In episode 40 of The Impulso Podcast, we invited our in-house expert Weihan to talk about the newly released “Coffee in Southeast Asia 2023” report. 

Southeast Asia’s modern coffee market has grown significantly in recent years, estimated at US$3.4 billion in 2023. Indonesia and Thailand lead with turnovers of US$947 million and US$807 million respectively. The market is attracting investors and large chains, both local and multinational, looking to enter or expand in the region. The success of Luckin Coffee in 2018–2019 has also spurred a rise in tech-enabled coffee chains. 

In this episode, we talk about:

– growth opportunities for players

– key factors necessary to succeed in a saturated market

– how some chains achieve superficial differentiation

– finally, introducing the Frappuccino index – an easy-to-digest, light-hearted approximation of the complex economic conditions and consumer behavior across key global cities

Tune in and enjoy!

Featured this week:

Coffee in Southeast Asia report – Coffee in Southeast Asia: Modernising retail of the daily beverage (Free until Nov 30th) | Momentum Works

[AI-generated transcript]

Dalia  0:01  

Hello, everyone and welcome back to the Impulso Podcast. Today with us we have Weihan and Jianggan.

Jianggan  0:05  

Hello. This seems that for the last few episodes is always me and Weihan, what happened.

Dalia  0:17  

Right? It’s like a fourth episode in a row

Jianggan  0:25  

So official reason is that everybody else is busy working. The actual reasons that everybody else is on holiday. I think Vion in Iceland Norway, enjoying the volcano. And, and Sabrina is where Sabrina? Japan

Weihan  0:41  

Yeah, she’s in Japan now.

Jianggan  0:43  

And Nanette just came back from the US and she was away for a month. It seems that everybody wants to take leave and holidays before before everybody else takes holidays. Christmas season so. So, so we should see interesting because can’t expect everyone to be working during Christmas right?

Weihan  1:05  

No it’s festive. Everyone doesn’t have to move even if they had to work.

Jianggan  1:10  

Okay, okay. Okay. extended holiday. Understand what Okay, let’s go.

Dalia  1:16  

This week, we just launched our brand new coffee report that is basically built on the success of our bubble tea report in Southeast Asia that we launched exactly one year ago. Maybe Weihan  can you just share with our listeners some context about why we decided to launch this report in the first place.

Weihan  1:35  

I think there are multiple reasons. But I think a very big factor is because we have a very successful program, SIP, innovate repeat program. And then it deals a lot with coffee, and maybe a tinge of bubble tea. So I thought it’d be interesting to actually create a report that actually, in a sense, support but also provide more insights that that people might not be so much aware of about the coffee industry in Southeast Asia. As I think as a non coffee drinker myself, this report has really opened my eyes to a lot of new things like Do you guys know, Southeast Asia is the largest producer of this. This variety, this variety of coffee called robusta, and robust I’ve been.

Jianggan  2:26  

So we have a non coffee drinker. So and you are leading the creation of this report, which dives very deep into the coffee industry and coffee industry. So in a way, it’s good, right? Because you’re not biased by tests, because I see so many people around me saying that. I love this coffee chain, because the test is good. I don’t like that. Because even though they’re popular, they’re the business very good. But the coffee tastes like shit. So we do hear that a lot. I mean, people are very, very passionate about coffee. But yeah, yeah. Robusto that’s that’s what people drink traditionally in Southeast Asia, right? Yeah,

Weihan  3:03  

that’s the most I think Robusta beans, you don’t really find them being drank anywhere else in the world. It’s more popular in Southeast Asia. So our usual copy it’s it’s made out of robusta coffee beans, and they’re like, roaster in a very unique way for every different country. Yeah.

Jianggan  3:24  

I think I do spend quite a bit of time in Vietnam as well. Obviously, people think that it is next next growth engine for Southeast Asia. And people there drink coffee a lot. And it’s largely Robusta as well. And I think it’s one of the world’s second largest coffee producing country in the world. Yeah,

Weihan  3:42  

that a second largest producer globally. And then we have Indonesia which is also a huge producer coming in at about fourth place.

