Elaine Lau looks at the business model of this new breed of coffee shops that have become an integral part of our food and beverage scene

IT happened seemingly overnight. In 2005, modern-style kopitiams began popping up all over the Klang Valley. Among them were OldTown White Coffee, PappaRich and Kluang Station, which all opened their first outlets that year, followed by Pak Hailam Kopitiam, which debuted in 2008.

These new kopitiams were inspired by the traditional mom-and-pop coffee shops but came with marked differences: they were fully air-conditioned and had a cosy ambience, an extensive menu and free WiFi. Instead of the brisk eat-and-go style of the old coffee shops, these new cafés invited diners to linger on and have another coffee, or two.

Today, kopitiams can be found, literally, everywhere — at shopping malls, hypermarkets, commercial centres, you name it. One might be critical of the cookie-cutter feel of modern kopitiams — they do share a lot of similarities in looks and F&B offerings — but the fact of the matter is that they are big business in Malaysia. Convenience of location, familiarity with the food and drinks and affordable prices are the main reasons people repeatedly patronise these kopitiams.

The largest and most successful kopitiam chain in Malaysia is OldTown White Coffee, which boasts more than 180 outlets in Malaysia, Singapore and Indonesia and has ambitious plans to increase that number to 300 over the next three years locally and abroad. OldTown Bhd has come a long way from its humble beginnings in manufacturing white coffee to operating kopitiams, and last July, it was listed on Bursa Malaysia's Main Market.

Furthermore, the company announced in April the setting up of a new food processing centre in China as part of its expansion plan to penetrate the republic's F&B market. Efforts made to interview the group managing director of OldTown, Lee Siew Heng, and executive director Clarence D'Silva, for OldTown's story and its future plans came to nought. Lee turned down the interview while D'Silva was unable to find time to talk to us.

We did, however, manage to speak to Rich Tan, founder and executive chairman of PappaRich Group Sdn Bhd, J J Phun, proprietor of Kluang Station, and Darren Yang, group CEO of Kingdo Holdings Sdn Bhd, which owns Pak Hailam Kopitiam. All these companies have outlets that are either fully owned, partially owned or franchised. Each has its own way of running the business and their stories are as inspiring as they are diverse.

PappaRich
Of the various kopitiam chains, PappaRich stands distinct from its counterparts. There is a more polished look and feel to its restaurants, which sport dark wood panelling and tables, red brick feature walls, parquet floors, mint green leather booths, mood lighting and open cooking stations where one's curiosity is piqued by the sight of steam billowing from bamboo steamers or roti toasting on the grill. Even the menu, which is in glossy full-colour pages, has you salivating just browsing through it.

The space is cosy and inviting, and with soft piped music, diners are wont to linger on. The premium feel, comfortable ambience and tantalising cooking stations are all part of an effort to engage the five senses of customers, says company founder and executive chairman Rich Tan.

A self-professed publicity-shy businessman, Tan crafted every detail that defines the look, taste and feel of the unbelievably-successful PappaRich chain of restaurants.

It was in the early 2000s that Tan noticed the rising popularity of modern-style kopitiams in Singapore — cosy, comfortable, air-conditioned outlets that served the traditional staples of old-time coffee shops, such as kaya toast, soft-boiled eggs and Hainanese coffee. They were sprouting in the malls there and the entrepreneur saw the potential of the business in Malaysia and knew it would take off. "There are many coffee shops out there," he says. "But there was a gap in high-class kopitiam dining."

Tan did not know the first thing about the F&B business — his background was in sales, and he operated an electrical appliance store — but that didn't stop him. After doing some research, he opened his first outlet in Selayang Mall in 2005. At the time, it was called Pappa Kopitiam.

Speaking mostly in Mandarin, Tan explains that he wanted to create a father figure as the logo of the kopitiam, a wholesome image that anyone could relate to. The first outlet offered a small menu: five dishes and a few drinks. Even so, within six months, the restaurant went from making RM30,000 a month to raking in more than RM100,000. "I realised there was huge potential," says Tan. "I believed my brand would take off. So I wanted to open a second one." But he found the huge upfront cost to be an obstacle and thought of abandoning the idea. However, upon the insistence of a friend, who became his partner, he opened his second outlet in Bukit Tinggi in 2007.

