Coffee in Southeast Asia
Modernising retail of the daily beverage
November 2023
This report is part of Momentum Works’ F&B & new retail coverage
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2
1. All about coffee in Southeast Asia
Momentum Works 2023. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at the
users’ own risk.
2. The business behind coffee chains
3. Competitive landscape and key
players
4. Conclusion & perspectives
3
Why are we doing this report?
1
Across Southeast Asia, modern coffee is a US$ 3.4 B market in 2023
Industry
annual
turnover
2
3
In this report, we decode:
$ 284M
$ 364M
$ 445M
$ 947M
$ 572M
$ 807M
●
How is the coffee & modern
coffee retail landscape like in
Southeast Asia?
●
What are the key competitive
advantages and success
factors behind coffee chains?
●
What are some lessons to be
learned from the competitive
landscape as well as case
studies from key coffee
chains in Southeast Asia?
Coffee chain is a very crowded market, yet more (incl. Luckin Coffee) are entering
Players are trying different growth strategies when coffee consumption in the region is
not really growing
Estimated coffee consumption in
Southeast Asia between 2018 - 2021
(kg/capita)
1.31
2018
Source: International Coffee Organisation; World Bank; Momentum Works Insights
© Momentum Works
1.33
1.32
2019
2020
1.34
2021
4
Momentum Works 2023. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at the
users’ own risk.
1. All about coffee in Southeast Asia
5
A brief history of coffee in Southeast Asia … over 500 years
Arabica cultivation
began in MY
Outbreak of coffee rust
(a type of plant disease) that
almost annihilated Arabica
Arabica / Liberica
cultivation began in PH
cultivation in SEA
1600s
1700s
1800s
1900s
Arabica cultivation
began in VN
Arabica
cultivation
began in ID
Liberica cultivation
began in MY
Excelsa cultivation
began in PH
Starbucks and The Coffee
Bean & Tea Leaf opened
first Southeast Asian store
in SG
Robusta
cultivation began
in ID, VN, MY, PH
2000s
TH started coffee
cultivation as an
alternative to growing
Opium poppies
Founding of local
coffee chains selling
traditional coffee
Entry of newer global
players and founding of
local chains specialising in
modern coffee
Luckin opened
first Southeast
Asian store in SG
2023
Luckin’s success in China
(2018-2019) inspired a wave of
venture-funded, tech-enabled
coffee chain startups in SEA
Arabica introduced to TH but
not commercially cultivated
Colonialism introduced coffee cultivation and
consumption habits to many parts of SEA
Source: Momentum Works Insights
© Momentum Works
Rise of instant coffee
driving demand for coffee
Growth of modern, freshly-brewed coffee market with
entry of global players and growth of local players
6
Most of Southeast Asia is located in the “Coffee belt”
Southeast Asia
Tropic of
Cancer
Tropic of
Capricorn
Source: Momentum Works Insights
© Momentum Works
COFFEE
BELT
The best coffee in the world is
grown in the regions located within
the “Coffee Belt”, as they have the
most ideal growth conditions
(climate, soil composition, altitude
etc).
7
Know your beans (Arabic and Robusta are not the only ones)
Proportion of
global production
& consumption
Arabica
Robusta
Liberica
Excelsa
75%
25%
2% - 3%
< 2%
Sweet and tart, chocolatey,
fruity and berry flavour
Strong, sharp bitter taste,
with woody earthy aroma
Smoky, earthy, woody or
nutty flavours
Tart notes, berry and fruity
flavours, with unique aroma
Caffeine content
Acidity
Bitterness
Taste
Source: Momentum Works Insights
© Momentum Works
8
Southeast Asia is the largest producer of Robusta beans globally
2nd
largest
Vietnam
coffee producer
globally
Dominant type:
Thailand
Produced in
smaller amounts:
Dominant type:
Located along the “Coffee Belt”, Southeast Asia is one
of the largest coffee-producing regions in the world.
Produced in
smaller amounts:
Unlike Central and South America which produce the
bulk of the popular Arabica beans, the climate and
elevation of Southeast Asia favours the growth of the
Robusta beans. Vietnam alone contributes to at least
50% of global Robusta supply.
Philippines
Malaysia
Dominant type:
Dominant type:
Produced in
smaller amounts:
Produced in
smaller amounts:
Types of coffee beans produced in SEA
Arabica
Liberica
Robusta
Excelsa
Indonesia
coffee producer
globally
Dominant type:
Produced in
smaller amounts:
Source: International Coffee Organisation (ICO); Vietnam Briefing; Momentum Works insights
© Momentum Works
4th
largest
Interestingly, Liberica and Excelsa beans are now
predominantly harvested and consumed in Southeast
Asia, unlike Arabica and Robusta which are more
popular globally and are cultivated in multiple regions.
9
Coffee has become a tradition in each of the major Southeast Asian countries
Vietnam
Thailand
Cà Phê Sữa
โอเลี้ยง (Oliang)
Made by passing hot water
through Robusta beans in a
phin (traditional Vietnamese
coffee filter), into a cup
containing condensed milk
Prepared from a mixture of
Robusta beans, brown sugar
and various grains and seeds
(like corn, soybeans etc).
The Philippines
Kapeng Baroko
Brewed by letting ground
Liberica beans boil in
water mixed with brown
sugar or muscovado
Malaysia & Singapore
Kopi
Coffee beans are dry-roasted
with sugar and a little butter /
margarine. Brewed with a
sock-like cotton strainer in
watering can-sized pots
SG: Robusta beans are used
MY: Mixture of Robusta &
Liberica beans used
Source: Momentum Works Insights
© Momentum Works
Indonesia
Kopi Luwak
World’s most expensive
coffee beans from Civet
poop are produced in ID
Kopi Tubruk
Brewed without a filter. Hot
water is poured directly over
fine Robusta grounds and
sugar
10
Each traditional coffee has staple food pairings, with the exception of Vietnam
ปาทองโก, Patongo
(fried dough)
Pandesal
(Filipino bread)
油条, Youtiao
(fried dough sticks)
Kaya toast & soft-boiled eggs
Source: Momentum Works Insights
© Momentum Works
Gorengan
(Indonesian deep-fried snacks)
Coffee is enjoyed on its own (or
sometimes leisurely with hạt hướng
dương / sunflower seeds)
11
Sophistication of coffee ordering is not unique to Italy, but in Southeast Asia as well
Traditional Southeast Asia coffee types
Western coffee types
+
Southeast Asia’s coffee culture is now a blend of traditional and Western/new coffee types
Source: Momentum Works Insights
© Momentum Works
12
SE Asia consumes less coffee coffee per capita than developed world = growth opportunity?