Jianggan  3:53  

And you can see why people are so passionate about it, right. I mean, it’s it’s been produced it’s been consumed. Dalia do drink coffee.

Dalia  4:03  

Oh, yeah, I do. I think I actually started to drink more coffee as I started working.

Jianggan  4:12  

Is the coffee you find here a similar to what you have back in Russia?

Dalia  4:19  

Actually, it just one thing that back in Russia I don’t think I used to drink coffee a lot like outside. And I think maybe one of those is that back in my hometown at least. There is no such a big variety of coffee chains. There is in Singapore for example, I feel like here there’s just like for anything. If I want something very fast, I wouldn’t go for lucky and right and then if I want a better taste, I guess I would go to Starbucks. But when I got home I was actually doing just well with this kind of three in one instant coffee

Weihan  4:53  

in one instant coffee is still very popular among throughout the entire globe because it’s so convenient, right? But I think recently we have seen a lot of like coffee chains coming up and having both globally and local friends coming into Southeast Asia and I think that’s that’s very interesting because there is like kind of a shift from what people are used to what people used to associate with coffee. So back then a lot of it’s just or I drink three in one coffee in the morning or I just go up to my my, my Hawker center, my coffee shop downstairs and I just grab like, grab a cup of coffee and go, but you’re seeing more and more people starting to like become interested in specific tastes and specific aroma or for this coffee. This specialty coffee or people just like to drink it in very innovative flavors. Like what maybe Lakin has done what maybe Starbucks come up with all their frappuccinos

Jianggan  6:00  

coconut latte?

Weihan  6:02  


Jianggan  6:03  

We don’t. We don’t drink coffee anyway. So I should not actually coffee.

Weihan  6:11  

So I haven’t tried it yet. But I think cuz carry on China. And then previously, the multilateral has been very popular here. So we might give it a try.

Jianggan  6:24  

Oh, yeah. Yeah, you’re both we had I and a few other members of Team are actually in China at the moment, sort of working on some programs. We are in Schengen. So we’re doing quite a bit of research on the ground about cross border ecommerce, which I think we will share later on with the audience of the podcast. But yeah, so I think we should find a time to try it on mortality. I’m not sure if we can like a packet and a central Singapore.

Yeah. Weihan. You mentioned that there are five reasons people go to a coffee place or coffee shop to buy coffee right? Certified.

Weihan  7:10  

Okay, so I think you can differentiate them or categorize them into two main categories. So you have those that are drawn to coffee. So they’re product driven, and those that are more experienced, driven. So for those who are more interested in the coffee itself. So there, there are a couple of reasons. For this. Firstly, I think some people do need the caffeine, either to either stay awake or like, give them make them in a slightly better mood to maybe start their work that day, or maybe just after lunch, they just need something to get them to stay awake and not fall asleep. So I think that’s the very first function first first reason and I think that’s what I drink coffee for too. So I just, I will drink it only when I need it. And then you have the second one, which is the trinket for s as a type of habit. And this is often associated with like flavored coffee. So they just like to have like a cup of either hot or cold coffee in their hands and then just walk around. So it’s kind of like bubble tea, sometimes you just drink it because you really crave it or you just have the habit of drinking something. And coffee is a good alternative for maybe, maybe for the slightly older and more health conscious folks if you just don’t want that much sugar in your coffee. And then I think lastly, there’s also that for the taste. So this is for the true coffee lovers who really enjoys coffee for it’s the aeromaster flavor. And basically all the tiny nuances that amateurs like myself, we can’t really taste the difference yet so those are the product driven. And then you also have those who are more experienced driven so these are people who go to coffee chains for either the space so Starbucks, it’s it’s more like they call Starbucks like that place for coffee for people to go for coffee because the the they like to go there and just hang out with their friends maybe use it as a place for them to do work. Get away from the home life. And yeah, that so these people go there for the comfortable environment and the ambiance that the space coffee chains offer. Now you see a lot of those very unique flavors are very aesthetically pleasing drinks or cafe environment for people to just go in, take pictures and then leave and make Most of the times these places are not frequented by people, they’re just there once and then they might not come back afterwards. So these are the five main reasons why people actually drink coffee or go to coffee chains. So I would like to throw the question back to Dalia and Jianggan, do you guys drink or visit coffee places for the products or for the coffee itself or more for like the space for you to enjoy to do work,

Dalia  10:29  

I actually can definitely second second reason because going to regular coffee places has become a actually part of my ritual. So every Saturday and go to a new coffee place, and I enjoy a cup of coffee with a small dessert and instantly just makes my my day brighter. But then also can definitely agree that I don’t think I’ve ever stay at the same coffee place like maybe two weeks in a row. So each week, I tried to go to a new place.

