mode of importing coffee beans, roasting and processing, and then sending them to Taiwan and overseas channels for sale can generate the greatest profit.

"Uni-President has invested heavily in the establishment of a coffee supply chain, from equipment, coffee raw material plants, coffee formula and process research and development." In June this year, the public statement made by Liang Wenyuan, the minister of unified super fresh food, confirmed Luo Zhixian's strategy, and this time the unified "stock swap" deal with Starbucks will give Luo Zhixian nearly 30 billion yuan to build up armaments for the coffee bean wholesale business.

Unification has long stumbled along the road of the king of coffee beans.

Since 1985, Uni-President has been selling freshly brewed coffee in super stores, but it has been closed in just four years. In 2001, three years after the founding of Uni-President Starbucks, Uni-President opened a "corner cafe" in the supermarket, selling freshly brewed coffee, but the market did not respond well and was quickly defeated.

Almost another Starbucks.

Three years later, the affordable coffee craze appeared in Taiwan, and Uni-President supermarket challenged the coffee market for the third time with the launch of a new brand "CITY CAF É", but its annual sales were less than 2.7 million cups, and its initial performance was still in jeopardy.

The director of Unification revealed that there were two major problems of taste and equipment at that time, and Uni-President Starbucks had come to the fore in Taiwan and become a learning object within the Uni-President Super Coffee team.

The coffee industry pointed out that in the Asian market, Starbucks is based in Singapore, imports raw materials for baking, and then supplies them to outlets across Asia. At the same time, through strict licensing contracts, the upstream technology of coffee is locked in Singapore, which is difficult for agents to imitate.

However, after all, Taiwan's Starbucks and 7-Eleven are owned by Uni-President, and group executives revealed that it is not unusual for people to rotate or recruit ex-employees from each other, so the taste adjustment of CITY CAF É is is rescued by a team with a unified Starbucks background, with the goal of "getting as close to Starbucks as possible."

In order to implement this strategy, Starbucks machines use the leading Swiss coffee machine factory Thermoplan, unified to Switzerland to find the strength of the coffee machine manufacturer Egro; affects the taste of coffee beans, Starbucks contract outside, unified can also go to the same country and region, find other farmers to buy similar quality coffee beans; at the same time, also learn from Starbucks quality control system, unified super training of their own cup tester team.

After this period of transformation, the originally humble CITY CAF É has become a profitable business selling about 320 million cups a year and annual revenue of more than 10 billion yuan, relying on its high CP value, which tastes like Starbucks but costs only half of its price.

More importantly, last year, the annual purchase of coffee beans (raw beans) by CITY CAF É was 5,000 metric tons, accounting for about 25% of Taiwan's raw bean imports, making it the largest user in Taiwan's current brewing coffee market.

We'll see success or failure in five years.

In addition to being able to supply its own more than 7,000 supermarket channels, Starbucks helped create a Chinese coffee culture, a growing market that will naturally be included in Luo Zhixian's coffee bean wholesale layout. Although it is still difficult for Unification to break into Starbucks' own supply chain, retaining the right to operate Starbucks in Taiwan is the key to enabling Unification to continue to master talent, learn from coffee bean taste and other technologies, and keep up with the international trend, so it must be retained.

On the other hand, in the eyes of the Unification Super team, although Shanghai Starbucks has been at its peak of growth in recent years, it made a net profit of about NT $4.1 billion last year, but the amount of equity subscription is less than NT $1 billion. Moreover, now that the Chinese chain catering market is caught in fierce competition in the Red Sea, even if Unification grabs the right to operate Starbucks in Shanghai for a few more years, it will be very difficult to achieve more eye-catching exhibition results.

Perhaps, as one Uni-President executive said, getting back the money for the next 20 years is not necessarily a bad thing. "maybe Starbucks is taking advantage now, but five years later, it's hard to say who will lose and who will win."

Unified construction of coffee bean empire, the key five aids

320 million cups: last year, CITY CAF É sold 320 million cups of coffee and used 5000 tons of beans, accounting for 25% of Taiwan's imports.

7240: global 7-Eleven7240 home supermerchants, Taiwan accounts for 5130, can be recovered to become unified coffee bean shipments

400: the Philippine 7-Eleven has increased by nearly 400 in one year, bringing the total to 2300 this year.

40%: the loss of Shanghai 7-Eleven has been reduced by 40%, and it has even entered the new site of Zhejiang.

15%: China's coffee consumption is growing at an annual rate of 15%, and Uni-President can use the CITY CAF É brand to seize the market.