Europe
China
4.4
●
Predominantly coffee drinkers
(with tea still being popular in the
UK)
●
Mature coffee market
●
Predominantly tea-drinkers
●
Western influence, perception of
coffee as a status symbol, workplace
pressure & venture capital spurred
coffee consumption growth lately
Japan
North America
5.0
●
Predominantly coffee drinkers
●
Mature coffee market
Southeast Asia
Coffee consumption 1 in
year 2020/21 (kg/capita)
●
Prevalence of both coffee and tea
●
Colonial past strongly influenced many
countries’ coffee adoption
1. Estimated based on ICO numbers
Source: International Coffee Organisation (ICO); World Bank; Momentum Works insights
© Momentum Works
1.3
0.1
3.5
●
Traditionally tea-dominant
●
Post-war industrialisation &
westernisation spurred exponential
growth in coffee consumption
Korea
2.9
●
Traditionally tea-dominant
●
Rise of themed cafes and cafe
culture popularised coffee
consumption in the last two decades
13
Coffee consumption (in kilos) in SE Asia has not been growing - (in value) might, though
Estimated per capita growth of coffee consumption
and GDP in Southeast Asia 1 between 2018 - 2021
GDP per capita
Coffee consumption per capita (kg/capita)
$5,000
GDP per capita ($/capita)
CAGR = 2.65%
$4,405
$4,340
$4,000
$4,106
$4,072
1.40
$3,000
CAGR = 0.80%
1.34
1.33
1.31
Coffee consumption per capita (kg/capita)
1.50
It seems that Southeast Asian consumers are already
accustomed to drinking coffee. This might leave little
room for further growth in terms of absolute coffee
consumption in the near term.
This is unlike traditionally tea-dominant markets, like
China, where significant growth is imaginable (or
realised, as in the case of Korea and Japan.
It seems that the growth of coffee market size might
have to come from the shift in coffee consumption e.g. from instant coffee to cafe coffee, from mass
traditional coffee to slightly more premium, franchised
coffee.
The key here is about raising the value of each cup of
coffee sold to the same consumer base.
1.32
$0
0
2018
2019
2020
1. Estimated based on ICO numbers for ID, VN, PH, and TH.
Source: International Coffee Organisation; World Bank; Momentum Works Insights
© Momentum Works
2021
14
The presence of different forms of coffee consumption
Instant coffee
●
●
●
Coffee viewed as a commodity and
is mass-produced
Prioritise convenience and
accessibility
People drink coffee for caffeine or
just as a… habit (a.k.a. tradition)
Still common through informal /street
vendors, home (and hotel) consumption
Source: Momentum Works Insights
© Momentum Works
Modern coffee
●
●
●
●
Consumers are accustomed to coffee and
wanted something better
Prioritise cafe culture with some emphasis on
quality of coffee (as opposed to sugar & fat)
People drink coffee for the experience
Success of modern coffee chains like Starbucks
inspired the founding of local brands
Majority of the SEA coffee players
covered in this report are here
Specialty coffee
●
●
●
●
Consumers are sophisticated
Prioritise high-quality coffee and
education around coffee industry
People drink coffee for the coffee
Rise of specialty coffee (stores) with
innovation in coffee production styles
(roasting, brewing etc)
Some players/consumers here, but
will remain a niche (a.k.a. small) market
15
Modern coffee is a US$3.4 billion market in 2023 in Southeast Asia
Largest
players
2023, Southeast Asia modern coffee
market size (total annual turnover)
# stores
in SEA
Total size: US$ 3.4 B
Thailand
$807
M
Vietnam
$572
M
Brands with the largest
presence in each country
Philippines
Malaysia
$364
M
Singapore
$284
M
Indonesia
$445
M
$947
M
> 3,900
> 2,000
> 1,300
> 1,000
900
> 800
> 700
Southeast Asia’s consumers are more accustomed to coffee, with the
bulk of the consumption driven by instant coffee and traditional brews
sold by individual merchants in the mass market.
The region’s growing purchasing power has driven demand for higher
value and better quality coffee, sparking the growth of both local and
foreign-owned modern coffee chains.
Indonesia and Thailand are the largest modern coffee markets in
Southeast Asia, with growth largely driven by the expansion of local
coffee chains. Vietnam, the third largest market, sees very limited
presence of foreign-owned chains. Singapore, as usual, spends the
most per capita on modern coffee in the region,
As the region develops, future growth will be largely driven by the
increase in the value of the coffee sold (i.e.: consumption upgrades
from instant coffee to freshly brewed coffee), as mentioned earlier.
Note: These figures include modern coffee shops, exclude non-modern retail (e.g. hawker coffee in Singapore, and traditional roadside stalls in Vietnam and the Philippines, warung kopi in Indonesia). Modern coffee shops
constitute < 10% of the coffee market, the rest of the 90% is by instant coffee and non-modern retail stores. Note that non-modern retail will largely overlap with instant coffee as the coffee in non-modern retail shops (e.g.: hawker
coffee) is made with instant coffee.
Sources: Industry practitioners interviews; Momentum Works estimates and insights.
