Kopi Kenangan: Building South East Asia’s fastest growing ‘new retail’ company

At Sequoia India, we’re always looking to meet founders who are obsessed with a problem, show unwavering conviction to solve it and a relentless pursuit to delight their customers. This is one such story: Edward Tirtanata and James Prananto started Kopi Kenangan with one simple goal in mind – to provide Indonesians a good cup of coffee they can afford daily.

To many, it may seem like an ordinary problem, but it got us interested right away. Some of the most iconic companies of the last decade were built by founders determined to solve ordinary problems extraordinarily well; an ethos that ensured Uber was not just another taxi company, WhatsApp not another SMS solution and Toutiao much more than a news app.

Ed and James saw opportunity in the obstacles and gaps in the market. Most Indonesians, who earn less than $15 a day on average, can’t afford $4-5 per cup coffee, served in the global coffee chains. The alternative, instant or powder coffee served in the busy streets, though affordable, lacks the same taste and experience. Offline stores have limited reach and models pioneered by their peers in other markets are not viable for the Indonesian market due to prohibitive logistics cost. They embraced these challenges head-on.

Driven by customer obsession, Ed and James started by focusing on the product. During the first nine months, they worked on improving the product every day – trying different ingredients, experimenting with local recipes and talking to thousands of customers – until they hit upon a recipe for Es Kopi Kenangan Mantan (ESKM) – their flagship iced coffee, which is made from Java’s famous coffee beans and palm sugar. During this time they raised no funds, built minimal tech and had opened only six stores.

In the next nine months, they grew more than 10x, added 73 new stores while being profitable throughout and maintaining a 53% customer NPS. This is simply extraordinary.

Today, Kopi Kenangan serves almost a million cups of coffee per month (including 10k cups per day of ESKM), has partnered with various food delivery platforms to facilitate online delivery, and in April launched an app that customers can use to pre-order their coffee for pick-up.

We are thrilled to partner with Kopi Kenangan, Indonesia’s fastest growing tech enabled “grab n go” coffee chain.

At Sequoia India, we have been partnering with both technology and consumer businesses for over a decade. We believe that the most successful businesses across categories – from social media apps to CPG products – lean on five key levers. Legendary companies like Apple, Google, Nike and P&G meet of these in spades.

We believe Kopi Kenangan is leaning in on each of these, to build an omni-channel ‘new retail’ experience that sits at the tip of consumer and tech, online and offline, D2C and retail.

Everyday Need – Coffee is a frequently consumed food/beverage item and enjoys a high degree of customer loyalty; in sharp contrast to customer fatigue for most other food. As a result, more than 85% of Kopi Kenangan sales come from repeat customers per month and more than 45% customers buy Kopi Kenangan daily or weekly, some multiple times a day.

Global Potential – Coffee is consumed in almost every country. It is easy to prepare and the key ingredients – coffee beans — don’t perish quickly. This enables Kopi Kenangan to rapidly scale across markets while maintaining low wastage and streamlined operations. Ed and James already have their eye on Southeast Asia, and plan to expand to key markets soon.

Differentiation – Unique ingredients, local recipes, and proprietary processing facilities set Kopi Kenangan apart from competitors who focus on global recipes like Cappuccino, Latte, Americano etc. Further, its “grab n go” stores give it a distinct cost advantage to profitably serve international standard coffee to consumers at an affordable price.

High Gross Margin – Most food retail businesses struggle despite high gross margins due to operating costs like rent, manpower and wastage etc. Kopi Kenangan has implemented robust backend systems to track inventory in real-time and moves excess items across stores, cutting wastage to almost zero. Its stores are 10-20% of the size of a normal café, significantly cutting cost per store. As a result, its high gross margin translates into a healthy EBITDA and the company has been profitable throughout.

Network Effects – Edward and James are truly customer obsessed founders who are constantly striving to serve their customers better. We believe they that have many opportunities to leverage Kopi Kenangan’s – consumer brand and distribution network – to build exciting new products.

We believe Kopi Kenangan is a fine example of mission-oriented founders who practice company building as craftsmanship – driven by an insatiable desire to improve their creation. We recommend you try a cup of Es Kopi Kenangan Mantan, when in Jakarta, to experience this yourself.

P.S.: They had to make a special no-sugar variant for our Due Diligence team, who tasted 30 cups in a day. It was still a sweet outcome.

This column was originally published on LinkedIn.