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Specialty coffee shops have sprung up on nearly every street corner in recent years. Can they thrive in a traditional tea-drinking culture? 

Nobody seems quite sure when Taipei’s love affair with specialty coffee shops began. The pioneers have been around for more than a decade: Woolloomooloo, Rufous Coffee, and of course Cama, which has more than 120 stores in Taiwan and has mastered the art of selling good coffee at a competitive price to cost-conscious Taiwanese consumers. To date, it is one of the few local chains that can make that claim.

Most Taipei coffee shops are small independent businesses. There are hundreds of them throughout the city, many with expert baristas who do all the roasting in-house. To say coffee enthusiasts are spoiled for choice in Taipei is an understatement.

Veterans of the café business here say that Starbucks’ arrival in the late 1990s helped popularize coffee nationwide, but that most Taiwanese didn’t start to drink it daily until convenience stores began heavily promoting their own freshly brewed brands a few years ago.

“If you’re trying to sell food or drink to the mass market in Taiwan, convenience stores have the best distribution channels – they’re everywhere,” says Benny Ho, president of Cama Coffee. As of the end of 2017, Taiwan had 10,662 convenience stores, roughly one for every 2,211 people, according to government data. Only South Korea has a higher convenience store density.

Additionally, even if the coffee sold by the convenience stores isn’t premium quality, the price is right, Ho says. A cup of freshly brewed black coffee at 7-Eleven, Taiwan’s largest convenience store chain, costs just NT$35-$50. At FamilyMart, the No. 2 chain, an Americano is just NT$25-$45.

Fresh coffee sales rose 17% annually in 2017 – the most recent year for which statistics are available – to NT$16 billion (US$520 million) at Taiwan’s five convenience store chains, according to Fair Trade Commission data. Convenience stores are keen on coffee because its gross margin of 50% is the highest of any product category they sell. FamilyMart earned NT$3 billion in revenue in 2017 from its “Let’s Café” freshly brewed coffee brand, Taiwan’s Central News Agency reported last October.

With their vast resources, the convenience stores can invest for the long-run in mass-market coffee as a profitable business. But for individual coffee shops, especially those selling premium coffee, margins are nowhere near as high.

“This isn’t a business you enter to become rich. It’s more about a passion for roasting coffee and teaching people how to enjoy coffee,” says Chu Ya-ta, owner of Oasis Coffee Roasters in Taipei’s Da’an district and a former barista at Rufous Coffee. He likens speciality coffee shops to fine dining, characterized by pricy ingredients, laborious preparation, and limited sales volume.

Still, many local entrepreneurs are undeterred. Jack Lo, general manager and senior partner of the Cafeist, which has three outlets in Taipei, sees economic factors behind the coffee-shop boom. He says that the Taiwanese economy never truly recovered from the Great Recession of 2008-2009. He has a point. Taiwan was a fast-growing economy as late as 2007, when GDP expanded by 6.5%. Growth plummeted after that, averaging just 2.7% from 2008 to 2017.

With wages stagnant, the idea of being one’s own boss – always an integral part of Taiwanese business culture – is more attractive than ever. Lo worked for years in an agency that prepares students for overseas study before founding the Cafeist with a group of investors in 2011.

“Taiwan’s always had lots of specialty drink shops – we just focused more on tea in the past,” he says. “Coffee isn’t too much of a jump.”

Lo isn’t overly concerned about the proliferation of look-alike coffee shops in Taipei. “This is a free market. We have to accept it,” he says, while adding that he expects underperforming coffee shops to close “in a year or two, when their leases are up.”

Yang Bozhi, who founded Rufous in 2007, says that some people may enter the coffee business without realizing what they’re getting into. “It might look easy because of the low barrier to entry,” he says. “You can open with NT$1 million to NT$2 million in startup capital and a retail space, but operating it well is another story.”