© Momentum Works
16
Luckin’s initial quick ascent inspired venture investments into coffee chains in SEA
Funds raised by coffee chain companies 2018 - 2023 (US$ M)
Raised
$400M
in 2018
500M
100M
Raised
$150M,
IPO
40M
20M
2018
2019
2020
2021
2022
2023
Funding
sources
Luckin IPO
Source: Crunchbase; Reuters; Momentum Works Insights
© Momentum Works
17
Momentum Works 2023. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at the
users’ own risk.
2. The business behind coffee chains
18
First, why do people buy coffee from coffee shops?
1
2
For the function
3
For the beverage
For the taste
Product-driven
People need coffee for the caffeine to
stay awake or for a mood booster
(which is more essential than many
think in this stressful world)
4
Coffee is consumed as a habitual
beverage (just like bubble tea, juice, etc).
Often associated with flavoured coffee
(with, more often than not, sugar & fat)
For the space
5
Coffee enjoyed for its taste, flavour and
aroma. For true coffee lovers who enjoy
high-quality coffee (and often do not
believe taste is subjective)
For the style
Experience-driven
Source: Momentum Works Insights
© Momentum Works
Coffee shops provide alternate spaces for work,
relaxation, hanging out (and unfortunately, study,
for many). People are willing to pay a premium to
enjoy a comfortable space
Offering aesthetically pleasing, highly
instagrammable decor, drawing people to
visit and hang out (They might not come
back again after posting on Instagram)
19
Different coffee concepts to meet different consumer needs
Many product offerings
(often with patience needed)
Fewer product offerings
(and often faster)
Grab & Go
Seating space & light bites
With full-fledged food offerings
Functional
use
Main
consumer
needs
targeted
Beverage
Taste
Space
Style
Source: Momentum Works Insights
© Momentum Works
20
Players offer coffee at different price points for different budgets …
By price point and brand positioning
Non-exhaustive (obviously)
Mass
Premium
Instant coffee
Street vendors
Traditional
coffee shops
Price: < 3 times the price of coffee sold by hawkers
Price: > 4 times the price of coffee sold by hawkers
Often found in high-traffic areas with many grab-and-goers,
includes both formal and informal coffee vendors
Tend to be found in more premium locations and prioritise
customer experience and store ambience
Product offerings skew towards instant and traditional coffee,
with the focus placed on price advantage
Premium product offerings that use higher-quality coffee
beans and more sophisticated preparation techniques
Source: Momentum Works Insights
© Momentum Works
21
Coffee shops are set up at different formats of locations
Traditional and informal
Neighbourhood coffee shops & food courts
Streetside pushcarts & informal merchants
Modern
Malls
© Momentum Works
Office buildings
Roadside outlets and kiosks
Drive-thru
Source: Momentum Works Insights
Blended in retail
Petrol stations
Robotic kiosks
Vending machines
Convenience stores
22
Coffee chains often sell more than coffee to increase revenue
Freshly-brewed coffee beverages
Main product
offering
Food
Supplementary
products
Coffee-related
products
+
26%
of Starbucks’ retail
sales mix comes from
supplementary
products
Merchandise
Others
Some cafes even operate
as bistros at night and offer
alcohol
However, this could add operational complexities to the business, becoming a drag if not executed well
Source: Starbucks; Momentum Works Insights
© Momentum Works
23
Coffee chains also rely on different expansion models to grow
Many coffee chains start with self-operated model, expand into franchising as operations and supply chain mature
Cons
Pros
Revenue
stream
Self-operated model
Franchise model
Mainly from consumers through sales of goods
Mainly from franchisees through fees (like initial franchise fees
and royalties) and sales of goods. Some can come from suppliers
through rebates 1
Full control over every aspect of the business, ease of
standardisation of quality over operations, product quality,
branding etc.
Access to external sources of capital, making it easy and fast for
the brand to scale without additional leverage and financial risk
Higher capital requirements to scale (therefore slower to scale)
Loss of complete brand control. Challenging to maintain
consistent quality across all outlets due to varying degrees of
franchisees’ commitment and ability to meet brand standards.
1. Franchisors make supply arrangements between suppliers and franchisees and receive some commissions from the supplier
Source: Momentum Works Insights
© Momentum Works
24
The coffee chain market is very crowded, with more still seeking to enter
An incomplete list of coffee chain brands in Singapore
Southeast Asia’s modern coffee chain
market has become very attractive to
investors, entrepreneurs, coffee
plantation owners and conglomerates
with large retail food print.
Just in Singapore alone (the smallest
among 6 major markets), there are 30+
coffee chains operating, with a few more
in preparation to enter the market.
While these players often differentiate in
concepts, ambience, menu and (if
applicable) food pairings, fundamentally
many are often more similar to each
other than not.
Source: Momentum Works Insights
© Momentum Works
25
Even retail stores leverage (the aroma of) coffee to engage consumers
Source: Momentum Works Insights
© Momentum Works
26
With slow coffee consumption growth, coffee chains in SE Asia have two ways to grow
As mentioned on page 14, coffee consumption
growth in Southeast Asia is slower than GDP
growth, both on a per capita basis.
Estimated coffee consumption in Southeast Asia 1
between 2018 - 2021 (kg/capita)
Which means, for coffee chain players to grow
their business, in addition to adding food and
other items to the menu, there are two ways
(which can be used in conjunction):
1.
1.31
2018
1.33
2019
1. Estimated based on ICO numbers for ID, VN, PH, and TH.
Source: International Coffee Organisation; World Bank; Momentum Works Insights
© Momentum Works
1.32
2020
1.34
2021
2.
Take market share from other players or
forms of consumption;
Convince the consumers to upgrade and
spend more on each cup (some call it
premiumisation);
To achieve each (or both), players need to have a
clear and valid strategy, sound understanding of
the evolving competitive dynamics, and of
course good execution.
27
Having good value propositions is not enough to stand out
Value propositions used by tech platforms
多
快
好
省
Selection
Speed
Quality
Savings
Ecommerce platforms
As such, competing on products alone will no longer
be sufficient and players need to find other methods
to make themselves stay ahead of the competition.
