Meet Sequoia’s Next Coffee Unicorn: Kopi Kenangan

Indonesia’s rising coffee chain Kopi Kenangan is one to watch, especially after Sequoia India – the famed venture capital known to breed unicorns – has just successfully led its series B funding, raising USD$109 million in early May.

Founded by serial entrepreneurs Edward Tirtanata and James Prananto (alumni of Forbes 30 Under 30), the three-year-young café models after the New Retail trend of on-demand coffee. Starting out with USD$8 million seed funding and 30 stores in 2018, today it has 324 outlets, a line of powerful investment backers and stands at a reported USD$477 million valuation.

As ambitious as China’s Luckin Coffee, Kopi Kenangan plans to dominate the ASEAN market and tackle Starbucks
SBUX
’ 400-odd stores in Indonesia by opening one store a day, until it reaches 500 by the end of year.

The New Wave Of Millennial Coffee Culture

Prior to launch, Tirtanata and Prananto found an opportunity to bridge the gap between local street vendors and higher-end upscale cafés such as Starbucks – penny pinching for the average Indonesian who only earns less than USD$15 a day.

Despite being the fourth largest coffee exporter in the world owing to its mountainous regions, the country had a low coffee consumption itself and the older generation were neither accustomed to the culture of coffee shops, nor enjoy spending time or money in one. Locals were more attuned to drinking 50 cents instant coffee sachets dispensed from the back of a bike cart or from street vendors, different to the cafés and espresso bars we are all too familiar with today.

But Indonesian millennials returning from studies abroad, exposed to artisanal coffee and Instagrammable cafés, brought in a new wave of coffee culture to Indonesia – a term known as Nonkrong or Ngopi Ngopi, to hang out with friends and families in coffee shops.

Thus, the birth of Kopi Kenangan, a tech-savvy café serving high-quality but affordable coffee. The brand, translated as “coffee memories”, has a menu creatively designed with drinks to evoke just that. Order a masa lalu long black for memories of the past or a mantan menikah latte for an ex-lover, married. Their signature drink Es Kopi Kenangan Mantan – memories of an ex-lover – sets them apart from the typical westernized coffee by being unapologetically local, brewed from Java’s most famous coffee beans mixed with organic palm sugar. This sweet Indonesian coffee concoction and its whimsical drinks sells near to three million cups a month.

One Store A Day, Keeps The Competitors Away

Banking in on the mobile order app trend, the size of Kopi Kenangan shops are 10% to 20% smaller to that of a normal café to minimize costs and drive margins. Instead, it focuses on multiplying its footprint, away from the cluster of food and beverage competitors in the city center and planting itself in unconventional but delivery-prone locations such as gas stations, commercial offices and local shophouses.

Doing so has rewarded the company two-fold, with increased visitations in these out-of-reach areas during the nationwide social restrictions affecting the city. Due to its delivery-friendly nature, regular customers shifted their purchases online, spiking a 50% increase in revenue. Using a data-driven approach, the café chain has identified at least 23 subdistricts with little to no presence and aims to continue opening branches where their customers are. However, the pandemic has thrown a spanner in the works, including its international expansion, and it will have to open at least 40 stores a month to catch-up on their target before year end. Meanwhile, its competitor Fore Coffee, crippled by the coronavirus crisis, has had to shutter several outlets and sell off its assets, despite allegedly seeking for new funding.

The All-Star League

Some big names investing in Kopi Kenangan include rapper JAY-Z (Arrive), tennis player Serena Williams (Serena Ventures), basketball player Caris LeVert, and even Sweetgreen’s very own co-founder and CEO Jonathan Neman backs the promising coffee chain across the world. Facebook co-founder Eduardo Saverin’s investment firm B Capital also participated in this round of funding and will be sitting on the board of directors alongside Hong Kong-based Horizon Ventures , Verlinvest, Chinese internet company Kunlun, and Sofina.

Kopi Kenangan’s senior vice president Rahmat Budiardjo is a new hire in Singapore to cover their South East Asia expansion strategy and investor relations. Speaking with Forbes, he shared “these strategic investors will be helpful when entering new markets or finding new joint venture partners”. Budiardjo brings up Li Ka Shing’s Horizon Ventures’ latest investment in Glpyh, a molecular whisky brand, as an example in the hopes of leveraging their research and development to help boost its own product ranges and develop more competitive products to market. “These players have a known track record in FMCG, so we’re hoping to get subject matter experts in that level,” he praised.

Outside of being funded, Tirtanata is also involved in a start-up accelerator programme ‘Digitarasa’, powered by GoFood, the food delivery arm of ride-hailing app Go-Jek. Its training academy aims to nurture food and beverage entrepreneurs as well as to reskill new workers into the industry.

The Future is Digital

With the new funding, the retailer plans to strengthen its operations in its core market, launch new products by working with local merchants to debut a wider range of offerings, but the most anticipated are their new tech enhancements and cloud kitchens.

Typically, customers appear at one of their small kiosk stores to pick up their drinks or have it delivered by GoJek or GoFood. However, with the surge of online orders and uptick in commission charges, the café plans to open cloud kitchens and form its own delivery fleets to service the millions of users of Kopi Kenangan’s app.

85% of its sales comes from repeated customers and more than half buy Kopi Kenangan on a daily and weekly basis, or even multiple times a day. The café has also launched a new product, the Selter Kengang coffee, which can be refrigerated for up to three days, suitable for their loyal customers stockpiling their coffee fix and saving on delivery costs.

With a technology team based out in Beijing, China, a hyper-personalized app is in the works. The team is currently exploring deep learning and utilizing past customer transactions to develop a ‘personal barista’ feature to recognise their customer’s coffee preference. Other investments will also go into optimizing their offline stores and supply chain with Internet of Things applications, such as using RFID for coffee bean quality control. The café also prides in its sustainable efforts due to its robust backend system as neighboring branches share resources, minimizing wastage.

Today the growing popularity of coffee is a symbol of the nation’s economic progress and a sign for the emerging wealth of the country. With Luckin Coffee about to get delisted from Nasdaq
NDAQ
, the more promising and profitable unicorn-to-be Kopi Kenangan is one to watch as it weathers through the hospitality challenges in today’s crisis.