Indeed, sourcing good beans can be a challenge unto itself. Like grapes used to make wine, coffee beans are different every year, affected by changes in the weather. They’re almost entirely sourced from tropical regions along the equator, running from Latin America to Africa and Indonesia. Many growers harvest coffee just once annually. Coffee is harvested by picking coffee cherries and removing the seeds of the fruit – the beans.

Taiwan does produce a small amount of coffee domestically on the private plantations of Ali Mountain in Chiayi County, but high labor costs generally make it too expensive for the local market. A coffee cherry picker in Taiwan earns about US$30 a day, compared to US$1 in Ethiopia, The South China Morning Post reported in January.

Even if one has a good coffee supplier, in the wrong hands the beans will go to waste. Since coffee beans are fragile by nature, the roasting process requires finesse, dexterity, and lots of patience. Slight differences in roasting temperature or roasting time (just 10-20 seconds), can have a big affect on how coffee tastes when it’s brewed.

Taiwan’s intense heat and humidity pose particular challenges to local baristas. To prevent mold and other fungus growth, coffee beans should remain in a climate-controlled environment, Yang says. Controlling humidity helps ensure that the beans maintain the right amount of moisture content and flavor profiles.

To each his own

In a café market as competitive as Taipei’s, it’s hard to stand out. Yet each of the coffee shop owners Taiwan Business TOPICS interviewed highlighted the distinctive nature of his outlet and brand. In Cama’s case, president Benny Ho decided early on that he wanted to focus on the coffee, not food or atmosphere.

Cama’s mission from the beginning has been to provide fresh coffee to consumers and cultivate roasting expertise among its barista team, Ho says. Cama is the first and only Taiwanese coffee shop franchise to roast nearly all of its beans on the premises of each individual store.

Cama was also among the first successful local coffee brands. The company sells its own branded coffee beans at all of its retail outlets, as well as pre-ground coffee in individual drip bags. It even has a mascot, Beano, a white anthropomorphic coffee bean. Life-size plastic figures of Beano can be found outside every Cama shop, usually seated on a wooden bench, wearing an expression of serenity. The message is clear: With a good cup of coffee, Beano has found happiness. And he’s just waiting for patrons to snap a selfie with him.

Beano has that endearing cuteness, or kawaii, that the Japanese pioneered and Taiwanese consumers like. And the idea is pretty original. The coffee industry hasn’t had many anthropomorphic mascots. To find something similar, we’d have to go back to the 1980s and Bud Light’s Spuds MacKenzie, the loveable beer-drinking bull terrier. Spuds certainly helped sell beer and Beano is doing the same for coffee.

For a customer experience purely about coffee, Cama’s strategy makes sense. Its stores are tiny, with little or no seating, and they don’t need a kitchen or facilities to store food. The lower overhead makes the operation much more economical.

The Louisa brand, which has hundreds of sit-down outlets throughout Taiwan and offers a variety of pre-made food, has a different strategy. Its coffee roasting is centralized, so franchisees need not be baristas. Food is a big part of the Louisa experience. The company invested NT$60 million in a new food production facility last year, according to the Chinese-language Commonwealth Magazine.

“Louisa is becoming like a local breakfast shop, but featuring coffee,” Ho says. “It’s competing with a lot of traditional breakfast stores.”

For its part, Jimmy Yang’s Woolloomooloo has long sold high-quality coffee alongside food, but in an Australian-style café setting sometimes described as a “gastropub” because of its eclectic menu, which includes tasty preparations of everything from salads and thin-crust pizza to Vietnamese spring rolls and Thai curries.

The newest Woolloomooloo outlet is something different – a take-out coffee shop on Songjiang Road in Taipei’s central business district. The many nearby office workers now have a new alternative to Starbucks.

Yang grew up in Melbourne, a city known for its vibrant café culture, where he says he was spoiled by the excellent yet affordable coffee. He notes that Australia is one of the few developed economies where independent coffee shops have prevailed over Starbucks.

