Sometimes, the jokes write themselves. When the Rocket Internet-backed Flash Coffee chain abruptly shut its 11 stalls in Singapore last October, reporters were quick to quip about the exit. “Gone in a flash!” read one headline; “Trouble brewing?” read another.
Flash Coffee, with its instantly recognisable bright yellow and electric pink storefronts, came and went with equal fanfare. The chain opened its first outlet in Jakarta in January 2020, before quickly expanding to Thailand that May, then Singapore in September, all within the year of the Covid-19 pandemic.
“We managed to launch in three markets at once, in one of the most challenging times for an F&B business,” co-founder Sebastian Hannecker boasted to The Edge Singapore in April 2021. Together with co-founder David Brunier, the duo would later expand into Taiwan, Hong Kong, Japan and South Korea, reportedly opening more than 250 stores.
The cash burn was apparent even from the 2021 interview, which was organised by Insead’s media relations team. Hannecker, who was an MBA alumnus from 2017, was joined by Sanjay Zimmermann, principal of White Star Capital and a 2020 graduate.
Earlier that month, Flash Coffee announced it had raised US$15 million in a Series A round led by White Star Capital, bringing Flash Coffee’s total capital raised to US$20 million.
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But even then, both the investor and investee had yet to meet in person. Owing to Covid-19 lockdowns, the investment was negotiated almost entirely over the web. Instead, the two cited a bond over their shared alma mater. “You always know, if that person is from Insead, the likelihood is very high that you will get along well [with them],” said Hannecker.
Zimmerman, on his part, was impressed by the founders’ claim to have achieved profitability “in several stores” after entering three markets during the pandemic. “You can say whatever you want in the pitch deck, but there’s nothing that speaks more than executing on a vision, and that’s what the team did. That’s why we decided to back them,” he said.
There were other unconventional points made over the video call. For one, Hannecker said Flash Coffee was in the real estate business and aimed to open an outlet every 500m in every major Asian city.
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The company was scooping up locations with depressed rents during the pandemic and opening four to five new outlets each week. “There was actually a huge opportunity for us to sign 24- or 36-month rental contracts and lock in the rates without increases,” said Hannecker.
But as those rents expired, so did Flash Coffee’s time in Singapore. Its voluntary wind-up in October 2023 would not have gone down so poorly with locals had it not been for its many disgruntled employees and creditors.
According to a TikTok video posted on Oct 12, 2023, workers at Flash Coffee’s Jurong Point outlet went on strike after “several late salary payouts”. In addition, Flash Coffee reportedly owed over $14 million to more than 150 creditors.
Flash Coffee’s troubles were not just confined to Singapore. The chain had exited Taiwan in March 2023, closing its 10 stores there and filing for bankruptcy in May 2023. There, Flash Coffee reportedly owed some NT$120 million ($5.2 million).
This happened even as Flash Coffee closed its US$50 million ($67 million) Series B round, once again led by White Star Capital. Announced in May 2023, the news remains the latest update on the company’s website and LinkedIn page.
“Flash Coffee has experienced exponential growth over the past two years, with a 23-fold increase in y-o-y revenue in 2021, followed by another four-fold y-o-y increase in 2022 while achieving more than 100 percentage points y-o-y ebitda improvement on a group level in the same year,” reads the release from May 11, 2023.
With stores being “solidly profitable” across the region, the company is on track to reach group-level profitability in 2024, adds the release, “with the first markets set to become ebitda-positive in the coming months”.
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Turning things around
Except the Flash Coffee group would exit Singapore and Thailand less than six months later.
In November 2023, Singapore-based venture capital (VC) firm Turn Capital acquired the coffee chain’s business in Thailand, announcing plans to open more than 100 stores within two years.
Turn Capital invests in consumer, technology, media and telecom companies in Asian markets. The firm was launched in 2020 by Joseph Phua, who also co-founded live-streaming company 17Live. 17Live was later acquired by Vertex Technology Acquisition Corp and became Singapore’s first and only de-spac on Dec 8, 2023.
After more than three years away from the company, Phua was reappointed as 17Live’s CEO after his successor, Lien Chien-Lin, abruptly resigned on Jan 26. The resignation comes amid a significant tumble in its share price, from its debut price of $5 to $1.28 as at Jan 31.
Ironically, 17Live could fit the profile of companies targeted under its founder and CEO’s acquisition strategy at his VC firm, which looks for distressed assets.
Turn Capital’s “vulture investing” strategy involves buying over a firm that has been priced at a fraction of its original value, in hopes of turning the business around and eventually selling the asset at a higher price.
The entire process can be as quick as 12 to 18 months, following which Turn Capital will seek potential buyers or exit their stakes through the secondary market at a target 3x to 5x return.
