Coffee culture caught on fast among China's hip young urbanites. Jimmy Zhuang was someone who got the taste right

----By Mark Godfrey

Cafes are full of hormones - people are hunting there," says Jimmy Zhuang. There's also obviously some money in cafes, too. In under seven years, Zhuang has opened seven Sculpting in Time cafes in Beijing and employs 150.

A flashy subsidiary brand named Zakka Cafes opened recently in the city's student heartland, Wudaokou, while the first branch outside the city will open soon in Xi'an. "Coffee and mood' are what have made Sculpting in Time China's most promising home-grown cafes brand, according to Zhuang. Mood means friendly informality for this 38-year-old chief executive, who wears jeans and t-shirts on daily drives around Beijing to troubleshoot his coffee shops.

His establishments are roomy, rambling places with a mix of tables and comfortable armchairs. Bare floorboards, plentiful foliage, film posters and frequent photography exhibitions accentuate a cosy feel and encourage customers to linger. Staff are trained to take orders in friendly English. There are stacks of magazines to read and jotters so customers can sketch. Some write poems or leave their thoughts on Beijing, girlfriends, and coffee.

Zhuang stumbled into business when he couldn't find a good cup of coffee on arriving from Taiwan in 1996 to study at the Beijing Film Academy. "Beijing had no proper cafes and I love coffee, and I needed a place to study and eat spaghetti." Only when the first Sculpting in Time opened next to Beijing Foreign Studies University did Zhuang think he might have a genuine business on his hands. "More and more guests were dropping by," he recalls.

Zhuang named his cafes after a largely forgotten work by Russian filmmaker Andrei Tarkovsky. After one customer, a cat lover from Hunan, became Zhuang's wife, the cafes chain adopted a cartoonish cat logo that appears on each outlet's windows and mugs. "The cat logo is easy to remember. And cats are lazy and relaxed, so it's very close to the cafes image."

After four years in Beijing, Zhuang had a degree and two cafes. Expansion was driven by a need to survive after the first cafe was demolished to make way for a real estate development. "We wanted to be in several locations in case that happened again," he says.

Broad appeal

With expansion, the company has broadened its appeal beyond a customer base of mostly teachers and students. An influx of foreigners and artists into Beijing has helped business. Foreigners, mostly professionals, account for 70 percent of trade at the premises in the prosperous Li Du district, yet at the outlet next to Beijing Telecommunication University they make up 20 percent.

Business also varies in other ways between stores. The Lido location is busy at night, but a store by the popular Xiangshan Park and mountains does most of its business with daytime tourists. "Locals out there don't frequent cafes. There is no one at night," says Zhuang. Summer is very busy across all stores. "In university areas we get a lot of foreign students in the summer."

Sculpting in Time has secured its own niche rather than competing with foreign brands like Starbucks and more recent arrivals like Hong Kong's Pacific Coffee. "Starbucks wants businesspeople to come and pick up a coffee," says Zhuang. "We want young people, artists, to come and linger."

It also competes on price. A Starbucks Americano coffee costs RMB18 but Sculpting in Time charges RMB15 and gives one free refill. Zhuang's cafes also offer a comprehensive food menu, unlike Starbucks and Pacific Coffee: simple Western fare like omelette breakfasts, club sandwiches and pasta. Each shop also sells stationery and mugs branded with the Sculpting in Time cat logo.

Pacific Coffee brings a more cheerful d�cor, Zhuang concedes, but the mindset is still upscale. "They locate in very expensive business buildings. We can't do that." Sculpting in Time also bucks its competitors' uniform style. Zhuang and his wife decorated the cafes themselves, borrowing ideas from artist friends. As the company grows, the company is spending more however, hiring designers from Australia and Taiwan for recent store openings.

The furniture is less designed. Tables, chairs, mirrors and shelving rescued from flea markets gives the cafes a lived-in look, and keep costs down. Zhuang points to tables that cost RMB20 at a second-hand furniture market in Beijing's northern suburbs, which he simply gave a fresh coat of paint.

It's in the brew

But food and merchandise are secondary to Zhuang's knowledge of coffee and how to brew it. "We train people to do the best, and we use the best [ingredients]," he says. Italian coffee brand Illy trains Sculpting in Time coffee masters at a purpose-built school in Shanghai.

Zhuang sent the company's master coffee brewer to the World Barista Competition in Japan, after he won the national competition in China. Coffee connoisseurship is new in China, where French missionaries planted the first beans in the 19th century. The Chinese government cultivated 4,000 hectares of Arabica beans in the 1960s, but later replaced them with rubber trees when the world coffee market proved too complex.

Today, coffee plantations thrive in southern China, many supplementing local farm incomes. Quality is improving, says Zhuang, but most of the beans are exported or ground for instant coffee. "Yunnan coffee is very smooth. People like very strong coffee, and Yunnan is a bit too smooth for this." Sculpting in Time's three best sellers are the house brew, Americano and cappuccino, all brewed from Illy beans, but Zhuang still sells sachets of Yunnan coffee. He is trying out Lavazza at Zakka, the company's newest cafe.