Weihan  10:58  

So yeah, those types of like the cafe hop,

Dalia  11:00  

ya know,

Weihan  11:02  

about jangan,

Jianggan  11:04  

I spent quite a bit of time at Starbucks.

It’s actually true, right? I mean, back in office, of course, there’s lots of, I mean, lots of meetings, lots of distraction, lots of decisions to be made. And sometimes we need to be quiet. You, you sort of find a place where you can see it, where you have lots of buzz around you, but nobody talks to you. So, so so so so you can absorb sort of feel the energy, but at the same time, you can also like know, if you want to think about something alone and and strategize, you can do it. Why Starbucks? There are a few cafes next to the office. I think Starbucks is it’s just kind of like no consistent experience and the others you need to figure out. So for instance, there’s one place which asks you to by default order from scanning a QR code on a table, which I find quite annoying, because the system is not good. And, and oh, well, I mean Starbucks app, it’s not really that good either. But you can always go to the counter, you can chat with Auntie, and then afterwards, you just make you feel happier, happier. Right? And and then they go to your seat and they stay there for like, two hours. And the Wi Fi is consistent. So yeah, so it’s an A we try to meet someone for, for meeting or something. I mean, you can tell them that. Okay, let’s meet at this specialty coffee store that’s made it at this local coffee bean, whatever. But but at least for Starbucks, you know that? Okay? I mean, it’s it’s a safe choice, right? I mean, you say it, everyone knows what it is. And everybody has the same expectation. Even though some people say that the coffee doesn’t taste like coffee, but but I think the other parts of the experience make up for it.

Weihan  12:52  

So I think we talked about how we all drink coffee, for different reasons. And I’m sure that applies to many, many different people. But I think in general, right, if we look at how much coffee we drink as a whole region, it’s actually not a lot contain a fader, we have such a long history with coffee. We are producers, we are consumers. But I think during our investigation into this topic, I think we found that Southeast Asia drinks only about 1.5 kilograms per capita per year, in terms of the coffee consumption, and would you like to make a guess? How much our counterparts in Europe in North America or even in other East Asia, countries drink?

Jianggan  13:52  

Well, I think in China, I mean, of course, people go to the top tier cities that you see campus everywhere, right? Yesterday, I was walking around neighborhood I see that KFC has has has coffee concept here. You have car t have locking you have everything packed into the same street. But But what you see in a top tier cities, it’s only like a small percentage of the population. Right? So I would imagine for the for the whole population, coffee consumption is still quite small in China.

Weihan  14:22  

Yeah, I think that that’s fair. That’s very true, because I think a lot of them are too predominantly tea drinkers. But I think if you were to look at what’s

Jianggan  14:34  

been converted into bubble tea drinkers,

Weihan  14:37  

but it’s still it’s still Tea, tea based drinks. I think if you were to look at our neighboring countries like Japan and Korea, the consumption has actually went up by quite a lot. I think they’re drinking about two or three times what Southeast Asian is drinking right now. But and they they also don’t predominate. They used to be pretty dominantly tea drinker but I guess, you see, like, all this new waves of coffee coming into the region and then transit, transitioning people from tea into coffee. So I think that’s a very interesting trend that we are observing with like, I guess globalization and westernization. So this brand new habit is being adopted by people of the East. But I think for Southeast Asia, right, even though we don’t drink as much coffee, where do you think like the future growth opportunity would lie in in terms of like, let’s say, for this players they want to gain, they want to grow this market here, they want to get more out of this, seemingly, seemingly not a market that does not grow as much as compared to all this other East Asian markets that we are seeing you guys have any clue?