Soon after, a licensing company approached Tan to franchise the business, something that he had not considered before. Seeing the limitation of using the word kopitiam in the brand name, Tan decided to drop it and renamed his outlets PappaRich in 2009. He explains: "The ingredients were very good, but the prices at Pappa Kopitiam were quite low. I could not mark them up because of the kopitiam name. Kopitiam means you have to be cheap. But I wanted to give quality because the strength of the brand was quality… But the name PappaRich was unique. My thinking was that you had to be different from the kopitiams — my ambience, set-up, everything had to be different… I increased my prices because I knew my food was of quality and the ambience was good."

Changing the name also meant that Tan could venture beyond serving the usual kopitiam type of food and drinks to offering what he calls "Malaysian delights". The extensive menu, which Tan painstakingly researched and put together, has such selections as dim sum, fruit smoothies and new ways of serving old favourites, such as roti canai with ice-cream and bananas or with otak-otak. "I never stop innovating with my food," Tan says. There is also a dedicated vegetarian section with such items as fried noodle, nasi lemak and steamed pau, which is highly commendable as vegetarian options are hardly ever seen in non-vegetarian Malaysian restaurants. Tan says, "I thought we needed to balance the menu. Sometimes I also eat vegetarian, but it's very troublesome because everywhere I go, I can't find vegetarian options. So I thought to have vegetarian dishes on my menu."

PappaRich's first franchise outlet opened in Kota Damansara and from 2009 until today, more than 60 other outlets have opened all over Malaysia. Two months ago, PappaRich ventured beyond our shores to Australia and through a joint venture opened an outlet in QV Square, Melbourne, featuring a slightly larger menu — there is satay and nasi briyani, for instance. This year, Tan plans to open outlets in Singapore, China and Indonesia. He sees it as exporting the Malaysian food culture to the world.

"I want people to see PappaRich as the Malaysian McDonald's or Malaysian Starbucks. I want to bring it to the world. It's very competitive and people have asked me if the trend will die out. I think not — we're not just selling the coffee shop concept but a culture… To last, you can't just have a restaurant, you need culture. When you come to PappaRich, you will know what the Malaysian food culture is. In Australia, we have a fully open kitchen, doing demos of roti canai and satay grilling."

Tan has even grander plans for PappaRich beyond expansion. The enterprising businessman wants to enable people to bring PappaRich back home. The company will soon be rolling out PappaRich-branded packaged food that will be sold at all the outlets, items like blended coffee, curry paste, gula melaka, kaya and so on. Tan also wants to target the tourist market. He plans to open a flagship restaurant-cum-concept store in the high-tourist traffic area of Imbi or Bukit Bintang, where visitors who come to dine at the restaurant can purchase the premixes to replicate the dishes themselves when they go home. "We are not just a restaurant anymore, but will offer food services."

On building PappaRich to what it is today, Tan says it has not been easy. "You want to create a brand, it's not easy. You need to have knowledge of the industry; you need to know how to manage your accounts. You really need to have a lot of people to help you. I had good business partners who helped me reach this level. It was not easy to start from zero, from nothing — I only knew how to create the food… I didn't have much education; I only studied until Form 3. My English is not very good. So, I had to be creative. I had to think how to make it better and have determination and focus."

Kluang Station
J J Phun has fond memories of the coffee shop his grandfather ran at the Kluang railway station in Johor. On any given day, it would be teeming with travellers who would stop for a quick bite of kaya and butter toast and a hot steaming cup of dark roasted Hainanese-style coffee before catching the train to their destination. The coffee shop, founded by his great-grandfather in 1938, is today a well-known establishment and still exists at the railway station in Kluang, run by Phun's uncle.

"I thought it was very happening," says Phun. "For me as a child, I loved going to the station — the smell, the ambience, the hustle and bustle… I thought it was brilliant, and so I really thought hard about how I was going to bring it up to KL."

Phun is the proprietor of the Kluang Station chain of kopitiams with six outlets in the Klang Valley — at 1 Utama Shopping Centre, Ikano Power Centre, Tesco Ampang, Tesco Shah Alam, Bangsar Utama and The Waterfront@Desa Parkcity — and one each in Melaka and Kuching. Taking inspiration from the original family-operated coffee shop, Phun replicated the old world charm of railway stations in his restaurants with the use of wooden beams and panels painted cream, dark wood tables and booths, "chicken wire" décor details and old train station images on the walls.

"What I wanted to capture were those memories and bring them to KL. How many people actually know about Kluang? So, I wanted to bring that experience that I had and I also wanted a way to continue the heritage of Hainanese food. In fact, there are still a lot of items that I have not launched yet."

