On a frigid mid-November morning, over 300 people huddle in an orderly queue awaiting the grand opening of 85°C Bakery Café’s newest store in Newark. Extremely popular in Taiwan, the bakery-coffee house was opening its first northern California location, one of more than 700 retail stores located in Taiwan, China, Australia and the United States. This year alone, the company has opened new stores in Chino Hills, Newark, Gardena and Garden Grove. With the completion of its new central facilities in Brea and Newark, 85°C Bakery Café plans to open at least 10 new stores in the new year.
As the fifth store in California, the Newark store is located in Fremont Plaza, near Ranch 99, a popular Taiwan-owned supermarket chain. Taiwan Insights visited the store on the afternoon of December 18 and saw around 50 people in line, but with five cashiers hard at work in just the Pastries and Breads section, and another two at the Cakes and Drinks section, the customers moved along steadily. The shelves were well stocked by a team of clerks calling out “Fresh Bread, Fresh Bread” as they made their way around the crowd. Judging by the popularity of the store during a weekday afternoon the first northern Californian location has proven to be most successful.
Michelle Wu who lives nearby said that the store had sent out invitations to residents of Newark for a soft opening beforehand. On the actual day of the opening, she tried to go, but was daunted by the line going out of the door. She checked again throughout the week, but saw the same extensive queues. “The following weekend, hoping to beat the crowds, I went at 7:30 am and stilled waited for more than an hour”, she said.
Expanding in California
Stephanie Peng, public relations manager of 85°C Bakery Café in the US, told Taiwan Insights, that the company has local flavors that they try to develop for each country. In fact, “we have a R&D team with chefs that are always creating new bread and cake products and our own drinks team.” Among the most popular drinks are Sea Salt Coffee/Tea and 85°C coffee. They are also known for the Marble Taro, Brioche, Milk Pudding, Berrytale, Cheese Dog, Squid Ink Bread, Coffee Crème Brulee, Mango Crème Brulee, Halfmoon Cakes, Mochi Egg Tarts, and Sponge Rolls.
Since most Taiwanese consumers usually find American pastries too sweet, the bakery tried to find the middle ground. Lillian Liu said one of her favorites at the bakery is the Blueberry Cheesecake and “one of the reasons I like the cakes at 85°C Bakery Café is because the cakes are not too sweet,” she said.
“Before we opened our first store, we did a lot of research and product testing to alter our products so that our customers in the American market would love and enjoy it! 85°C products here compared to Asia have many more flavors. The sweetness is slightly sweeter but not too sweet compared to the American products.”
Founded in 2004 in Taiwan, 85°C Bakery Café was chosen as the name because 85°C is the ideal serving temperature for coffee. The company’s first overseas branch opened in Australia in 2006. When the first retail store in the US opened in 2008, 85°C Bakery Café quickly won a loyal following. According to Peng, the company has been featured by Time, CNN, NPR, the Travel Channel, and the Los Angeles Times. Since then, the company has grown, but not as fast as its fans would like.
In talking to Commonwealth monthly in Taipei, James Hsieh, 85°C Bakery Café’s CEO said, “We could not make further progress before, because we were bounded by some ropes – a lot of unsolved issues.” He noted that the previous model of having a retail space in the front with a factory at the rear prevented the company from entering shopping malls. Therefore, he decided to spend NT$3.1 billion (US$104.7 million) to build a more automated centralized factory in Southern California.
According to Commonwealth, the company built its 71,000 square foot factory in a quiet industrial zone in Brea to serve its southern California growth. It is equipped with a tower capable of holding 66,000 pounds of flour, and a sweeping furnace, equal to 3.5 traditional kilns. This centralized factory can provide baked goods for 30 to 50 retail stores. By undertaking this investment, the company is hoping to reduce its workforce at local stores by 30 percent and also leave more retail space for customers.
Building an international brand
Before starting 85°C Bakery Café, Hsieh was the second in command of over 4,000 7-Elelven convenience stores in Taiwan’s President Chain Store Corp. During his 30-year career, he helped build a kingdom of super retail stores in the island. Now he has his sights set on entering the American market.
Hsieh goes to the US for an inspection tour every three months and holds weekly meetings with managers and top executives in the US. He said, “I feel that the American market is more important than that of China,” adding that China’s market accounts for up to 70 percent of total revenues of 85°C Bakery Café, but Hsieh sees the power of American consumers and the international stage. “Only when you survive in this market, will you be competitive enough, and 85°C Bakery Café will be recognized as an international brand, not a regional brand. This is what I want to achieve.”
Competing with Starbucks
Starbucks Coffee Company was founded as a coffee bean roaster and retailer. It caters mainly to coffee drinkers, while 85°C Bakery Café satisfies the broader needs of its customers. In talking to Business Weekly, George Agosto, store manager of 85°C Bakery Café in Newark, and a former Starbucks’ employee, said that coffee is Starbuck’s main commodity, supplemented by breads and pastries, while breads, cakes and drinks are all major products at 85°C Bakery Café, attracting a broader customer base. Aware of its own shortcomings, Starbucks has gradually added more food items and just this April, purchased Bay Bread Group’s La Boulange Café and Bakery to bolster its food selection.
It has been six years since 85°C Bakery Café opened its first bakery in Irvine, southern California and its popularity has not waned. Even now, people still queue up every day. In September, it was chosen as one of the top ten most popular coffee shops in the US by social networking website Foursquare. According to Commonwealth, a single month’s sales at its Irvine bakery exceeds NT$20 million (US$675,675.00), equivalent to the average monthly sales of seven Starbucks shops.
With this level of success, 85°C Bakery Café has to speed up its globalization plans. Furthermore, in the US, the sales turnover at a single store is 15 times that of its counterpart in Taiwan, and 6 to 8 times that in China. Despite this, US revenues account for less than 5 percent of the total 85°C Bakery Café.
Excelling by offering more variety
How did 85°C Bakery Café go about expanding in the US, where bread has been a staple for centuries and readily offered in supermarkets and bakeries? Lin Ming-zhe, US regional CEO of 85°C Bakery Café, said the branches in Taiwan and China are formed by the concept of a “retail store,” while those in the US are more like a “supermarket.” According to Business Weekly, he said people do not come out just to buy an item or two, but to purchase larger quantities, normally over eight to ten items, spending roughly US$13 – 15 per customer.
Hong Ya-ling, secretary general of the Association of Chain and Franchise Promotion, Taiwan, said that American service industries are very good at standard operating procedures (SOP), but Taiwanese brands can excel by virtue of greater differentiation and complexity. So when local Californian stores are simplifying their products and service, 85°C Bakery Café stands out by offering more variety.
To make a store more like a supermarket, it is important to offer enough items in addition to space. The company adopted a policy of more variety and a larger quantity of items in the US. Lin noted that local stores offer one or two dozen items at most. Even local American fast food stores will not offer such a wealth of combinations.
The selection of retail space is also different from Taiwan. In Taiwan and China, the best store location is at the corner or the intersection. But in the US, traffic flow is as important as people flow. Therefore seeking a retail space with enough parking is equally weighted. Currently 85°C Bakery Cafés are all located in plazas with more than 300 parking spaces, making it easier for customers to park.
Another difference is that the bakery’s products are baked throughout the day and frequently. With opening hours from 7 am to 10 pm daily, and to midnight on holidays, fresh baked goods come out of the oven every hour until 9 pm. Local bakeries do not emphasize freshly baked goods, but will bake a product only once a day.
At present, Peng indicated that 85°C Bakery Café will add two more stores in the San Jose area, likely around Spring 2014.