* Non-exhaustive
© Momentum Works
Within the coffee space, many players are offering
multiple value propositions to differentiate
themselves and stay ahead of the competition.
However, unlike in ecommerce which is fairly
consolidated with dominant giants in each space, the
coffee market remains very crowded (a.k.a.
fragmented) with multiple players competing within
the same value propositions.
The same can be applied to coffee
Source: Momentum Works Insights
“多快好省 (Selection, Speed, Quality, Savings)” ,
which was initially the guiding principle introduced by
Chairman Mao Zedong of China to build up a “socialist
economy”, is now used by many Chinese tech
companies as their value propositions. This same
concept can be applied to other businesses as well.
Sip, Innovate, Repeat:
Immersive workshop through
coffee and bubble tea - a
programme by Momentum
Academy
28
In fact, most differentiations are superficial and will not convert into lasting advantage
Four typical differentiations that do not last:
1
Coffee taste
2
Novelty attracts initial attention, but
wears off quickly (6 months is usually a
good gauge). This means the need for
constant reinvention to maintain a
competitive edge, which makes it an
unsustainable business model.
Taste is highly subjective and most
customers lack discerning palates for
nuanced flavors in coffee. Scaled
chains aim for mass appeal,
prioritizing consistency in taste over
complexity or sophistication.
3
4
Source: Momentum Works Insights
© Momentum Works
Novelty concept
Sourcing
Quality, personalised service
Owning a plantation offers supply
chain control and brand appeal.
However, as coffee is a commodity
where individual plantations do not set
the price - the key is your scale as a
customer, not a grower.
Personalized service enhances brand
value but faces cost and consistency
challenges for mass brands. Besides, it
is hard to beat (or even match) Starbucks
at its own game.
29
How to build lasting advantage at scale
3 important factors for a winning coffee chain proposition
Clear category
leadership
Efficient
operations
(Tech & data)
Strategic
locations
The key to outperforming competitors:
Extensive use of tech & data in areas like:
Location impacts visibility and accessibility:
1. Define the category
1. Store operations
1. Shopping malls & streetside
Competing with Starbucks their way can only succeed
if they make a fatal mistake (which you can’t bet on)
Ordering, payment, inventory management etc
Ability to accommodate multiple cafes. More intense
competition for patrons
2. Category has to be big enough
Acquisition, consumer behaviour, loyalty etc
2. Other prime locations
Large categories offer more customers, economies of
scale, and extensive revenue potential than niches.
3. Product development
Includes office buildings and petrol stations.
High-traffic areas but limited openings
3. Way better than your competitors
4. Franchise management
A slight edge won't significantly change consumer
behavior or make you stand out.
Supply chain, communication & training etc.
Source: Momentum Works Insights
© Momentum Works
2. User operations
Research, innovation, quality control etc.
It is a retail business, after all. And we all remember
the mantra “location, location, location”
30
Leading coffee chains in China are taking learnings from tech companies
x
User operations
Product development and iteration
Customers have to register for user accounts
online before they can order. Every order is
made online and the data is captured. Have a
complete user record of each customer and
the system can push prompts to get the users
to spend more
Data-driven product development. Companies
are not focused on launching the perfect
product at once. Instead, the focus is placed
on making incremental improvements every
time a product launches based on sales
numbers and customer feedback.
Operations management
Extensive use of tech and data to manage entire
operation. This reduces the need for human
intervention for mundane tasks, minimises
operational choke points (eg: ordering, payment
etc) while automating other operations (eg:
inventory management, production)
* See Luckin case study (pages 43 - 45) for more information
Source: Momentum Works Insights
© Momentum Works
31
Momentum Works 2023. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at the
users’ own risk.
3. Competitive landscape and key players
32
Comparison of a few notable players in the region (1/2)
Starbucks
Cafe Amazon
Trung Nguyen
Kopi Kenangan
Yakun
Luckin
Presence
in SEA
# stores in
SEA
> 2,000
Local licensing
> 3,900
Franchise
> 600
Self-operated +
Franchise
> 860
Self-operated
> 70
Franchise
20 (growing)
Self-operated
Premium
Non-premium
Non-premium
Non-premium
Non-premium
Premium
(non-premium in China)
Brand
positioning
Strategy
Focus on customer
experience (through
personalisation)
Extensive menu with
regular launch of
products as well as
seasonal or
country-specific specials
Source: Momentum Works Insights
© Momentum Works
Leverage parent
company, PTT’s (Thai
energy giant) extensive
gas stations network as
main locations and for
fast expansion
Focus on tradition and
appeal to the masses
with affordable pricing
Specialised in locally
sourced and traditional
coffee
Gained leverage from
selling packaged, instant
coffee
Targets mass market
with low pricing strategy
Focus on grab-and-go
stores with limited
seating areas in kiosks
Operates through a “no
franchise” model
Leverages technology to
optimise operations
(100% app-based orders
and payments,
digitalisation of coffeemaking operations and
Coffee is often paired
with food (especially the inventory management
brand’s iconic toasts) to etc.)
raise sales
Focus on the nostalgia
element with product
offerings prepared in the
traditional way
33
Comparison of a few notable players in the region (2/2)
Highlands Coffee
ZUS Coffee
Kopi Janji Jiwa
Toast Box
Inthanin
Tealive
Presence
in SEA
# stores in
SEA
Brand
positioning
Strategy
> 700
Self-operated +
some franchise
> 280
Self-operated
900
Franchise
> 80
Franchise
> 1,000
Self-operated +
Franchise
> 800
Franchise
Non-premium
Non-premium
Non-premium
Non-premium
Non-premium
Non-premium
Owned by Jollibee
Vietnam
Focus on providing an
authentic Vietnamese
coffee culture
experience through its
coffee menu (traditional
coffee, locally-inspired
drinks) and cafe
ambience and design
Source: Momentum Works Insights
© Momentum Works
Part of Indonesian F&B
chain Jiwa Group; High
store density (often
kiosk format) with
affordable products,
Leverages technology to often provides bundle
optimise operations (app packages and
ordering etc.). Looks and promotions
feels very similar to
Luckin
Focus on making
specialty, hand-drafted
coffee affordable for the
masses
Leverage parent
company, Bangchak’s
(Thai petroleum and
energy conglomerate),
petrol stations network
Toast Box outlets are
typically attached to the as main locations.
