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What's Next for Coffee Shops in Southeast Asia

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Regional coffee chains have been expanding beyond their domestic markets in Southeast Asia, resulting in greater competition within the coffee space.

In 2023, foodservice sales of specialist coffee and tea shops in Southeast Asia accounted for USD4.4 billion and are set to grow further by an 8% CAGR between 2023 and 2028

Source: Euromonitor International

Chart showing Specialist Coffee and Tea Shops in Southeast Asia, 2023Renowned coffee chains such as Luckin and Cotti Coffee from China and Kenangan Coffee in Indonesia have entered Singapore as a stepping stone for their international expansion. The strategy to enter Singapore is attributed to its status as a financial hub, as well as its visibility for international investors leading to future expansion. At the same time, local consumers are sophisticated, open to trying new flavours, and are willing to spend for their daily caffeine fix.

Nevertheless, with more coffee shops in the market, new chains have to constantly innovate and be profitable to thrive in the long term.

Strategy of regional coffee shops is similar yet different in overseas markets

The entry of Luckin Coffee in March 2023 into Singapore marks its first overseas venture beyond China. The rapid expansion of stores into Singapore through active price promotions, such as a 99 cent first drink promotion, and renowned flavours such as its local coconut latte has attracted many customers. That said, Luckin has adopted a different strategy from its domestic market, where its pricing of coffee in Singapore is more premium compared to China. Moreover, it has a 2-store format catering to both takeaway and dine-in, giving consumers the option to socialise while enjoying their coffee.

Similarly, Kenangan Coffee from Indonesia also made its debut into Malaysia and Singapore in 2022 and 2023, respectively, with 50 outlets in total. Its strategy is similar to Luckin’s, where it has launched complimentary vouchers and highlighted its local espresso offerings. By establishing a foothold, it seeks to attract investors so it can further expand to new markets within Southeast Asia.Table showing regional coffee chains in Asia

Is the regional expansion of regional coffee chains sustainable?

With multiple regional coffee chains expanding rapidly into Southeast Asia, with similar pricing strategy, flavour offerings and store formats, it remains to be seen whether they can all thrive in the long term. In fact, the inevitable exit of some chains will be seen especially in a small market like Singapore, like the recent exit of Flash Coffee from Singapore in late 2023. With stiff competition from new entrants such as Luckin Coffee with competitive pricing and new flavours, Flash Coffee was losing its customers. Furthermore, the company sought to aggressively expand despite limited funding from its investors.

Despite the crowded coffee chain landscape in Southeast Asia, per capita spend in coffee shops remains low in 2023 at USD7.3, lower than the global average of USD14

Source: Euromonitor International

Per capita spend is set to increase consumption by a 7% CAGR between 2023 and 2028.Chart shwping Per Capita Spend in Specialist Coffee and Tea Shops, 2023

The coffee chain landscape in Southeast Asia is set to consolidate further, with regional chains expanding their presence, while non-profitable ones exit the market. To thrive in the long term, regional chains need to have strong investor funding as they expand their presence. This is amidst global high interest rates which might pose a challenge for expansion.

At the same time, there needs to be investment in product innovation, while constantly ensuring taste acceptability with affordable pricing to appeal to local consumers. Furthermore, providing options beyond takeaway to having dine-in as well as exploring new channels such as vending, drive-through and subscription services is set to provide greater convenience for consumers in the long term.

Read our article, Emergence of Local Coffee Shops in Asia Pacific, for more analysis on the competitive landscape of coffee shops in Asia Pacific.

Learn more about local coffee shops in the Euromonitor International report, Coffee Shops in Asia Pacific, for further analysis on the strategies of coffee shops.

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