Would you order a drink called “memories of your ex”? Thousands of Indonesians have. In fact, it's the name of a best-selling iced coffee served by Kopi Kenangan, a local grab-and-go coffee chain. It's a simple brew: iced milk coffee that uses palm sugar instead of cane sugar. The result is refreshing and sweet, with just enough caffeine for an afternoon pick-me-up.
“Memories of your ex” is just one of the many simple, affordable beverages in Kopi Kenangan's menu, all named with tongue-in-cheek references to romance tropes. Yet that's not what makes the coffee chain special, particularly in a market where hundreds of cafes and stalls are serving up the same thing.
What makes Kopi Kenangan turn heads is how quickly they have expanded – and stayed profitable. Three years after founders Edward Tirtanata and James Prananto opened their first Kopi Kenangan outlet in Jakarta, the business has expanded to more than 300 outlets, just about 100 short of what Starbucks has opened in its 16 years in Indonesia. Last year, Kopi Kenangan sold 2m cups of coffee per month, the company says.
Kopi Kenangan’s mix of rapid expansion and sound financials has made it an investment magnet. Since 2018, the startup has pulled in $137m in venture capital funding, attracting well-known firms like Sequoia Capital India and Alpha JWC Ventures, along with celebrity names like Jay-Z’s Arrive and Serena Williams’ Serena Ventures.
Its latest funding round last month brought in $109m in Series B financing from Sequoia Capital India and a raft of new investors including Eduardo Saverin’s B Capital – Saverin himself has joined the Kopi Kenangan board – Verlinvest and Kunlun. Such investor confidence in Kopi Kenangan was especially remarkable given the $310m accounting fraud exposed at Luckin Coffee just a month earlier. Once touted as China's answer to Starbucks, the coffee O2O startup from Beijing had enjoyed a meteoric rise since it opened in 2017, with its valuation surging to as much as $12.7bn. Luckin now faces delisting from Nasdaq for the sales fraud.
Quality coffee, made affordable
Before Kopi Kenangan, Tirtanata had started Lewis & Carroll, a cafe specializing in artisanal, high-quality tea and offering a Starbucks-like “third home” concept -- with well-appointed storefronts, free Wi-Fi and comfy ambient music. The brand, however, struggled to grow, as there was little demand for expensive tea from Indonesians used to drinking budget-friendly bubble tea. “[T]he name itself already implied an expensive tone,” said Tirtanata, who did not reply to an interview request for this story.
After Lewis & Carroll flopped, Tirtanata decided to go for a more relatable brand. He began with the marketing, using sappy, romantic tones when creating the names of Kopi Kenangan drinks. Offering beverages named “memories of your ex” and “bittersweet memories” turned out to be a hit. Tirtanata said Kopi Kenangan barely spends money on marketing because customers eagerly posted about the curiously named drinks online.
“If I named it Kopi Edi, it wouldn’t be relatable, because not everybody knows me,” he joked. “But memories of exes is something everybody has experienced.”
Kopi Kenangan’s blend of coffee is also carefully tailored to keep customers coming back. Tirtanata revealed that his company sources beans from four different locations in Indonesia. The house blend is mixed so that the coffee doesn’t get lost behind the milk and palm sugar, but neither is it too strong to leave a bitter aftertaste or cause stomach discomfort -- common complaints among new coffee drinkers in Indonesia.
Moving away from Lewis & Carroll’s attempt at recreating a “third home,” Tirtanata and his team chose to build grab-and-go outlets instead, inspired by bubble tea shops. Thanks to the small footprint and simple concept, Kopi Kenangan’s first outlet only cost IDR 200m ($13,500) to open, despite its location in a busy office building in South Jakarta’s Kuningan business district.
“Why is coffee expensive? It’s because the [rent of the] store is expensive, the nice sofas are expensive, the fast Wi-Fi is expensive,” Tirtanata told Indonesian news outlet Merdeka. “We want people to buy our coffee not because they need a place to sit down and chat; we want them to enjoy the coffee itself.” Thanks to these cost-saving moves, Kopi Kenangan’s signature drink costs only IDR 18,000, about half the price of a Starbucks latte of the same size.