main BreadTalk bakery or
A key alternative to Cafe
in a BreadTalk-owned
Amazon (previous page)
food court for better
footfall and to raise sales
Owned by the BreadTalk
Group (a Singapore F&B
corporation)
Malaysia’s most
recognised bubble tea
brand that expanded
product offerings to
include coffee
Leverage the existing
store network to
increase overall sales
and attract new
consumers
34
The subsequent slides cover case studies on a few specific players in the region
Case study 1
Case study 2
Case study 3
Case study 4
Case study 5
Starbucks
Kopi Kenangan
Yakun Kaya Toast
Luckin Coffee
Flash Coffee
● Most renowned coffee chain
with over 34,000 stores
worldwide
● Synonymous with premium
coffee and its unique
customer experience,
which comes with ops
complexity
● 2nd largest coffee chain in
Indonesia serving authentic
Indonesian coffee with a
modern flavor twist
● Venture funded, reaching
unicorn status in 2021
(valuation > $1 B)
Source: Momentum Works Insights
© Momentum Works
● Singapore brand which
standardizes traditional
coffee, toasts with an
element of nostalgia
● Recognised as a ”cultural
icon” by Singapore Tourism
Board
● Largest coffee chain in
China with over 10,000
stores, overtaking
Starbucks in China
● Runs on a fully online
ordering and payment
system, leverages tech and
data for all operations
● Once among the fastest
growing tech-enabled
coffee chains in SEA - now
crumbling
● Bright yellow storefront and
“tech-driven” business
model inspired by Luckin has it learnt effectively?
35
Case study 1: Starbucks
Founded in 1971, Starbucks is now a globally renowned coffeehouse chain that has become synonymous with
premium coffee and its unique customer experience. Starbucks had made a successful turnaround from a
major existential crisis in the 2000s and continued its remarkable growth story.
Pre-1990s
1992
1995 - 2003
2004 - 2007
2008
1971: Founding of
Starbucks as a
coffee bean and
equipment seller
IPO on
Nasdaq
Begun serving
Frappuccino
Introduced the
Starbucks card
Customers started leaving
due to poor customer
experience
165 stores
Debuts first album
“Blue Note Blend”,
containing soundtracks
played in stores
Launched My
Starbucks Rewards
loyalty programme
2005:
> 10,000 stores
Stock price
dropped by 45%
Among one of the first
businesses to offer free
unlimited Wifi to customers
Schultz came back;
18,000 jobs cut, closed
> 900 underperforming
stores
Started On a First-Name
Basis initiative where
baristas wrote customers’
names on cups
Exited entertainment
business to refocus on
coffee
Acquired
Teavana
Transited into
coffeehouse
concept and started
serving latte
Opened first store
outside of US in
Vancouver, Canada
Howard Schultz
kept coming back
(as CEO)
Founding
Source: Momentum Works Insights
© Momentum Works
Started looking for
new business
opportunities
(Launched first movie
and record label)
Expanded beyond North
America, starting with
Japan and SG
2006: Stock price
reached $19.82
1987 - 2000
2009 - 2012
2014 - 2017
2014:
> 20,000 stores
Launched
Starbucks Mobile
Order & Pay
Opened first
Starbucks
Reserve Roastery
Crisis
2019:
> 30,000 stores
Opened first-ever
Starbucks Pick-up
only store
Introduced
strawless lids for
iced beverages
Opened first Starbucks
Signing Store which
hired individuals with
hearing impairment
2022 - 2023
2008 - 2017
Exponential growth
2019 - 2023
Rebound
36
Customer experience at the heart of the strategy
Customer service
Personalisation and customisation
Ambience and environment
Starbucks’ baristas undergo rigorous
training not just in coffee-making, but also
in areas of hospitality and crisis/conflict
management, so to ensure a warm and
seamless experience for the customers.
Starbucks has more than billions of ways for
customers to customise a drink that best
suits their needs. This is further supported by
the baristas’ efforts to personalise each cup
with the customer’s name and build
emotional connections with the customers.
Heavy emphasis placed on creating an inviting
cafe environment through the usage of ambient
lighting, cosy furniture, warm colours and free
WiFi. This effectively helped to characterise
Starbucks as a “third place” for customers to
work or socialise outside of the home and office.
Starbucks is more than just a place to buy a cup of coffee, it is a place to experience a good cup of coffee
Source: Starbucks; Momentum Works Insights
© Momentum Works
37
Starbucks’ focus on customer experience also brings huge complexity (and long queues)
383 billion
Number of different possibilities to order a latte
Starbucks’ customisation options value-add to the overall
experience that customers have with the brand.
Despite bringing good revenue for the brand (since these
additions are charged accordingly), the myriad of
combinations add operational complexities. Employees are
often overwhelmed and overall production time is increased.
As a result, customers have to wait longer which translates
into lower customer satisfaction & store throughput.
5 mins
Average waiting time for a cup of coffee at Starbucks
In addition, this also translates into higher (and continuous)
training costs (as well as a smaller recruitment pool) for the
baristas.
Howard Schultz’s return to the company in 2022 saw the
creation of a speed-up plan to tackle this issue. While this
seems like a step in the right direction, more time is needed
to see the true effects of such changes.
Perhaps some inspiration can be taken from how Elon Musk
radically restructured the manufacturing process (with
significant enhancements in throughput) at the Tesla
Gigafactory.
Source: Bloomberg; Starbucks;Technomic; Momentum Works Insights
© Momentum Works
38
Case study 2: Kopi Kenangan
Founded in 2017, Kopi Kenangan is one of the fastest-growing grab-and-go coffee chains in Indonesia with
the aim of offering high-quality coffee at affordable prices. The company has also expanded horizontally
since then and has multiple F&B brands under its umbrella.