Jianggan  16:01  

I think, I think I mean, living in Singapore, you obviously you see a lot of a lot of coffee brands, right? I think we even try to sort of enumerate all these brands in Singapore, and we count like more than 30. Right? Places with with chains. So first is sort of shows that people are happy to go and drink coffee, or hang out or whatever. And, and the second, I think is, I mean, back to what Dahlia said read it back in Russia, you you sort of drink coffee at home, but here you we can find a place to hang out or even to just reflect alone. And and I think the society on I mean, the consumers did that kind of spaces, right? So so if you go to a shopping mall in Singapore, you see sometimes like four or five cafes, and during rush hour, I’m in no rush during the sort of afternoon hours that they usually like to Pat to, to Moscow and went to this mall in Jakarta, where you have, I don’t know counted like 12 cafes, and Catholic cafes. Yeah, not not as a food kind of cafes, but these are cafes or drinks with maybe a little bit like bite, I found 12 And, and many of them actually packed with people. So so so people do need that kind of space. And I do think that there’s room for, for for this kind of concepts. The question for me that I’ve been reflecting is that I mean, of course, many of these places want to minimize players want to expand right? I mean, some of them were mentioned funded, so they naturally need to deliver like, like high growth for the investors. But but but but but for that record, I mean, how many good locations you have and and how can you effectively differentiate so that I don’t know the best most best petrol stations the best, the best office buildings will give you the space and and consumers would actually come to you like frequently instead of like no just come here and take Instagram photo and then these places try to differentiate, but I think we can you have come to the conclusion that that most of the sort of differentiations are superficial and do not last

Weihan  18:20  

Yeah, because I think if you look at it, what a lot of these players are doing out there their differentiation lies a lot in their value propositions. So I think as compared to what we have previously mentioned about in terms of the E commerce space, where you have like distinct players dominating the the E commerce space the coffee industry is actually quite different you have like multiple players competing within the same space and everyone does not have like a strong moat for them to stand out it’s way too similar between coffee chains and you do see a lot of them like basically having very similar even exactly the same types of business model so what will really make them stand out would have to go beyond of oh, I serve good coffee or I have a very cute cafe that I want people to come in and take photos and help me publicize it because we all know that because a lot of consumers were spoilt for choices and unless the food is really good because ultimately your FMB industry we will not come back and yeah

Jianggan  19:33  

even you even the food is really good you will not come back every day. So yeah. I think back to the back to the cafe or coffee chain part. I still think I mean as any retail right location matters a lot. So I mean convenient location and any just make it comfortable for people to go there. So if like one of the five functions or Two or three of the five functions that you mentioned, the why people go to a coffee, coffee place are really well, and and you will have the customers on the question is, obviously for many places like even Singapore, I think the good locations are limited. I mean, I mentioned

Yeah, rents, I think at the end of the day, we have the crowd, I mean, you do the rent calculation, you do the operational calculation, then you can decide whether you can make a profit or not, at which point, I mean, how many cops you need to sell per day for you to be profitable. So there you look at different ways. So of course, firstly, you have to secure a good location, because even if it’s, I see, I see lots of like, you know, specialty cafes having like secluded places, and people have to make an effort to go there. So which is nice. I mean, I like I sometimes I like going to these places, because it’s never crowded, but I’m not sure what the business owner is actually thinking about this, right? So, so but but but if you want a big crowd, if you want, like a good business, if you want growth, you need good locations, and you need a concept and the you need. You need the basically the ambience, the test and everything to appeal to your Sacramento customers, which should be large enough. I mean, lots of the Special Court cafes cater to a very, very small niche audience, which naturally means that I mean, we have you mentioned right, most people are not very discerning about the cafe test. That’s why That’s where robusta coffee is so, so popular, because even though that I mean, every everybody needs to assess that Arabic is better. So so at the end of the day, I mean, you have to cater to your audience, and and if your audience is the masses, you have to think about what what do the masses want? Or what would the message continue to buy.