“We bet on themes; we also bet on our ability to turn things around operationally,” Phua tells The Edge Singapore.
This is why Turn Capital partner and CFO Shang Koo said in November 2023 that his team looks forward to bringing Flash Coffee “to profitability” and working with the Thailand team to grow the company “over the next few years”.
Ho Kheng Lian, another partner at Turn Capital, says Thailand was “particularly attractive” as Flash Coffee’s store rents were much lower than the other territories that they considered, “which meant we can achieve positive unit economics quickly”.
Ho explains that the team prefers to acquire companies that are in their “post-revenue stage”. These are companies that have already hit their first growth peak but can be improved operationally, she adds.
This method has proven quicker in reaping returns than building a company from scratch, says Ho, allowing Turn Capital to exit within five years instead of “at least 10” for “up-and-coming” start-ups.
At present, Phua says most of his businesses are “in the cycle of building and most have returned in terms of return on capital”.
“I cannot speak specifically to exits that we’re working on right now, but I would say most of the businesses look towards a secondary or full exit within three years of entry,” he adds, noting that Turn Capital only launched in 2020.
An investment thesis
While it remains to be seen whether Turn Capital made the right call on Flash Coffee, VC firms investing in coffee chains is not a novel concept.
Physical retail has made a surprising comeback post-pandemic. Just a few months before Flash Coffee announced it would shut all its Singapore stores, the coffee market here was actually getting livelier.
Notably, China’s Luckin Coffee debuted here in March 2023 with two stores, in Ngee Ann City and Marina Square.
The company is notable for bouncing back from an accounting scandal after it went public in the US in May 2019. Luckin Coffee fired its CEO Jenny Qian and COO Charles Lu in May 2020 after the duo were found to have fabricated sales.
Backed by Chinese private equity firm Centurium Capital, which stumped up US$240 million, Luckin Coffee is growing aggressively, with around 30 outlets in Singapore today. Within its home market of China, Luckin Coffee had 13,255 stores as of September 2023.
Lu and Qian returned to the coffee industry in October 2022 by launching Cotti Coffee. The brand is reportedly active in 28 countries with over 7,000 stores and entered Singapore in January with its first store at One Raffles Link.
Since Flash Coffee’s closure, two Indonesian coffee chains have debuted here around the same time: Fore Coffee and Kopi Kenangan.
Having achieved commercial success at home, both businesses were eager to expand overseas. Singaporeans are among the heaviest coffee-drinkers in the region, and with high purchasing power, the country became an important test market for both chains.
Unlike the typical story of an enterprising start-up founder, Fore Coffee was the brainchild of Willson Cuaca, founding partner at VC firm East Ventures.
Founded in 2009, East Ventures was an early backer of some of the most prominent start-ups in Southeast Asia, including e-commerce platform Tokopedia, Singapore-headquartered ShopBack, and ride-hailing giants Gojek and Grab.
“The story of Fore is all about the thesis… a consumer thesis in Indonesia,” Cuaca says. “Fore is actually very special for us, beyond just any start-up… because I think the idea came from me.”
Over 14 years, East Ventures has invested in nearly 300 companies through its 11 funds, which are a mix of seed- and growth-stage funds. They span a multitude of sectors, including e-commerce, logistics, payments and Software-as-aService.
In mid-2022, the firm closed US$550 million for its multi-stage fund, in which US$150 million will be allocated to early-stage deals and US$400 million to growth-stage investments.
Cuaca believes that his ecosystem of digital infrastructure investments acts as a “highway” that “you can put anything on top of”, as he has compressed the timeline for products to reach consumers.
“If I have a new brand, don’t you think this brand can reach customers very fast, even though [the product] is totally new and something that we built from the ground?” he says.
Cuaca and his team quickly settled on coffee, a familiar consumer product that needed little market education. “Everybody knows how to buy coffee; the biggest challenge will be market positioning.”
Then, a business deal with roastery and machine retailer Autumn Coffee was forged, and between 2018 and 2020, Fore Coffee opened 130 stores across Indonesia.
But just as quickly as they came, Fore shut 100 stores when the pandemic hit. The brand needed a “war-time” leader, says Cuaca, who replaced Fore Coffee’s first CEO Robin Boe with Elisa Suteja, one of his own team members from East Ventures.
Suteja led the coffee business out of a difficult period, becoming “stable” by the end of 2021, says Cuaca. This meant having clear unit economics and establishing a clear position in the market, he adds. “We decided we do not want [our coffee to be seen as] the cheap one. We don’t want to be the expensive one. We want to have affordable, quality coffee.”
In November 2023, Fore Coffee launched its first overseas outlet, finding its home at Bugis Junction in Singapore. Its official opening spared no fanfare; the event was graced by Indonesia’s Minister of Tourism and Creative Economy Sandiaga Uno and hosted by Indonesian actress Cinta Laura Kiehl.
