Founded in 2004, 85° C Cafe is now the largest coffee chain in Taiwan, surpassing Starbucks just two years after it launched.
I think I was in Sydney in 2006 around the time when they opened their first international store – it was a pretty big deal. Now there are 4 stores in Australia, 11 in California and New York, 300+ stores in China (including 60+ just in Shanghai) and 4 in Hong Kong. The company went public in 2010 and has yearly estimated revenues of US$200 million.
I’ll admit that I’ve never actually stepped foot inside an 85° C – but I’m a sucker for a good business story. So here are my favorite takeaways from a profile about Wu Cheng-Hsueh, the company’s 40-something founder.
From “Taiwan’s Coffee Chain Challenger” by Robin Kwong (August 2011)
How Wu Cheng-Hsueh came up with the concept for 85°C
Mr Wu got the idea for 85° C when he and some colleagues had afternoon tea at the Grand Hyatt hotel in Taipei. “It was very tasty, but the price was certainly not affordable for most people,” he says. They wondered if it would be possible to make pastries and coffee as good as a five-star hotel’s, but sold at half the price.
Mr Wu set up 85° C after he saw an opportunity to provide “affordable luxury”; hence the experimenting with ingredients in search of added value. The name comes from Mr Wu’s belief that 85 degrees centigrade is the best temperature to serve coffee. “I was never especially interested in the food and beverage business. I just went where there was money to be made.”
His entrepreneurial beginnings
Before opening the first 85° C store, he had set up a hair salon, a shoe-sole factory and an interior decoration business, among several others.
Mr Wu started the hair salon with some friends as a 23-year-old fresh out of military service. “The start-up funds needed were not big. We just had a small shop … I knew friends who were hairdressers, and so we decided to pool our money,” says the softly spoken Mr Wu. With no haircare expertise, “I was responsible for chatting with the customers”.
Growing fast to beat Starbucks
It expanded quickly, thanks to aggressive recruitment of franchisees, and within two years it had achieved its goal of overtaking Starbucks as the biggest coffee chain in Taiwan. Mr Wu had even made sure he sourced his beans from the same premium Guatemalan supplier as the US chain. A year later, 85° C expanded into China.
Mr Wu hired pastry chefs and bakers from Taiwan’s top hotels, including the Grand Hyatt, to make 85° C’s trademark unusual bread and cakes, such as a squid-ink buns and bread using yeast grown on grapes. He has aimed to keep prices affordable without the product losing freshness by using standardised, large-scale production. The dough is prepared in a central kitchen, frozen and then shipped to the stores to be baked.
Hiring staff from KFC and McDonalds
The biggest investment Mr Wu has to make in the business, he says, is also the biggest challenge – recruiting and managing people. “The most difficult thing about a food and beverage business is managing people … how do you train and educate them? It is not like a factory where everyone is in the same place.” This is especially the case in China where the cafés, which are directly operated by 85° C instead of through franchisees, are spread out geographically.
With little idea of how to prepare inexperienced employees for working in a café chain, Mr Wu decided to emulate KFC and McDonald’s and institute a very specific set of instructions that would be common to all cafés.
He also hired staff from the two big US chains. “When KFC and McDonald’s went to China there weren’t a lot of food and beverage [trained employees] there, so they trained a lot,” he says. “Now those people are senior staff and when I went [to China], I was able to pick up a bargain [by hiring them].”
His advice for other entrepreneurs starting up
Funds and experience are paramount. These, rather than an ingenious business idea, are the two most important ingredients to success. They are also vital to giving you choices about the business you want: “When you are starting out and do not have a lot of funds, your choice of industries or businesses to get into is limited,” Mr Wu says.
Get a grip on every detail. An entrepreneur must have control over all the details of the business: “That is how you learn not to make the same mistake twice.”
Be flexible, be fast. Have the courage to admit you are wrong and, thereby, stop your losses. “If your strategy is incorrect, you have to adjust immediately – the speed and flexibility with which you do this will determine whether you succeed or fail.”
If you’re into podcasts, here’s an NPR story from 2011 on the cafe’s success in California
Top Photo Credit: 85° C Facebook Page
2nd Photo Credit: FTChinese.com