December 18, 2009

Entrepreneurs Creating “Affordable Luxury” In China

Companies Appeal To Wider Range Of Customers With Affordable Yet Upscale Offerings

Taiwanese bakery chain 85c has successfully blended global luxury with prices and products that Chinese consumers find most appealing

Taiwanese bakery chain 85c has successfully blended global luxury with prices and products that Chinese consumers find most appealing

Although we tend to focus on the higher-end luxury market, occasionally we notice an interesting news item coming out of the Greater China region that puts a distinctly Chinese spin on luxury. While Chinese luxury brands are still the underdog in their home market — particularly for fashion items or automobiles — coffee shops and bakeries often have a home-court advantage in China.

Though Starbucks has had huge success in the Chinese market, opening over 350 stores and projecting that number to double in the next 10 years, home-grown entrepreneurs from Taiwan and the mainland are getting more creative in their approach to “luxury” foods and drinks. While it may be odd to think of a chain like Starbucks being considered “luxury,” in China, these foreign chains mainly draw well-to-do urban youth or professionals rather than high-school kids.

85c, a Taiwan-based coffee and bakery chain, has tried to bridge the gap between the cosmopolitan and the everyday through what it calls “Low Price Luxury” (平价奢华) or “Affordable Luxury,” a concept that has helped the chain expand throughout Taiwan and the mainland, and even into the Australian and US markets. In an interview this summer with CHaINA magazine, 85c’s Assistant General Manager Peter Zhu explains the idea of “Low Price Luxury”:

Why is the brand called 85c?

PZ: We found that the best coffee is made at 85 degrees Celsius, then by accident, we found most bread is baked at 85 degrees Celsius as well, so that’s where the name comes from.

When did you start the business in China?

PZ: We opened our first store in Shanghai 2 years ago. We now have 42 stores, 31 are in Shanghai and the rest are in Hangzhou and Suzhou. We are planning to open another 91 stores in Shanghai by the end of the year. We built our factory in Song Jiang in June last year. Before that we had no factories. We made everything at the back of the store.

Compared with bakeries like Paul, Christine and others, what is the 85c advantage?

PZ: The media has called us Pin Jia She Hua (low price luxury) in Taiwan. In light of the current economic situation, one alternative to maintain business is to offer customers a quality product at a lower price. The ingredients we use for making bread and cake are top quality ingredients imported from France and New Zealand. Most of our bakers were used to making cake or bread at 5 star hotels and the cake might cost TWD100 in the hotel but in 85C we sell it at TWD30; same thing with coffee. Another advantage is our new store opening speed. In Taiwan, we had a record of opening a new store in 2 days. In 10 consecutive months, we opened 16 stores per month. Our target in China is the same, but sometimes getting the permission for a new store takes longer. In Shanghai, currently we can open up 7 stores per month.

What’s the average sales revenue of a store?

PZ: The best shop can have revenue of RMB1.9 million per month in Shanghai, while our store in the US, can do in excess of USD 400,000 per month.

Has the economic slowdown impacted your business?

PZ: Not very much. The least affected sector is the food industry. People may cut down their budget for buying clothes and entertainment but not their budget for eating.

What’s the plan for the future?

PZ: To be honest, we shareholders could just stay in Taiwan and stick with the business there and have a steady income. We see how the market is flooded with Western brands like KFC, McDonald’s and Pizza Hut and given our success in Taiwan and China, we feel we can build this Chinese brand and promote it elsewhere. We see the opportunity, but we still need to enhance our management experience and that takes time.

We will have to see if “Low Price Luxury” becomes as successful for companies in other fields, such as fashion or wine (maybe following the lead of American wines like “Two Buck Chuck“). For companies like 85c, who tailor their business model to the Chinese market and understand the needs and priorities of their customers, 平价奢华 could be one of the keys for Chinese businesses to compete with massive multinationals like Starbucks.

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