Fore Coffee later revealed that it sold almost 3,000 cups of coffee during its opening weekend. But Cuaca confesses that Singapore is “a very competitive market”.
“Rental is very high, and manpower is another problem,” he adds. “Maybe in three months we cannot [survive], but for now, we don’t know.”
With over 170 stores throughout Indonesia and in Singapore today, Cuaca says only “one or two stores” are loss-making.
Cuaca’s cautious approach, as opposed to the “blitz-scaling” model of rapid growth seen at Flash Coffee, may have paid off. He claims that every transaction that Fore Coffee makes today is profitable, fulfilling his investment thesis from five years ago.
Fore Coffee, like the majority of companies in East Ventures’ growth fund, should be sustainable beyond 2025 without further fundraising, says Cuaca.
“We don’t chase valuation, we don’t chase unicorn status, and sometimes we’re a bit reluctant to raise [funds] because we always think ahead. How are you going to raise [funds] if your valuation is too high?” Cuaca says.
Looking back at 2020, when the start-up world enjoyed ample capital, Cuaca recalls that many companies kept putting off plans to establish their path to profitability. Instead, East Ventures has demanded its founders achieve a clear path from the beginning, says Cuaca.
The importance of knowing one’s destination has therefore paid off in a high interest rate environment, where most founders can ride out the funding winter because they had already planned ahead. “Today, we can actually use our earnings to expand but if there is money coming in, we will use it to accelerate even faster in a proper, measured way,” Cuaca says. “So, that’s the principle.”
A cup of java
Cuaca may baulk at chasing unicorn status, but competitor chain Kopi Kenangan achieved just that in December 2021.
Founded in 2017 by Edward Tirtanata and James Prananto, Kopi Kenangan, which translates to “coffee memories” in Bahasa Indonesia, turned unicorn thanks to a US$96 million Series C round.
Hong Kong-based investment firm Tybourne Capital Management led the round, which also included Li Ka-shing’s Horizons Ventures, Kunlun Capital, Eduardo Saverin’s B Capital and Falcon Edge Capital.
The funding more than doubled its valuation from some US$405 million at its Series B in May 2020, and the company has not announced another funding round since.
Kopi Kenangan, which operates as Kenangan Coffee outside of Indonesia, opened its first international store in October 2022 at Malaysia’s Suria KLCC. Close to a year later, the brand made its second regional expansion into Singapore, opening its first branch in September 2023 at Raffles City.
The management team sees Singapore as a springboard to global expansion. Speaking to The Edge Singapore last year, CEO Tirtanata says Singapore is “tourist-heavy”, which will help establish brand recognition with travellers from all over the world.
They also chose to launch during the festive season. Tirtanata adds: “People will be visiting Singapore; there will be a lot of noise. So, the momentum is just right. Especially December in Singapore; oh my god, it’s crowded!”
For this reason, the brand quickly opened more stores in key areas across the island, at Jewel, Changi Airport Terminal 2, Takashimaya and VivoCity. The company has declined to reveal further details on upcoming locations but said plans are underway.
Its head office at Aperia Tower 2 also houses the group’s second training centre, known as Kenangan Academy. “We make sure that people have the proper training, not just in making the recipes but also on food safety and hygiene,” says Tirtanata.
Tirtanata aims to open 25 new Kenangan Coffee stores in Singapore this year. To reach economies of scale, he believes the “magic number” is 100 in Malaysia and 50 in Singapore.
Management hopes to open 50 stores in Malaysia by the end of 1Q2024. With “close to 40 stores” in Malaysia currently, the group is “on track” to reach its target. This is in addition to over 800 Kopi Kenangan stores in Indonesia.
In total, the group hires around 4,800 staff. Yet, unlike the blitz-scaling model that doomed Flash Coffee, Tirtanata is more measured with his expansion plans and plans to only commit to an initial six stores here. “Most probably from the sixth [store], we should be able to know whether we want to open more [stores] or not. If you want to know whether a brand is doing well, you just have to see if they are opening more [stores] after their first phase.”
Tirtanata thinks Flash Coffee’s target for one store every 500m is “rather ambitious”, but not impossible. On a busy street in Indonesia, for example, Kopi Kenangan has opened 14 outlets, he adds, and the brand sports multiple stores in certain shopping malls in Indonesia.
While the group is still ramping up its operations here and in Malaysia, Tirtanata says the Indonesian business — as a “mature company” — is “already highly profitable”.
By “aggregating” Singapore and Malaysia’s corporate teams, such as having marketing staff handle both countries, Tirtanata hopes to reach profitability by 1Q2024. Further expansion could bring the brand outside of Southeast Asia and into India and the Middle East, he adds.
