Luckin’s Nasdaq outing pushes Indonesian coffee chains on expansion overdrive

Beijing-based Starbucks rival Luckin Coffee’s blockbuster Nasdaq market debut on May 17, 2019 has had a ripple effect on coffee chains in Indonesia who are accelerating their capital-raising and expansion plans.

Fore Coffee, an on-demand specialty coffee startup in south-east Asia’s largest market, is currently in talks to raise over $15 million as it plans to ramp up the number of outlets over the next few months. Founded in August 2018 by Robin Boe and Elisa Suteja, the online-to-offline e-commerce platform has raised over $9 million so far.

“We are on track to open our 100th outlet in August this year and have been consistently among the top 3 most downloaded Android and IOS app in Indonesia app store,” said a senior executive from venture capital firm East Ventures without divulging details on the startup’s fund-raising plans. Fore Coffee claims to have almost doubled its presence to 35 outlets across Jakarta in April alone from 19 in January.

East Ventures is the tech-enabled coffee chain’s biggest backer. Unlike conventional coffee outlets, Fore Coffee focuses on its mobile app to grow its business and create a seamless ordering process for its burgeoning ‘digital’ customers.

“Coffee is a necessity for so many people, but not everyone has the time to go to a coffee shop, wait in queue, then wait for their order, and then return to their workplace,” Fore Coffee co-founder and CEO Robin Boe was quoted as saying a few weeks ago. The startup recently made headlines when it partnered with mobile payment platform OVO and GOJEK to ease the payment system and delivery for customers.

Fore Coffee is not the only one which is seeking out investors to fund its expansion spree. Several coffee chains across Indonesia are looking to raise funds as investors are betting on the new-age consumption theme.

Alpha JWC Ventures-backed coffee chain Kopi Kenangan, which has already raised around $8.5 million, is currently looking to garner a rather significant amount of capital in the next round, say sources.

With claims to sell up to 175,000 cups per month, the startup targets to become the fastest-growing non-franchise coffee chain in Indonesia with more than 100 stores in the near future. When contacted, an Alpha JWC executive said: “We plan to grow, we believe by focusing on building a strong business, funding will follow.”

Kopi Kenangan’s  ‘grab and go’ coffee chain is built on a non-franchise model with the objective of maintaining operational standards and quality.

“Coffee chains are 50 per cent real estate for distribution and 50 per cent product. In Indonesia, they provide good benchmark and economies of scale with Luckin Coffee,” said Leon John Hermann, venture partner, Kejora.

“Sourcing here also often happens across the province. For instance, Fore Coffee is launched by Otten Coffee that originates from Medan. Although their big challenge is owning the right real estate to win.”

Kopi, which recently launched its first store in the heart of Jakarta a few months ago, is currently betting big on its in-house coffee app and has snagged seed funding from angel investors. The startup, which does not have an e-wallet yet, claims that its products are priced competitively. It is now seeking partnerships to expand at a faster pace.

Indonesia’s new domestic consumption theme – riding on suitable demographics, smartphone penetration, and young population – seems to be driving increased investor interest in what can be described as the ‘new-concept’ coffee retail space.

Some of the investors who have made early bets in the country’s tech-enabled coffee chain business include East Ventures, Agaeti, Alpha JWC and Convergence Ventures, among others.

The sector, say experts, is slated to get a further boost after the listing of China’s Luckin Coffee which saw its shares trade roughly 20 per cent higher on the first day. Earlier valued at $2.2 billion, the company – considered a competitor to Starbucks in China – has attracted funding from Singapore’s GIC and China International Capital Corp. A lot of its outlets are small booths that fill online orders for pickup or delivery.

“Coffee is a commodity……. valuation is driven by growth rate. We need to look at it (any investment) in 12-18 months timeframe,” said another Indonesian investor on condition of anonymity.

However, there is a contradictory view as well with some analysts painting a grim outlook for the sustainability of Luckin’s business model even as the company has gone public at NASDAQ in record time of 19 months.

There are three crucial aspects of a successful investment thesis. “First, am I building economies of scale in supply chain through efficient sourcing. Second, building a successful brand. Third, real estate arbitrage by building for delivery only,” says Hermann.
“Similar to China, 50 per cent of the success in coffee will be product – while 50 per cent will be finding the right real estate in high-frequency use cases such as offices, colleges, and others while maintaining healthy cohorts,” he adds.

The technology-backed coffee model has  sparked a lot of interest among both entrepreneurs and investors. While Indonesia, on its part, is becoming a hot market for a possible coffee war, the global coffee market too has been an attractive investment area wherein Starbucks commonly was regarded as the pioneer in creating a global cross-border supply chain company.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.