2017
…
Founded: Co-founders Edward
Tirtanata and James Prananto
started the brand to fill the huge
void between low-priced coffee
sold by street vendors and
premium coffee by global chains
2019
Launched mobile app
2020
2021
2022
2023
Launched Kenangan
Academy to offer
training to employees
Achieved
unicorn status
Launched bottled
ready-to-drink coffee,
Kenangan Hanya Untukmu
(“Just for you”)
> 800 outlets in ID,
5 outlets in MY
Launched Chigo
(fried chicken brand)
and Kenangan Manis
(soft-baked cookies brand)
Launched Cerita Roti
(bread brand)
Launched Kenangan
Heritage Café (premium
coffee brand)
Expanded horizontally, added several brands
under the umbrella of “Kenangan Brands”.
Source: Momentum Works Insights
© Momentum Works
Expanded to SG
Expanded to MY
Regional expansion
39
Minimising operational costs to keep coffee affordable for the price-sensitive masses
Cost breakdown of coffee chains
Rental costs are kept to a minimum
Store-level
margins
~ 90% of outlets do not
have seating areas
Cost of
goods sold
Franchise
fees
Manpower
Rental
~ 10% of outlets have a
Typical global
chain store
Source: Kopi Kenangan; Tech In Asia; Momentum Works insights
© Momentum Works
Kopi Kenangan mainly targets the grab-and-go market
(inclusive of both self-pickup and delivery), eliminating the
need for seating and creating of ambience that cater to
better customer experience. This means that outlets do not
have to be big or in the most visible/premium locations,
reducing overall rental costs.
The company can then invest the capital into improving
operations through better technology and equipment and
purchase higher quality ingredients. This allows Kopi
Kenangan to offer decent quality coffee at low prices.
That said, while Kopi Kenangan (or Kenangan Coffee, as it is
known internationally) is doing much better compared to
many ventured funded coffee chains from the region (Case
study 5), its level of technology use is still not at the same
league as Luckin Coffee (case study 4).
simple cafe environment
40
Case study 3: Yakun Kaya Toast
Founded in 1944, Ya Kun’s brand is a Singaporean household name best known for its coffee and kaya
toasts that are still made with traditional recipes. With outlets in major malls, this cultural icon of
Singapore has also expanded to more than 10 countries.
1936
…
Loi Ah Koon started his food
store business selling,
coffee, eggs and toasts
1944
Founding: Loi formally
registered the business
as Yakun Coffeestall
…
1972 - 1984
…
Multiple rounds of store
relocation due to
location and rental issues
Yakun Coffeestall’s popularity
grew during this period due to
its good toast and coffee
1998 - 1999
2000
2003
Renamed to
Yakun Kaya Toast
Launched
franchise
model
Launched
first overseas
outlet in ID
…
2023
> 70 outlets in SG,
50 outlets globally
Loi retired and his son
took over the business
Opened second store
Small family-run business with no ambition to expand
Source: Momentum Works Insights
© Momentum Works
Expansion and franchising under new leadership
41
Standardisation of the traditional coffee drinking experience
Historically, traditional Singaporean coffee is often
sold in open-air hawker centres or kopitiams (coffee
shops) at low prices.
As a brand that anchors on the idea of tradition and
nostalgia, Yakun aims to not just recreate the
ambience that most Singaporeans are familiar with,
but to improve upon and standardise the entire
experience through its all cafes.
Hawker coffee stores
Price of
Kopi
Traits
S$ 1.10
Yakun’s cafes
S$ 2.00
Open-air stores
Air-conditioned stores
Individual stores with different
suppliers and methods of
production
Standardisation: Same suppliers (incl.
Yakun’s own factory) and production
methods across stores
Source: Momentum Works Insights
© Momentum Works
Many of Yakun’s stores are located in shopping malls
and offer a modern and comfortable air-conditioned
space for people to sit down and enjoy their cup of
traditional coffee (or even have a casual business
meeting).
Despite the slight premium paid for a cup of coffee in
Yakun’s cafe, prices are still much lower than that of
most multinational chains.
42
Case study 4: Luckin Coffee
Founded in 2017, Luckin Coffee is now the largest coffee chain in China with more than 10,000 stores.
Notorious for its accounting fraud and delisting from Nasdaq, Luckin Coffee has since redeemed itself and
emerged as a much stronger business. Its partnership with Moutai has also gained much traction among
Chinese consumers with a record sales of 5 million cups in one day. It started global expansion through
Singapore in 2022, opening 20+ stores within half a year.
2017
Founding of Luckin Coffee
by Jenny Zhiya Qian and
Charles Zhengyao Lu
2018
2019
2020
2021
2022
IPO on Nasdaq
Muddy Waters report
published; US$340m of
sales was fabricated
Luckin declared
bankrupt
Luckin completed debt
restructuring and
ended bankruptcy
2,000
stores
Luckin delisted
from Nasdaq
First store opened
in Beijing
Fully self-operated
model
Qian, Lu, and COO
Jian Liu fired
4,500 stores
Expanded into
franchise model
Launched Coconut
Latte. 100 million
cups sold within first
year of launch
> 7,000 stores
Achieved full-year
operating profit for
the first time in 2022
2023
10,000 stores, overtaking
Starbucks as the largest
coffee chain in China
Launched Moutai
Latte. Sold 5 million
cups in a day
Launched
franchising-withown-store model 1
Jinyi Guo appointed as
new chairman and CEO
1. Franchising-with-own-store model (带店加盟模式) aims to encourage people who own shops in strategic locations (like malls) to become franchisees, so to speed up expansion plans and secure good locations
Source: Momentum Works Insights
© Momentum Works
Expanded to SG
43
Tech & data mandate translates into competitive advantages across multiple fronts
Luckin Coffee functions more like an ecommerce/tech business, not traditional F&B retail
User operations
App-based ordering captures
comprehensive customer data. This
How Luckin enables tailored and automated marketing
does it
based on preferences, order frequency,
timing, and favorite products
100%
Customer data captured
Source: Industry practitioners interview; Momentum Works Insights
© Momentum Works
Product development and iterations
Store operations
Every aspect of the product (eg: tastes,
flavours etc) is quantified so to make it simpler
to track trends. Big data identifies popular
items, enabling R&D to create innovative /
better product combinations, facilitating
product innovation.