The brand’s Indonesian heritage is its competitive advantage, says Prananto, who is chief business development officer. “Indonesian [coffee] beans are already well-known. Even in the US, people call a cup of coffee a cup of java.”
According to him, the chain’s best-seller is the Kenangan Latte, “which is coffee, milk, our special creamer and palm sugar”. “That concoction is very unique to Indonesia; none of the global brands are offering [that].”
The “Black Aren” palm sugar, as the company calls it, is made from the sap of the Arenga pinnata palm. “We still source it from our farmers [in Indonesia],” adds Prananto. “We even have our own production facility [with] our own special ratio on how to make this. That’s why when we come into new markets, there’s a story [behind] the product. We’re not just bringing you another latte or americano.”
Aside from the grab-and-go coffee chain, the group began diversifying as Kenangan Brands in 2020, starting with bakery chain Cerita Roti. The following year, the group launched fried chicken chain Chigo, cookie chain Kenangan Manis and cafe Kenangan Heritage.
The group even entered the fast-moving consumer goods (FMCG) space, launching Kopi Kenangan Hanya Untukmu bottled coffee in early 2022.
Prananto is also moving up the value chain. In October 2023, he raised US$12 million for the maiden fund of his VC firm Kopital Ventures. According to him, the oversubscribed fund was more than double the initial target of US$5 million.
Based in Jakarta, Kopital Ventures is a sector-agnostic pre-seed and seed-focused fund looking to invest in up to 40 companies over the next three years.
Launched in collaboration with Singapore-based VC firm Farquhar VC, its investors include Saison Capital, Trihill Capital, Impact Ventures and Alto Partners Multi-Family Office.
“Kopital Ventures originally started as an informal group of angel investors called the Kopital Network,” says Prananto, who launched the firm with Fandy Cendrajaya. “Amidst the tech winter, Fandy and I thought we would be able to add more value to founders by setting up a venture capital firm to invest in early-stage companies.”
Singapore an ‘attractive market’
No business is guaranteed success, not even a coffee chain that lasted 27 years. A month after Flash Coffee’s exit from Singapore, Spinelli Coffee followed suit, shutting all six of its remaining outlets here.
What stops a young business from burning out too quickly and gives established brands true staying power? For starters, one academic thinks a Starbucks-style rapid expansion “could not happen now”.
“The cost is different, the brand is different, the context is different,” says Dr Samer Elhajjar, senior lecturer at NUS Business School’s marketing department. “Starbucks had a different story [and] different economic conditions as well.”
He tells The Edge Singapore: “What we actually prefer, and what we recommend as marketing practitioners, is to have slow expansion and to go step-by-step.”
Expanding to new markets incurs higher risk of failure, including financial and reputational risks, warns Elhajjar. “It’s double-edged because you might become successful in that market… But at the same time, there is a high risk of failure. If I invest too much money, I cannot see [an] immediate return on investment, I’ll shut down. It’ll be another failure case study for my classes.”
As the pandemic revealed fragilities in global supply chains, “deglobalisation” as a trend has pushed local products to the fore in many markets, says Elhajjar. International brands also face pushback from two emerging developments: ethnocentrism and sustainability.
“I’m from the Middle East, [so] I prefer the Middle Eastern coffee shops. I prefer someone who can provide me with my local preferences. We have this sense of ethnocentrism that is actually emerging and you can see it in many industries,” says Elhajjar. “I want to buy local, I want to buy something sustainable, I want to be responsible. So, I will not go for global brands.”
But companies that manage to crack Singapore have a chance to do well. For one, the cost of running a coffee shop in Singapore is higher than any of the neighbouring countries, notes Elhajjar.
“Singapore is a very competitive, very attractive market. You have high purchasing power, you have [an] expat community, people love to go out, people love coffee — I think it’s a very attractive market for all of these reasons. They are trying to establish credibility [and a] good reputation; they will try to penetrate the market with a good online presence.”
Elhajjar lays out four key priorities for growing consumer brands. “Firstly, the most important factor is the emotional connection we are building with clients. The brand identity should be built on this customer experience. The second factor is the product. Here, we need to have innovation, diversity [and] a variety of options.”
He continues: “The third is financial management — how you plan your finances, cut costs, streamline operations and use technology is really important, especially in Singapore, one of the most expensive countries in the world. The fourth is location. You need to have traffic, and I’ll link this with social media and marketing presence. Nowadays, if you don’t collaborate with influencers to promote your brand on social media, I’m not sure how you’re going to attract people.”
Photos: Flash Coffee, East Ventures, Turn Capital, Fore Coffee, Kopi Kenangan, NUS Business School
Read the sidebar to this week’s cover story: Caught in the coffee crossfire
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