Zhuang treads gingerly towards franchising, which he has tried for the first time with the Financial Street store. "Many people approach us and want their own franchise now," he says, but a dearth of experience and trained staff among applicants worries him. "If we want to do a new opening we must have a good team." The company's reputation is at stake, after all. The Zhuang family and their cafes have featured frequently on lifestyle shows on both CCTV and Beijing TV programmes. "We're famous in China because we are very earnest."

Picking cities for expansion beyond Beijing is also tricky. Xi'an was chosen because "it's close to Beijing, and it's historic." Aside from being a focus of foreign investment under the "Go West' drive, Xi'an has culture. "We wouldn't open in [Hebei provincial capital] Shijiazhuang & If a city has no culture, it's not a good choice."

Rising costs

In spite of all the money floating around Beijing, the casualty rate for local cafes and restaurants is high. The city's frantic economic regeneration, while creating coffee drinkers, constrains new store openings, says Zhuang. "It's very difficult to find locations because rent has become very expensive." The Lido store's rent jumped from RMB5 a day per square metre to RMB10. Rent is the company's top cost, followed by staff wages and coffee.

"Rents in Beijing are more expensive now than Taipei," says Zhuang. Rents of RMB10 to RMB15 in the city's central business district have constrained expansion there. The newest store, on Financial Street, opened only because the real estate company behind the new strip of banks and corporate headquarters made an approach. "They really wanted a cafes."

Locations can be fickle for cafes operators. "Look at Jianwai Soho," a major development in Beijing's business district. "People think it's a good location but three cafes have closed there. The rent is too expensive, and some of them didn't have quality coffee." Patience is a virtue in the cafe trade, says Zhuang, who says "most" of his stores are profitable. "You need a long time to get established & If you have no cash or ability or no plan you won't survive. It takes a long time to turn a profit."

Finding good staff is the other challenge. Most staff at individual stores are migrants mostly from the same hometown who come on referrals from friends and family trusted by Zhuang. Local Beijing youth tend to refuse such work. "They all want to be boss," says Zhuang. Each of the seven cafes has 20-25 employees. Money on training is well spent - it keeps turnover to 25 percent a year.

Training includes classes on how to serve with a smile and speak English. Staff take two hours of English classes every week. A very Western-style management system means Zhuang meets 25 managers covering four regions of the city, and handles duties such as store management and marketing at a weekly four-hour meeting.

In other ways the company retains Chinese values. Zhuang invites officials to dinner to ensure his cafes secure the five separate licences necessary to operate, including a business licence and several hygiene licences. "We make friends ... When they come we are friends and [we're] happy."

But there's no shortage of copycats looking to piggyback on Zhuang's success, with or without the licences. "We have been copied in Hunan and Fujian and Harbin. Even in Urumqi [in far western Xinjiang] there's someone using the name!' Counterfeit cafes will only become a bigger problem, says Zhuang. "They may look the same but they don't know how to make good coffee."


The big cheese

Social entrepreneur Mark De Ruiter has combined good intentions and development in Shanxi - all while making some good cheese

----By Mark Godfrey

It's a nice and sterile smell," says Mark De Ruiter, pointing past tanks and cleaning troughs to round cakes of yellow-tan coloured cheese which sit on vats behind the glass door of a spotless maturing room. Everything about Yellow Valley Cheese Company seems to smell wholesome. The factory has perfected a range of European-style cheeses in a dry, dusty outpost of Shanxi province, and given hard-pressed local farmers a living in one of China's most difficult regional economies.

The staff of 15 working the 400-square-metre plant is reminded by bilingual "no smoking' and "no littering' signs in production areas. There is "no eating' and "no littering' either in the L-shaped, red-brick building in Xiaoniuzhan village where workers in white overalls and muslin cloths over their mouths move between the steel milk tanks and vats of acid salt. Boxes of rennet and starter culture, essential cheese-making ingredients shipped in from Holland, are stacked neatly in a side room.

The narrow, grubby road to Yellow Valley's spotless plant and neat landscaped office block in Xiaoniuzhan is as instructive of the challenges facing the Chinese countryside as it is of the hope offered by the new enterprise.

The scars of over-industrialisation that mark surrounding Yongchu County are the closed factories and shuttered mine shafts which pock the hillsides peeling off the highway during the hour-long drive out of Taiyuan, the provincial capital. Coal mines and factories mean jobs for locals and markets for farmers here. Recent migration to far-away cities has sapped the area of farm hands, and many of those left behind are unemployed.

Blessed are the cheese-makers

Cheese-making is an unlikely salvation for farmers in a province renowned for its noodles and vinegar. Backed by Shanxi Evergreen Services, the local operation of a US-based Christian organization which teaches Shanxi farmers how to breed better pigs, Yellow Valley is a business with a conscience and a marketing plan, says De Ruiter, a tall, wiry Dutchman. "We want to support farmers and our earnings will be put into building the next enterprise."