Fully online ordering and payment, self-service
pick-up with QR codes, and automated coffee
machines streamline in-store operations.
Inventory management is also simplified
through tracking of data from ingredient usage
in machines and total product sales
108
New products launched in 2022
< 2 mins
For the staff to prepare 1 order
44
Luckin’s recent Singapore expansion does not fully mirror its China playbook
Luckin Singapore takes a more premium and flexible positioning
Momentum Works’ poll with ~1,300 community members
(Nov 2023):
What do you think of Luckin’s performance in Singapore?
China
Singapore
Mass
Premium
US$ 1.40
(RMB 9.90)
US$ 4.70
(S$ 6.40)
Luckin app,
WeChat mini programme
Luckin app
Store format
Mostly grab & go style,
minimal seating
Mixture of both stores with
and without seating
No. of stores
> 10,000
> 20
Positioning
Price of
Coconut Latte
(after discount)
Ordering
format
Source: Google Reviews; Momentum Works Insights
© Momentum Works
3%
No so great
18%
None of my
business
54%
Unexpectedly good
23%
So so
45
Case study 5: Flash Coffee
Founded in 2019, Flash Coffee was among the fastest-growing tech-enabled coffee chains in
Southeast Asia. With the aim to replicate Luckin’s success and “conquer Asia”, it was very aggressive
in its expansion - opening 250 stores in 7 markets within 2 years of founding. However, this quickly
turned into a crumble as it started shutting stores in multiple markets from 2022 onwards.
2020
Founding of Flash Coffee by
David Brunier (ex-FoodPanda)
and Sebastian Hannecker
(ex-Bain)
2021
Expanded to
Thailand
Expanded to Expanded to Expanded to
Singapore
Taiwan
Hong Kong
2022
Expanded to
South Korea
Built regional
HQ in Singapore
Expanded to
Japan
Exited Japan
Announced
multiple layoffs
across different
markets
2023
Exited Taiwan
Announced
$50M funding
(which was
actually
secured the
year before)
“voluntary
liquidation” in
Singapore
First store opened
in Indonesia
Period of aggressive growth
Source: Momentum Works Insights
© Momentum Works
Period of downfall
46
Flash Coffee collapsed not because it was fast
Lack of industry understanding within
the founding team
Unclear value proposition
Founders had experience in tech, but not
retail and (especially) F&B and had to rely
on hiring experienced executives to help run
their coffee business.
For a company that positions itself as a “tech
company at its core”, there hasn’t been much tech
being developed for Flash to differentiate from its
competitors in a crowded market.
With such core functions not being handled
by founders in the early stages of a startup,
it is difficult for Flash Coffee to build a solid
foundation.
Other than a consumer app that customers are not
obligated to use for ordering, Flash does not fully
leverage tech to help in the user, product and
operation optimisation (unlike Luckin).
Leadership focused on funding, rather
than operations
Despite a tough funding environment, leadership
seemed oblivious and focused growth and
expansion over cost-cutting and survival.
This neglect led to lower product and operations
quality due to inadequate management.
Investors grew cautious and leadership ended up
spending more time fundraising instead of
managing operations - a vicious cycle.
47
© Momentum Works
Every company tries to stand out, with varying effects
Different mindsets of coffee chains
Non-premium
Premium
Location
Grab & Go
Cafe ambience
Store focus
Online
In-person
Service touchpoints
Eg: Ordering, payment
Employees would only
focus on production
Smallest selection
Employees handle multiple
tasks (cashier, production etc)
Largest selection
Product
Eg: tea, coffee, food
merchandise
Decent number
of product that
are also highly
customisable
Source: Industry practitioners interview; Momentum Works Insights
© Momentum Works
Fast
iteration of
product
innovation
Physical environment could directly impact the
scalability. Demand for seating (hence large space)
in prime locations increases costs and makes it
more difficult to acquire new locations as
compared to smaller and non-prime locations.
Online touchpoints help increase efficiency of
operations but eliminate the warmth in customer
experience that in-person service can bring. (Does
that matter?)
Vast selection of products can appeal to a more
diverse group of consumers while also giving them
more reasons to come back and try other products,
but also runs the risk of overwhelming consumers.
48
Through the POP-Leadership lens
Leadership: As seen from the case studies, a strong leadership is crucial in steering the company
towards success or downfall. Howard Schultz grew Starbucks into an empire during its early days and
was called back twice more during times of crisis to steer Starbucks back on track. In contrast, Flash
Coffee’s leadership made the critical mistake of focusing on expansion rather than cost-cutting amidst
a rapidly deteriorating funding environment, resulting in lapses in operation management and
insufficient funds to run existing stores.
People: For coffee chains, store employees/baristas are the ones who portray the brand image and
determine the quality of the products and services, and hence the sales. Brands like Starbucks and Kopi
Kenangan have extensive training programmes (and even built dedicated academy sites) to equip their
baristas with the right skills to serve the customers, adding to the overall brand experience. Luckin,
however, took the opposite route of minimizing human touch in favour of digital touchpoints.
Organization: Within such a competitive industry, all levels of the company need to be agile to
respond to rapid changes in the market. Luckin leverages tech and data to create a real-time
mechanism connecting the headquarters with the stores to facilitate seamless day-to-day operations.
Product: Every company has its flagship product. While some focus on extensive customisation
POP-Leadership is a strategy framework created by Guoli
Chen, professor of strategy at INSEAD, and Jianggan Li, CEO
of Momentum Works.
