KUALA LUMPUR: Malaysia's coffee industry has witnessed significant growth in recent years, fueled by an expanding café culture and increasing consumer demand for specialty coffee.
From artisanal cafés to established international chains, the market has become increasingly dynamic and competitive, with more players entering the scene.
Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said the coffee market in Malaysia is anticipated to increase by 1.44 per cent between 2025 and 2029, resulting in a market volume of US$210.20 million in 2029.
Data from World Coffee Portal showed Malaysia's branded coffee shop market grew by 28 per cent in the past year, with more than 3,330 outlets, spurred by a healthy national growth that is expected to expand between 4-5 per cent in the period.
"Based on the positive outlook of the industry at present and future, as well as the growing economy and rising purchasing power of the middle income group, the growth of coffee chains in Malaysia augurs well with the country's development. Nonetheless, the coffee chain's new establishments will face very stiff competition over time," he said.
Potential listings amid intensifying competition
Tradeview Capital Sdn Bhd vice president Tan Cheng Wen predicts a surge in the listing of coffee chain companies as competition within the industry intensifies.
Tan pointed to Zus Coffee, Tealive/Bask Bear Coffee, and Gigi Coffee as potential candidates for public listing in the near future, citing their rapid expansion.
"Zus Coffee and Tealive/Bask Bear Coffee would likely have a more pressing need to get listed, having raised funds from institutional investors in the past couple years. These investors usually have mandates to realise their investment within a certain timeframe," he told Business Times.
In September 2024, Zus Coffee secured RM250 million in funding from the Retirement Fund Inc., KV Asia Capital, and Kapal Api. Meanwhile, Loob Holding Sdn Bhd, the parent company of Tealive, sold a 30 per cent stake to private equity firm Creador in 2021 for RM200-260 million.
"We believe the bloom of coffee chains and cafes is a boon for the gig economy and service workers in the industry. Having more players enter the market bodes well for gig-workers' employment prospects," Tan said.
Industry strategies to meet growing demand
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said cafe chains may look at listing to raise funds to keep up with competition in the local coffee industry.
"That means they need to incur sizable capital expenditure in order to upgrade their productive capacity and to stay ahead of competition," he said.
Local chain Oriental Kopi Holdings Bhd made its debut on the ACE Market yesterday at 75 sen, a 71 per cent premium over its initial price of 44 sen.
Its managing director, Datuk Chan Jian Chern, said the company will establish a new head office, central kitchen, and warehouse with the proceeds raised from its initial public offering.
Oriental Kopi, established in December 2020, now operates 19 outlets.
Luckin Coffee, a Chinese coffee giant, entered the Malaysian market with plans to open 200 outlets over the next two to three years. Its first two locations, at Sunway Pyramid and Menara EcoWorld in Bukit Bintang City Centre, opened on January 23, 2025.
Hextar Industries Bhd, through its subsidiary Global Aroma Sdn Bhd, will spearhead Luckin Coffee's expansion in Malaysia, starting with a focus on the Klang Valley, a company spokesperson told Business Times.
To maintain quality and affordability, Luckin Coffee sources its beans directly from Brazil through fixed-price contracts, ensuring cost stability despite fluctuations in global coffee prices.
"We have secured agreements with suppliers in Brazil to purchase coffee beans at a fixed price for several years. This strategy helps us manage costs while maintaining consistent quality," the spokesperson explained.
Additionally, support from the company's headquarters in China, including rebates, enables Luckin Coffee to mitigate rising operational costs without transferring the burden to consumers.
Positioning itself as an affordable yet high-quality option in Malaysia, Luckin Coffee is committed to delivering premium coffee sourced from Brazil and other renowned regions while keeping prices accessible to local customers.
Starbucks says sales improving following 2024 'boycott'
Starbucks Malaysia, operated by Berjaya Food Bhd (BFood) through Berjaya Starbucks Coffee Company Sdn Bhd, recently faced notable financial challenges.
However, Berjaya Group founder Tan Sri Vincent Tan revealed that sales are showing signs of recovery, attributing the improvement to 'more realistic' consumer behavior.
The brand's struggles stemmed from a boycott sparked by the Israel-Palestine conflict, which significantly impacted operations. Previously, Starbucks accounted for 90 per cent of BFood's revenue.
For the first quarter ended September 30, 2024, BFood reported a net loss of RM33.7 million, a sharp reversal from the RM19.03 million net profit recorded in the same period a year prior. Revenue also plunged to RM124.2 million from RM278.5 million.
Speaking at the launch of the Brahmarpanam Soup Kitchen, Tan shared that the boycott's effects on Starbucks Malaysia are tapering off, with sales beginning to rebound.
BFood group chief executive officer and Starbucks Malaysia managing director Datuk Sydney Quays noted that 20 outlets had temporarily ceased operations last year in areas such as Kelantan and Terengganu.
"We are in the process of relocating some stores and refurbishing others to give them a fresher, more vibrant look. At the same time, we're exploring additional locations for expansion. As business improves, we plan to open more stores progressively. Our customers are returning post-boycott," he told Business Times.
Quays highlighted that the company's sales growth is driven by Malaysia's evolving coffee culture, growing interest in specialty beverages, and rising disposable incomes.
On competition, Quays acknowledged the influx of new players attracted by the sector's profitability.
"There are numerous coffee chains in the market today, and the bubble tea industry is also booming. However, Starbucks remains Starbucks. We are not a fly-by-night business. The market caters to various segments, and we continue to stand strong in ours," he said.
Looking ahead, Quays confirmed plans to expand but declined to disclose the capital expenditure (CAPEX) allocated for the year.
"We've set aside CAPEX for opening new stores, relocating some outlets, and remodeling existing ones. About three years ago, we allocated RM100 million for expansion, and we're continuing to invest strategically.
"We have a positive view on prospects despite new players in the market. We see everything as normal in the overall industry with high spending power," he added.