Pacific coffee: how to balance and integrate human touch and standardization?

Tang Guojiang jumped back to the corporate world from the PE circle. His latest identity is the CEO of Pacific Coffee (PCC).

Never heard of PCC? It's not your fault. Although PCC is the "favorite chain coffee shop" brand in Hong Kong, there are only 12 direct stores in the mainland so far. But when the old employer, China Resources Group, found Tang Guojiang, the latter agreed.

In July, 00291.HK, a Hong Kong-listed company of the China Resources Group, acquired an 80 per cent stake in Pacific Coffee for about HK $327 million, while the rest was still owned by its former controlling shareholder 00508.HK. Before moving to Sumitomo Asia Capital, Tang Guojiang was in charge of China Resources Microelectronics, the investment, development and management unit of China Resources Group's microelectronics business.

Tang Guojiang's daily experience in the mainland may have prompted him to change careers again: friends in Chengdu, Chongqing and even Changsha have advised him to introduce Pacific coffee to the region as soon as possible. "unlike the coffee consumption habits of Europe and the United States, which are the best part of coffee in the morning and afternoon, people in the mainland can still see cups of coffee even late at night."

The huge domestic demand is still the most attractive thing for him. Ji Ming, president of the Beijing Coffee Association, pointed out that there is still a lot of room for growth in China's coffee consumption market. The market is expected to grow at an average annual rate of around 20% in the future. Global per capita annual consumption is 240 cups of coffee, while China's corresponding figure is only 3 cups.

After the completion of the acquisition, Li Ruxiong, chairman of China Resources CFO and Pacific Coffee, said publicly that he plans to open up to 1000 stores in the mainland; the target is 50 by the end of this year. But is this just the "Chinese Dream" of Pacific Coffee? Pacific has already entered the mainland market. However, before China Resources took over, it had only two stores in Beijing.

Brand war?

In this competition for coffee in China, Pacific Coffee is a latecomer.

In July, Starbucks announced plans to increase the number of stores in China from 450 to about 1500. In addition, with Pacific Coffee at the same time in the mainland market of Costa, the number of stores in the country has exceeded 120. Although China Resources will open 25 new stores in Pacific Coffee a year after it takes over, its network clearly lags behind the first two. The middle and low-end market is the position of local coffee brands.

"our target consumers are professionals who have requirements for the quality of coffee, the people at the next table, and the environment for consumption." Tang Guojiang, CEO of Pacific Coffee, said that demand in the mainland coffee consumer market is gradually subdivided.

This is evident in the location of its 50 new stores this year: concentrated in the four major cities in the north, Shanghai, Guangzhou and Shenzhen, all in the business district; what they have in common is the concentration of a large number of professionals from Europe, the United States, Hong Kong and the mainland. These people are live advertisements for Pacific Coffee. While relying on China Resources, Pacific has advantages in leasing, brand promotion and so on.

With its "Hong Kong experience", the segment of Pacific Coffee has a bright future.

Pacific Coffee and Starbucks have more than 50 per cent of the market in Hong Kong, with 105 stores and more than 110. Its same-store sales are still growing in double digits; the cost can be recovered by opening a new store "at least a month, at most six to nine months". Although reluctant to release the data, Tang Guojiang said Pacific Coffee is "profitable" in Hong Kong.

However, Pacific Coffee is clearly not so sure about its inland expansion strategy, and its internal operating data are analyzed every day. The attempt over the past three or four months is some kind of support: when it opened a store in the middle Huaihai Road area of Shanghai on April 8, "the flow of people and the scale of sales have increased by more than three times"; its stores in the core business district have "the same unit price as competitors". But Pacific Coffee, which is eager to build a brand, currently focuses on coffee, "without food or even other derivatives".

Semi-standardized?

Pacific Coffee still has some "non-industrial" elements: first, it still uses a semi-mechanical, semi-artificial method of brewing coffee. A mature waiter has to go through training, over-the-counter internship, and examinations in order to master the brewing methods of different coffee. Therefore, the biggest problem Tang Guojiang has to face now is to find people and reserve enough store staff.

Secondly, all the coffee beans in the Pacific are purchased from high-altitude coffee beans, so it is urgent to "negotiate more high-quality coffee beans". And its baking is not completely standardized, "by a team of professionals with an average experience of more than 30 years" hand-fried. Not only the supply is small, each batch can only bake 90 kilograms of coffee beans, instead of 270 kilograms under industrial conditions. Second, "can the guest accept the small difference between each batch of coffee?" If not, the larger the store, the more likely it is to be questioned.

How to balance and integrate between this human touch and the standardization necessary for the chain? "this is a problem that we have to face." Tang Guojiang said that not only that, there is also the problem of localization, such as the peak of coffee sales in the morning and afternoon in Europe, the United States and Hong Kong, but in the mainland "you can see cup after cup of coffee almost late at night."

So direct stores seem to be a good strategy. In fact, in the history of its development, all 105 stores in Hong Kong have been operated directly; only in Macau and Malaysia have a small number of franchise stores.

The mainland is not Hong Kong. Can the successful experience in a "tiny place" be replicated to the mainland? Pacific Coffee needs only one warehouse in Hong Kong, but it needs to be built in every city in the north, Shanghai, Guangzhou and Shenzhen in the mainland. According to its internal regulations, the storage period of each kind of coffee can not exceed 2 months, which puts forward new requirements for logistics and warehousing system.

"refactoring the system" is the top priority for Tang Guojiang and his team. The current system can support 50 new stores this year and expansion plans for the first half of next year. However, according to people close to it, the flexibility and malleability of the system still need to be tested.

(responsible Editor: Leo)