How it keeps costs down
With its low-cost outlets and effective word-of-mouth marketing, Kopi Kenangan reached breakeven on its first outlet just three months after opening. The team decided to open a new stall with the proceeds, and kept opening more after each new stall broke even. With this solid fundamental, Kopi Kenangan managed to attract the attention of Alpha JWC, raising $8m in seed funding.
As it continued to attract VC funding, Kopi Kenangan expanded more aggressively. As of this year, it has opened 324 outlets in Greater Jakarta and other urban centers. The number far exceeds the network of another VC-backed coffee startup, Fore Coffee, which was running 92 outlets as of November 2019. Starbucks, which has operated in Indonesia for 16 years, has just over 400 outlets.
The expansion came with bigger expenses, as Kopi Kenangan sought to improve its product quality and standardize taste across all outlets. New outlets cost about IDR 500m to open now, according to Tirtanata, with half the money going toward buying Italian-made espresso machines and other high-quality equipment. Meanwhile, Kopi Kenangan’s baristas are getting expert training, and Kopi Kenangan plans to open a training academy for baristas in the future.
Despite the increased spending, Kopi Kenangan has managed to keep its product prices steady, and even achieve profitability. “We want to keep our current pricing as our standard; else, the coffee will be too expensive and it won’t be something that you can consume every day,” Tirtanata said. The affordability of Kopi Kenangan’s drinks, he said, makes it appealing to Indonesia’s middle-class consumers, which number 52m, according to World Bank estimates.
Kopi Kenangan also controls its supply chain to keep costs down, sourcing all of its ingredients locally. In particular, it gets coffee directly from farmers instead of brokers, and roasts the beans at its own facility. It also makes use of inventory management tech to keep track of supplies at each outlet, which enables sharing of supplies between outlets in a pinch.
The company also avoids offering too many discounts and giveaways, strategies commonly used in the Indonesian F&B industry to quickly gain market share. “When we do ‘Buy 2, get 2’ promotional campaigns, we don’t lose money because it’s only for one day. We still get a [profit] margin,” Tirtanata told Indonesian news site Kumparan in 2019.
With the strong backing of VC funds, Kopi Kenangan has set a few big targets. Prior to its Series B funding, Tirtanata revealed that the company was targeting 1,200 outlets by the end of 2021. Most of Kopi Kenangan's outlets are still located within Java island, so the company wants to open in cities like Balikpapan and Samarinda in Borneo next, as well as in all major cities in Sumatra. “There should be more than one new outlet opened every day,” Tirtanata said.
Kopi Kenangan has also set a 2022 target for a stock exchange listing. It wants to be the second Indonesian F&B brand to stage an IPO, following the footsteps of Chinese cuisine chain The Duck King that debuted in 2018. “From what I’ve seen, the F&B brands that are listed in the local stock exchange are all international companies,” Tirtanata said, explaining his goal of bringing Kopi Kenangan to the trading floor.
Kopi Kenangan itself has ambitions to go regional, too, and it is actively looking for opportunities within Southeast Asia. Part of the work involves crafting new brand identities for overseas markets. It’s an important part of the process, given that Kopi Kenangan will have to compete against other international grab-and-go drink brands like Chatime, Xing Fu Tang, and Koi, which have established strong customer loyalty and brand recognition.
For now, however, Kopi Kenangan has to grapple with the impact of the Covid-19 pandemic. Since the social restriction measures were put in place in Indonesian cities, Kopi Kenangan has had to temporarily close nearly half of their outlets, as the malls and office buildings that hosted them have had to shut down for the duration of the lockdown. Offline purchases have also fallen by 80%.
Fortunately for Kopi Kenangan and other coffee shops, Indonesians still have an appetite for coffee. Online payments service OVO said that orders for coffee during the pandemic would translate to a queue equivalent to 8,000 football fields in length. Kopi Kenangan itself has experienced a 50% increase in online orders from caffeine lovers at home, served by standalone outlets that are still open for delivery orders.