Weihan  21:52  

And I think to add on to just having good location, you have to be very good in terms of your operations as well, because ultimately, coffee, the coffee industry is a very, very competitive market, how you are going to make yourself survive this competition really boils down to how good are you in terms of your resource allocation, how you’re going to ensure all your processes or operations run very smoothly. And I think we have seen a lot of new companies, especially those maybe Chinese companies, Chinese coffee companies trying to establish their share in this market namely lacking with a very good use of tech and data to help them run all the operations. So I think gender mentioned just now about him liking to have like the the experience of talking to a barista someone to communicate in and just like while he while he gets his coffee, someone to like share a bit more about the coffee itself. The basically there’s a human touch to it. But you do see a lot of this, a lot of this tech enabled coffee chains popping up that relies a lot on tech to let’s say, do the ordering processes do the payment processes in order to let’s say, cut down on certain manpower cost, help them in terms of their tracking of inventory or in terms of how much sales they’re making. And all this, it’s slowly adds up to like a competitive advantage for them because they have everything recorded and digitalized on a on a platform that makes it easier for let’s say the management team or for the CIO, the manager of that store to actually track whatever they have been doing so far and really make changes based on all this small, small data that they are getting out of it.

Jianggan  24:06  

I think it’s a vast amount of data and lots more data but but just just one caveat about my preference for human touch. I mean, if in the morning, I’m going to the cafe Starbucks, for example, if I want to sit there for like two hours doing some work or think reflect quietly, I enjoyed the process of talking to someone to text order before that right. But, but I don’t enjoy that process after lunch because usually you would have a queue behind you. If you’re a bit depressed when when we you try to have a conversation or the other party tries to come and have a conversation with the other people behind you or stare at you saying that how can you make it faster, that caters to different kinds of demand. I think in the report, we also run a few case studies right we talked extensively about Starbucks, the pros and cons the challenges they face and also what they have built. We’ll talk about locking, how they use taken data for for use operations for store operations for product development and how fast they have been able to open up open new stores in Singapore. We talked about your couldn’t write. Interesting case, because it’s not serving like espresso Americano is serving the traditional coffee.

Weihan  25:25  

And I think for yaku this setup because they tried to give like a standardized experience for drinking traditional coffee, because what we are seeing a lot is that all of this new modern coffee chains that appealing a lot to meet, let’s say the younger crowd with like a lot of interesting product, or like flavor combination, the cups are very Instagrammable or all this but what yeah Quinn is doing is actually transforming what we used to get here in Singapore, our coffee from opening hawker centers, or coffee dams that are not the most comfortable in terms of its seating environment, and providing and changing it up into something that it’s slightly more the comfort experiences slightly more elevated, but you still get your traditional copy or kayak tours and then you can just have like a casual conversation with your your peers, maybe your even your like your business partners if you’re out for casual drink without having someone else munching on like the chocolate or Hakimi right next to you and disturbing the entire experience

Jianggan  26:37  

I think have you had to explain to I mean it gets a bit complicated about all these concepts like kopitiam, hawker center to this is what people in Singapore are very familiar with. Other countries might not be that familiar with but but is food right? Because this this kind of traditional coffee is typically served at a store in what Singapore you’re fairly familiar with, which is the Hawker Center, which are kotipiam, food and drink stores. And I think your corn and a few others right postbox

the two to a certain extent Killiney, although I see fewer and fewer colonies now that they are making this experience into the mores within individual stores. You can still get it it’s been more expensive than what you get from the stores. But there’s a brand that’s consistency and and when sometimes I meet like local businessmen for for for casual meeting men and they actually prefer to go to your Yakun and Toastbox, as compared to Starbucks, etc. So they just I mean, it’s not that, okay, the finance lab is expensive, expensive, where this is some kind of like coffee and snacks that grew up with rather feel naturally comfortable there and to have to have a discussion to I don’t want, I don’t know one particular businessman who just loves to go to my cafe. I don’t know why every time I meeting him, he said always like different kinds of McCafe, and he’s still the person so he’s not representative. Interesting. Yeah. So because McDonald’s you always have like, you know, lots of kids running around, running around, which is nice, but you get distracted, we have a meeting. But some people like being distracted or some people like to train their focus. We’ll talk about your Chrome. Right. We also had had case studies on Flash Coffee. Kopi Kenangan is interesting. Yeah, I think it was one of the sort of Lucky inspired concepts in Southeast Asia, invested by venture capital, and is one of the better ones. I’m not sure how much of that is because of the test, right? Because I mean, test is subjective. And your initial tests can be different from our tastes or my tastes. But But I think they managed to first build operations that’s less efficient enough, they, they have lots of concepts, which minimizes excessive cost. And they managed to occupy some good locations, mores. office buildings, petrol stations in Indonesia, which, at the end of the day, I think even though it’s a big country, and good locations are still limited.