One way Woolloomooloo distinguishes its coffee is with a slightly lighter roast than the big brands use. Starbucks, for instance, sells Sumatran dark roasts in high volume, having perhaps been influenced by founder Howard Schulz, a big fan of Indonesian coffee. A good dark roast from Sumatra usually has a pleasant earthy taste, maybe with some hints of chocolate, but not too much else.

“When you roast lighter, the natural flavors of the beans, the fruits, the acids, it’s all more apparent,” Yang says. “You don’t want to roast beans too darkly for the same reason you don’t want to overcook fresh vegetables.”

When coffee beans are over-roasted, “they taste like charcoal, like carbon,” he says.

Lighter roasts may also be healthier, according to a 2017 study published in the Journal of Medicinal Food from Korea. The study, which analyzed four different coffee roasts ranging from light to dark (French roast), found that the light roast had the highest levels of chlorogenic acid, a phenolic compound believed to help control blood sugar levels and reduce inflammation.

Woolloomooloo is also known for its cold drip coffee, a technique for coffee-making that uses no heat. Instead, ice water gradually drips over freshly ground coffee through a “drip tower” typically made of three glass vessels. The process is time consuming, taking anywhere from 3.5 to 12 hours.

“It’s an extravagant way to extract coffee, and results in a very refined taste,” Yang says.

Less fancy but equally delicious is Oasis Coffee Roasters’ Shakelatto (the name is a rejiggering of the Italian word caffe shakerato), a double shot of iced espresso shaken to a froth over ice. It has the pick-me-up pleasure of a double espresso, but the ice takes off a bit of the edge. It’s more refreshing than jarring.

Oasis prides itself on offering excellent coffee in a relaxed atmosphere, owner Chu says. “If you take yourself too seriously, you create distance with the customers.”

While Oasis isn’t large, it’s comfortable and well laid out. There is ample seating, including bar-style seats and large tables, none too far from an electrical outlet. Wi-Fi is gratis. There are all kinds of magazines to peruse – about coffee, lifestyle, arts and entertainment, in Chinese, English, and Japanese. It’s the kind of place patrons can come and stay for hours, whether they’re chatting, reading, or working from their laptops.

“There’s so much competition in Taipei that you really need to make your coffee shop unique to attract enough business,” Chu says. “If people are going to come and sit down in your shop, they want more than just a beverage.”

Overall, coffee-shop owners in Taipei remain wary of market saturation but sanguine about the interest of Taiwanese consumers in coffee. Yang of Rufous Coffee Roasters finds that his patrons have a genuine curiosity about coffee appreciation absent in years past.

“When I first opened [in 2007], people would order a black coffee from me, and then load it up with milk and sugar,” he says. “Many customers found the taste of black coffee too bitter.”

Today, “Taiwanese are more interested in how coffee tastes – the characteristics of the different beans and preparation techniques,” he says. “People ask me to introduce them to something good and they drink it as is.”

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The types of facilities reflect changes taking place in the make-up of Taiwan’s tourism market.

New hotels are continuing to open in Taiwan while the composition of the local tourism market goes through some major changes. Though tour groups from China used to account for a large proportion of the visitors to the island, tensions in cross-Strait relations in the past few years have slowed their arrival. Overall visitors to Taiwan increased by 3.05% in 2018 over the previous year to exceed 11 million, while the number of travelers from China fell by 1.53% to just under 2.7 million.

The rise in tourists has accelerated so far in 2019 on surging numbers of “free independent travelers”– known in the trade as the FIT market. For the first four months of this year, total visitors increased by 10.64% and those from China were up by 18.53%. In addition, significant growth in visitors has occurred from Japan, South Korea, Southeast Asia, and North America.

These increases may be due to the Taiwanese government’s successful efforts in reinvigorating its tourism industry. Tourism 2020, an initiative spearheaded by the Tourism Bureau, has made strides towards boosting international tourism and diversifying the source of visitors. For example, between April 1 and mid-June this year a program under Tourism 2020 offered “spring travel” subsidies of up to NT$1,500 to foreign visitors.