Source: Momentum Works Insights
© Momentum Works
options (like Starbucks), others prefer to offer a smaller product range that emphasises the story behind
the brand (like Yakun). Regardless, companies need to consider their operational abilities before
expanding their product range to avoid adding complexities that end up hurting the business.
Check out our new book “Seeing the unseen behind Chinese tech giants’ global venturing”,
which analyzes experiences, challenges and
lessons learnt by Chinese tech companies. Order
the book on Amazon now.
49
Momentum Works 2023. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at the
users’ own risk.
4. Conclusion & perspectives
50
Conclusion
With a history of 500 years, Southeast Asia is among the largest coffee producers in the world, especially for Robusta beans. The consumption of
coffee has become a tradition in most Southeast Asian countries, where consumption was through instant coffee or a myriad of formats of
traditional and/or informal coffee shops and vendors.
Over the years, the modern coffee chain market in Southeast Asia has become increasingly attractive to investors, entrepreneurs and
conglomerates with large retail footprint, with many local and multinational chains seeking to enter or expand their presence within the region.
The initial surge of Luckin Coffee (prior to the fraud case) in 2018 - 2019 led to a surge of venture capital-backed chains in the region.
We estimate the modern coffee market in Southeast Asia to be worth $3.4 billion in 2023.
Excitement aside, on a per capita basis Southeast Asia’s coffee coffee consumption is still behind the developed world (Western Europe, North
America, Korea and Japan). While many interpret this as an indication of huge growth potential, data in the past few years (2018 to 2021) suggest
that the growth in per capita coffee consumption (CAGR: 0.80%) lags behind that of GDP per capita growth (CAGR 2.65%).
The opportunities, therefore, lie with taking market share from existing players, adding more than coffee to the menu, and increasing the value
of each cup of coffee sold to the same consumer base (a key contributor). Otherwise, most of the proposed differentiation revolves around
products and services which are largely superficial and do not translate into a lasting moat in the crowded space.
Players, therefore, need to look beyond product level and start finding ways to improve their business models while leveraging tech and data to
raise operational efficiency across multiple fronts. Such improvements have to be supported by a strong leadership team, a solid organisation
structure and capable people. The constantly evolving market offers many case studies, with lessons not only for this industry, but also for all
organisations in different sectors looking to innovate.
Source: Momentum Works Insights
© Momentum Works
51
Introducing the Frappuccino index, a fresh lens on global purchasing power (and affluence)
In a world where economic indicators often seem detached from daily
experience, we bring you the Frappuccino Index - a practical measure that
taps into the ubiquitous presence of Starbucks to offer insights into the
relative cost of living and disposable income across the globe.
Frappuccino Index 1 2023 of key global cities
(NYC = 100)
Bangalore
Hanoi, Ho Chi Minh
Bangkok
Jakarta
Using the price of a Frappuccino in New York (NYC) as a benchmark, the
Frappuccino Index1 provides a unique, lighthearted perspective for
assessing economic status, affordability, and the premium placed on
global brands in various locales. Here is how to interpret the Index:
1)
Consumer Economic Status (affluence): The proximity to the base
reflects the similarity in consumers' purchasing power to that of
NYC.
2)
Brand Perception: The closer to the base, the less premium
Starbucks is seen in the city, offering insights into local consumer
culture and the brand's integration into consumers’ daily lives
3)
Market Penetration: The nearer to the base, the broader the
consumer base for Starbucks products, implying successful market
penetration and competitive pricing with NYC.
Dubai
Kuala Lumpur
Manila
Paris
Shanghai
Singapore
London
Tokyo
New York City
While the Frappuccino index is not a definitive measure of affluence or
economic status, it nonetheless offers a digestible interpretation of the
complex economic conditions and consumer behaviour.
1. The Frappuccino Index was created using the 2023 price of a cup of Caramel Frappuccino in size Grande of various key cities globally, benchmarked against that of New York, USA. Source: Momentum Works Insights
© Momentum Works
52
Frappuccino Index - the Methodology
The Frappuccino Index aims to offer insights into the relative cost of living and disposable income across key global cities by looking into the prices of a specific
beverage - grande sized caramel frappuccino - offered by Starbucks.
The product is popular amongst consumers in many cities we are familiar with, and the spending on it (hence the pricing), which is largely discretionary, offers a glimpse
of affluence of a particular city’s consumers, brand perception and market penetration of international brands. The Index uses New York City as the base (= 100), and
computes the other cities’ numbers accordingly. The closer to the base, the more similar that the consumer affluence, brand perception and market penetration are to
the level of New York City.
Data Collection:
●
The contents are based on data and information provided by World Bank and Starbucks and are further supplemented using open-source online data.
●
The price of a cup of Grande-sized Caramel Frappuccino from each of the key global cities was obtained from Starbucks’ menu (both physical menus and on the
local Starbucks app) of the respective locations. For cities in which physical menus were referenced, we assumed that all stores within the same city charged the
same price for their products. We avoid using atypical locations like the airports and duty free malls.
●
Leveraging the World Bank’s existing database, the Purchasing Power Parity (PPP) conversion factor (in relation to the US dollar) of each country can be easily
acquired. We made the assumption that the key global cities’ PPP conversion factors are equivalent to that of their respective countries.
Data Analysis:
●
With the data collected, the PPP-adjusted price of the Grande-sized Caramel Frappuccino was calculated by dividing the original price in local currency by the
country’s PPP conversion factor.
●
The index was subsequently derived by benchmarking the PPP-adjusted price of the Grande-sized Caramel Frappuccino of the respective key global cities
against that of New York City.
Do note that the Frappuccino Index is meant to be an easy to digest, light-hearted approximation of the complex economic conditions and consumer behaviour across
key global cities. It is, however, not meant to be a definitive, accurate measure of affluence or economic status.
Source:World Bank PPP Conversion factor; Starbucks; Momentum Works Insights
© Momentum Works
53
© Momentum Works
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