Registered today as a wholly foreign-owned enterprise, Yellow Valley started as a trial-and-error probe of taste buds in China, where consumption of dairy products remains low by world standards. "We sent cheese all over China to get an idea of the taste requirements," says De Ruiter. "In the early days our cheese was too salty or dry. Cheese making is an art & We eventually got it good enough that we set up the company."

Farming in China remains concentrated among large state-owned farms and a slowly emerging new breed of privately owned feed lots fattening cattle and pigs. Small holders risk getting left behind in a government-backed rush to consolidate farms into larger, more efficient plots.

De Ruiter is trying to help small, full-time farmers to stay on the land. "Farming will become large-scale, but there is a danger that there will be a lot of people pushed out, with no money or job." His suppliers are the small farmers who farm a few hectares of vegetables and feed four cows on the wiry, wispy alpha grass that grows in patches and under trees in Xiaoniuzhan.

Any consolidation of China's farm sector should be gradual, suggests De Ruiter "It's not just about catching up, it's about social stability. China will see that there is a place for small-scale farming and will see it as sensible to help them."

Training wheels

Two years ago, when he produced the first full batch of Yellow Valley, De Ruiter dreaded having to send milk back to farmers. "The company won't trade quality for quantity, but the only reason there's no quality milk is because no one has trained them." China lacks the "hub and spoke' system of training farmers that worked so well in the EU and the US. Holland, for example, has a large dairy scene only because it invested in a network of training centres 100 years ago which diffused training into the countryside.

Two master cheese-makers from Wetland Cheese in Holland gave Yellow Valley two weeks of their expertise for free. It takes three years to train a cheese-maker. De Ruiter is just hoping that Yellow Valley hasn't come too late. Young people are leaving the countryside for jobs on urban building sites and assembly lines. "All my farmers are 40-plus. Who will follow them?'

De Ruiter has never farmed himself - his training is in marketing, in which he holds a bachelor's and a master's degree. He left a promising career at UK agribusiness import and export company Minnar to come to China. Helping China's struggling farmers was more important, he felt, than managing supply chains to British supermarket chains Sainsbury's and ASDA. Though he says he always wanted to help in a developing country, it wasn't an ideological decision. "I have very strong commercial thinking. I'm using my experience in developing our distribution and marketing. I want this business to work."

Yellow Valley will succeed only to the extent that De Ruiter can build a distribution network. There are after all only 60 Westerners in Shanxi's capital Taiyuan, by his reckoning, and he's already persuaded most of them to buy. Moving cheese up to Beijing has gotten easier since the two cities got hooked up by a three-hour express train. Other orders have been coming in from Shanghai, Guangzhou and Kunming. Large slabs of company variations like herbes de Provence or Italian spices sell for RMB180. Long-distance deliveries are shipped either in the cargo hold of commercial jets flying out of Taiyuan airport or on cool trucks.

There's plenty of competition in the aisles of national supermarkets, but "99 percent of cheese in China is cooking cheese," says De Ruiter, referring to the mild packaged New Zealand cheeses that sell in most Chinese supermarkets. "Ours is gourmet cheese. It's 100 percent natural farmhouse cheese. There's no colouring."

As a domestic producer, De Ruiter is at a disadvantage to the bigger foreign players, whose prices he says are lowered by EU subsidies and the much lower production costs in places like New Zealand. Yellow Valley's low local labour costs are negated by having to import most of the ingredients from Holland.

Cheese with a conscience

Three-quarters of current customers are foreigners. The rest are wealthy locals and young people. Chinese children and a 20-to-35-year-old demographic of foreigner-friendly locals are the group De Ruiter is after. But finding distributors with the right market knowledge and network has been particularly difficult. There have been occasional triumphs, like when the Dutch Embassy in Beijing ordered 400 kilograms for last year's Queen's Day reception.

De Ruiter is hoping that consumers will ultimately be persuaded by a good cause. "They know that Yellow Valley is a social-value cheese, that our revenues go to pay wages and rural medical and social security bills in rural China." Yellow Valley is also environmentally friendly: The water used in the cheese making is also used to heat the company's offices.

Though 99 percent of China doesn't buy cheese off the supermarket shelf (De Ruiter's calculation), the country is getting a taste for it, albeit "tasteless' cheese in hamburgers and on pizza. Local competitors' efforts have been mediocre and left a lousy impression, he says. "Customers get a bad taste and don't buy again." Yellow Valley's more sophisticated approach to quality and variety will win long-term customers, he hopes. "Our workers, village peasants, have been taught to distinguish brie from stilton. They have acquired a taste, and China will too."

The road to Yellow Valley's success leads through China's moneyed middle classes, though De Ruiter, remembering the reason he's in Shanxi, takes a not entirely benign view of them. "City folk tend to look down their noses on farmers, there's no interest in helping farmers, or I wouldn't have to be here."

He is nothing if not ambitious. "There are 1,400 named cheeses in the world. Yellow Valley can be one more." More money will go into local farmers' pockets once the company creates a niche market that allows them to raise prices. "If we do this China will have a better future and less social unrest. From one point of view it's idealism but it's also a model for China."