The changes in the market have been attracting new investment in the tourism industry. Among the many hotels that opened in February and March this year are the Kimpton Da An, The Place Taipei, the Grand Cosmos Resort Ruisui-Hualien, and the Just Palace Hotel.

For small boutique hotels like the Kimpton Da An – located on Ren Ai Road, Section 4 in east-central Taipei, the changing face of Taiwan tourism is a benefit. “When we talk about the China market, it’s divided between groups and transient FITs,” says Matthew Lim, the hotel’s General Manager. “We can’t target the groups because we are really small – 129 rooms – so I think the increase in transient FITs is actually an advantage for us.”

Opened in March, Kimpton Da An is the San Francisco-based Kimpton brand’s first foray into Asia. Kimpton Da An is primarily targeting visitors coming for leisure rather than business purposes. Chinese tourists are the most numerous visitors by nationality, with Hong Kong and the United States a close second and third.

Given Taiwan’s excellent culture of hospitality, Lim expresses confidence that this market is the right fit for Kimpton’s expansion into Asia. The Kimpton experience, which emphasizes personalized individual service, made Taipei a good match for an opening destination.

“Anyone who comes to Taipei will tell you that it’s the people here, the culture, that makes this place special,” Lim says. “Taiwan is probably one of the best countries to execute the service values and culture that the brand is trying to deliver.”

Business travelers are also important to Taiwan’s tourism industry, given the country’s vital role in international trade. For business-oriented hotels like the Courtyard by Marriott Taipei Downtown, which had its soft opening in December 2018, the target demographic is the 30-45 year-old working professional. As a result, the fluctuating Chinese tourist market does not impact them as strongly.

“We are confident that we can gradually reach an average room rate of NT$5,500-$6,000 in 2019,” says Amanda Lin, marketing manager of the 227-room hotel, which is owned by the Cathay Hospitality Management Co. Since the opening in December, the hotel has maintained an overall occupancy rate of 60% at an average room rate of NT$5,600. Located on the corner of Jianguo and Minsheng Roads, eight minutes from the Taipei Songshan Airport, the hotel is equipped with multiple conference rooms and work-friendly amenities to provide an efficient experience for the busy professional.

The strength of Marriott’s international brand has also been helpful to keeping occupancy rates high. Some 80% of current customers are members of Marriott Rewards, the group’s international loyalty program. On average, 66% of guests are from the Asia-Pacific – especially Taiwan, Japan, Korea, Hong Kong, and Macao – while 30% are from Europe and the U.S.

(Another Courtyard by Marriott, this one owned by the Leofoo Group, opened in late 2016 near the Taipei Nangang Exhibition Hall in the Nangang District).

Hilton is another international brand expanding into Taiwan. Along with the opening of the Hilton Taipei Sinban in October 2018 in New Taipei City’s Banqiao District, the DoubleTree by Hilton Taipei Zhongshan opened toward the end of last year on Zhongshan North Road, Section 1. Hilton first came to Taiwan in 1972, but withdrew from the market in 2002. The return to Taiwan after 17 years reflects Hilton’s confidence in Taiwan’s potential for growth.

Though the DoubleTree was originally positioned as a more corporate-oriented hotel, the split between business and tourist customers is now around 50/50. “Because Hilton is an American brand, our members come from all over the world,” says General Manager William Wu. “Taiwan has a lot of points that are suitable for international development, and Hilton is very confident in Taiwan.”

Wu also cites the Hilton Honors membership program as an advantage for the DoubleTree brand over local hotels. When members come to Taiwan with little knowledge of where to stay, they are inclined to first look for Hiltons because of their familiarity with the brand.

The stream of new hotel openings shows no signs of slowing down in the near future. The Taipei Sky Tower due to be completed next year in Taipei’s Xinyi District is scheduled to house two Hyatt brands, a Park Hyatt and Andaz. The InterContinental Hotels Group (IHG), owners of the Kimpton Da An, have an additional six hotels in the pipeline. In addition, the L’Hotel de Chine Group (LDC) plans to expand its presence on the island with more properties.