Wawee Coffee vs. Starbucks – Business Model Design in the Thai coffee market

I’ve been living in Chiang Mai, Thailand, for 9 months now and as a consultant and manager I work better when I get my daily dose of premium espresso. I usually get this caffeine supply from a small local coffee chain called “Wawee Coffee”. They have a shop just around the corner from where I live. But when I realized that a huge Starbucks was being built just across the fence I feared that “my” coffee shop might be endangered of extinction. So I was wondering if Wawee's business model design would withstand Starbuck's global power-brand...

Wawee is a small local chain from Chiang Mai with 4 shops (and one planned in Bankok), while Starbucks is a global gorilla with currently 3 shops in Chiang Mai (over 60 in whole Thailand). Their offerings are roughly similar and they both serve a range of high quality coffees. Regarding price, however, there is a big difference. Starbucks serves a small espresso for 60 THB (1.45 USD) while Wawee asks for 50 THB (1.20 USD) after a rise of 5 THB since January 1st. That is a full 20% more. For an hour WiFi access to the Internet at Wawee you pay 30 THB and a full 150 THB at Starbucks. That’s 400% more!

The difference in pricing gives us a pretty good clue of both chain’s different market focus. Wawee seems to be aiming at the mid-market of well-off students, service professionals and the generally growing middle class, while they leave the low-end market to small coffee shops that serve an espresso for 20 THB. Starbucks seems to cater mainly to an expatriate and tourist community and to relatively wealthy Thais (a selected but growing species). If you look into either chain and study origin, style and closing of the customers you’ll find this hypothesis confirmed. However, Wawee seems to please a larger and more diverse range of customer types.

Location speaks the same language as pricing: Starbucks is present in two places frequented by tourists and one classy shopping center. Wawee has two shops close to the University, one in the biggest bookstore of Chiang Mai and another one beside a mid-range shopping center. The coffee shop I am writing this posting from is just beside Chiang Mai University and coincidently at a booming shopping street.

Until this point the business design between the building blocks of each chain’s business model form a coherent total with a nice fit. Strangely the customer relationships at both chains don’t really reflect their market identity. At Wawee you pay for the coffee at the counter and get it served at your table with a smile while at Starbucks you pay and wait until you can take it away. Latter treatment doesn’t really seem to fit the high end of the market they are serving but it doesn’t seem to deter classy customers either. Probably the strong Starbucks brand makes up for this.

Regarding the infrastructure side both business models seem to build on similar capabilities. Starbucks needs more capital for its presence in its generally more expensive places. They also spend more money on advertising and special events. Both chains have standardized their coffee making process that offers great quality.

Concluding it looks like both business models can coexist because they address rather different market segments. Wawee probably makes more income from scale and Starbucks from the higher margin. However, latter bears heavier investments and a weightier cost structure.

As far as I’m concerned I’ll stay loyal to Wawee. It feels more authentic than Starbucks. Particularly the young committed Wawee team that seems to manage, serve, clean and also train staff for other outlets is a pleasure to watch. Even with the best business design this example proves how execution plays a major role in building business success. And this team works so hard and does such a good job that I’d think they’d own the place - even though they don’t. As a consequence of their hard work the appearance of Starbucks has, quite surprisingly, brought even more customers to Wawee. The indicator: Since Starbucks opened in my neighborhood I have a much harder time to find a free table at my local coffee shop.