This article was originally published in Chinese on Momentum Works’s Wechat platform, translated into English by Phyllis Pe from the MW team.
In July, rumors surfaced that Luckin Coffee would enter the Malaysian market through a joint venture with a locally listed company, following its entry into the Singapore market.
Last week (29 Nov 2024), Hextar Industries Berhad, which transitioned from Malaysia’s GEM to the Mainboard this year, announced in a filing that it had signed an agreement with Luckin Singapore Holdings, granting it the exclusive franchise rights to operate Luckin Coffee in Malaysia. Operations are expected to begin in January 2025.
Hextar Industries Berhad has established a subsidiary, Global Aroma Sdn. Bhd. (GASB), which has the exclusive rights to operate Luckin in Malaysia. GASB was registered back in July with an initial paid-up capital of just 1 Malaysian Ringgit, and is wholly owned by Hextar Industries Berhad.
Hextar Industries Berhad major shareholder Eddie Ong and GASB CEO Lim Chee Lip
According to the filing, GASB has secured a 10-year franchise agreement for Luckin Coffee in Malaysia, with an option to renew for two additional five-year terms upon expiration.
An interesting thing is that Hextar Industries Berhad does not specialize in chain restaurant operations. Major Shareholder Eddie Ong built his career by expanding his family’s agricultural chemical distribution company into diverse industries, including chemicals, fertilizers, energy, real estate, health, fintech, and consumer goods over the past two decades.
Eddie Ong
Ong oversees nearly ten listed companies today. Interestingly, Ong directly holds shares in each of these companies without any cross-ownership, a structure he once stated prevents one company’s issues from affecting the others.
In recent years, Hextar has acquired dozens of companies everywhere, and very luckily, bought over a rubber glove company just before the pandemic.
Ong has also emphasized that his aim for every company under his portfolio is to become the largest player in its relevant industry. Hence, probably one of the key reasons why Luckin chose him as local partner for Malaysia.
Following Friday’s announcement, some F&B friends of Momentum Works Community raised an intriguing question: Why didn’t Luckin opt to partner with a more seasoned F&B operator, like Berjaya Group, which successfully brought international brands like Starbucks to Malaysia?
But Luckin’s choice makes sense – Luckin’s international expansion doesn’t require a partner with operational expertise. Luckin’s experience running over 45 self-operated stores in Singapore proves that they can overcome local operational challenges by hiring the right people.
On the contrary, experienced traditional F&B players might have differing visions for brand expansion, operational methods, and the pace of expansion, which could lead to friction. Two well-known Chinese beverage chains have split from their local partners in Singapore because of this. Brands like Mixue, on the other hand, often choose partners who are clear about their supporting role.
The success of Luckin’s partnership with Hextar Industries Berhad will depend on how well both parties align and respond to challenges during the collaboration.
Overall, we believe Malaysia is a promising market. In our Coffee in Southeast Asia report, we estimated Malaysian modern coffee market size to be US$364 million.
The Malaysian chain coffee market has seen significant changes in recent years. Local startup Zus Coffee, inspired by Luckin’s model, has expanded to over 500 stores and entered the Philippines. Meanwhile, Indonesia’s Luckin-inspired Kopi Kenangan has opened over 70 stores in Malaysia. There are also traditional coffee chains like Bungkus Kaw Kaw, which cater to a different demographic.
In response to earlier rumors about Luckin’s entry, Zus has accelerated its expansion and capital-raising efforts, aiming to go public in Malaysia as soon as possible. After all, Luckin’s operational systems and capabilities are undoubtedly superior. If Luckin expands in Malaysia at the same pace as in Singapore, Zus will face pressure.
American F&B brands like Starbucks and McDonald’s have recently been boycotted by many in Malaysia because of the Middle East conflict. With 400 and 200 outlets respectively, these brands have seen noticeable declines in traffic and revenue.
What impact will Luckin have on the standalone “Luckin Kopi” cafe in Kuala Lumpur’s Chinatown?
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