Weihan  29:21  

Definitely. We have also looked a bit into fresh coffee and why it collapsed in Singapore and as well as the other countries that they have exhibited. And I think a lot has to do with like the leadership per se. So if you’re interested to give it a bit more of a read, we shan’t bore you with all the nitty gritty details here. But yeah, it’s just interesting that we brought up something that did not do well as compared to all the case studies that that establish their own kind of competitive advantage in the space.

Jianggan  29:58  

I think I’ve got I think the space is big with some numbers, right? So, so our estimate based on a lot of like many flippin order tracking, etc, I still continue is that in Southeast Asia this year, people are consuming $3.4 billion worth of modern modern cars, coffee across all these stores, chains, etc. So, so that’s a big market and it’s a record business. So naturally it will not be as as concentrated as compared to e commerce platforms, etc. So so at the end of the day, we do see some like some of the sort of smaller chains five, even sound like four or five stores, they can survive quite well, if they establish themselves, have good locations have efficient operations. So that’s definitely doable. And of course, but but but of course, if you try to scale if you try to be the winner if you try to like have 1000s of stores, and that requires a different kinds of efficiency, different kinds of strategy, which, which I think can find lots of materials in this report. Last thing, we also typed with the frappuccino, so we want to talk about it.

Weihan  31:09  

Oh, yes, so we had a very fun time making a frappuccino index. So what we did was we based off the prices of like, grande sized caramel fret of A few key global cities. And then we did some calculations to try to benchmark in terms of how much Starbucks or how much how much Starbucks is priced, or how people view Starbucks as a spread in all these different cities, because we do not know that Starbucks is often associated as the, with the impression of it being a premium brand. So I think I think it was interesting, because Singapore, and actually not Singapore, but Philippines is actually pretty relatively closed close to Singapore in terms of how they view Frappuccino as compared to that of maybe Bangkok and Thailand and Vietnam, which is very high up in the list and they see Starbucks as like a premium brand or the locals honestly just prefer the old traditional coffee as compared to what is Yeah.

Jianggan  32:22  

So. So basically is is easy, and fun and and digestible measure of, of the consumer affluence and brand perception of international brands as well as market penetration with international brands. And so we look at the numbers, we use the New York City as the benchmark and we measure how different cities are closer or further further away from New York City, we see the Singapore is fairly close, Tokyo is very, very close. And Singapore is at similar levels compared to Shanghai which I think says a lot. And and of course, you mentioned about the Manila in the Philippines being at similar levels of Singapore and Shanghai. And then you have cities like like hochiminh city which is which is quite far away which means that Starbucks is still considered premium right? Penetration not very high because we look at the chase minimum Starbucks was still relatively quite small.

Weihan  33:26  

Local chains are way more popular than Starbucks.

Jianggan  33:32  

I mean, so if you do have I mean, we can link that link the article in the show notes that but the article where it talks about this index and it gives you some very very interesting insights and to check that out. Let’s do it right so so as we said we had I and and few other other colleagues in China and we’re looking at the ecosystem in E commerce cross border ecommerce especially I’ve noticed that after double 11 But before the Christmas shopping holidays there’s lots of activities going on. So we’ll be back with I think a different episode where we talk extensively about what we have observed and hopefully you enjoy it but I’m thinking about coffee I cannot slow Mr. Sort of aroma. No, I mean,

Weihan  34:17  

but usually think okay, one liter

Jianggan  34:21  

this codec coffee coffee I tried yesterday and didn’t feel any coffee test but there are lots of people there so okay to download the report.

Dalia  34:33  

Okay, then till next episode. Thank you very much for sharing and we’ll be looking forward to your sharing in the bay.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].