Phun is both a trained chef and a fitness professional, and he had the opportunity to train under Hainanese cooks in a premium hotel in Penang — which is why the menu largely consists of Hainanese cuisine. But, of course, there's a good selection of Malaysian favourites like mee rebus and roti jala in addition to the typical kopitiam fare of laksa, nasi lemak and so on.

Phun was working at a popular fitness chain building and managing gyms prior to starting up Kluang Station, and he says he applied the same formula the fitness company used to his own business. "They actually have a fixed formula for returns on investment, so I used that mould and applied it to a different industry."

His first outlet opened in 2005 in One Utama, and Phun says he recouped his investment in four to five months. To expand his business, he again used the model of the fitness chain.

"They did not franchise the business. How did they manage without the boss having to be at every site? They had a structure in place. Because you do a presale, so you don't need to use money out of your pocket to get the next one done. So this one pays for the next one and the two pay for four. It's a bit like multilevel marketing… Once you have two or three up and running, you don't actually use your own money to fund the shops…" he remarks.

Phun says there are actually three versions of Kluang Station — express, classic and original. "A lot of people don't actually see it. It's very subtle. The one in Ikano is original, the express one you'll see it in Tesco Shah Alam. It's actually in the food court, and it's basically a very quick serve. We have a slightly different menu — smaller and slightly cheaper with some items, because I'm not giving you full serve… You get the Parkcity type, which is also completely different. The uniforms are different, the service is different, food, too, is a little bit different."

Though Kluang Station is franchise-ready, Phun is in no hurry to do so. He says: "I wasn't agreeable to the franchise model that we have here in Malaysia. It doesn't protect us. Somebody can just use the brand and start selling engine oil and kitchen cabinets using your brand name, and there's nothing you can do about it. It's very difficult… We are actually franchise-ready, we are franchise-friendly, but we're not so friendly yet until I know who is buying the franchise."

Being the owner — or joint owner, in the case of the outlet in Kuching — of all the restaurants, Phun is able to exercise more control over the quality and consistency of the food compared with the larger kopitiam chains. Also, Phun is able to adjust the taste according to the preferences of each geographical region.

He explains: "If you go to Melaka and order tea — over there they call it teh kampung — you'll get a lot of condensed milk and very little tea, and then they load it up with sugar. The taste in Melaka is very, very sweet. Ampang is the same. Desa Park City, when they say kurang manis, they expect it to be kosong. One Utama and Ikano are the same. If the drink is a little bit strong, they'll send it back. To avoid that up and down, every shop is a little bit altered to cater to local tastes."

At the outlets, customers can purchase ground coffee that was specially roasted in a facility up north as well as the kaya. This came out of customers asking for them, and Phun says he will be looking into rolling out more products in the future. The company has also ventured into catering at motorsport events, corporate functions and car launches.

When asked how the company is doing and how much it is worth, Phun says: "There has been year-on-year growth all the while, except in 2009 — that year was very, very flat… Last year was good and this year started off with quite a bang. How much is the company worth? I've had some people do due diligence on us, and the figures are very far apart. Anywhere from RM3 million to RM8 million."

Pak Hailam
The first Pak Hailam Kopitiam outlet may have opened in 2008 in Kepong Baru, but its history dates back to 1929.

The story goes that a certain young man by the surname of Wong came to Malaysia from the Hainan province of China, and started selling coffee and tea from a makeshift stall in Batu Arang, Rawang. Customers loved the uniqueness of his special brew and in time, he had quite a loyal following. His customers affectionately called him "Pak Hailam" in reference to his origins.

Wong eventually moved to a shophouse in Jalan Sultan, serving his signature coffee and tea as well as Chinese dumplings and hawker-style noodles, but the coffee shop is no longer there. In 2008, Wong's son, L H Wong, managing director and chairman of Kingdo Holdings Sdn Bhd famed for King's Confectionery bakeries, decided to set up Pak Hailam Kopitiam in memory of his father and to carry on his father's legacy.

The kopitiam has a traditional set-up with round marble tables and stools and cream leather and wooden booths and walls covered with pictures of food, and one of an old man preparing coffee the traditional way (no, it's not a picture of Pak Hailam — for that you just have to look at the logo). It's simple and comfortable.

From the get-go, Wong intended to be a long-term player in the kopitiam business and so he set up a factory to produce the curry paste, coffee powder and other items that a kopitiam would need, and even got JAKIM halal certification. Wong's sister, who used to be a hawker food seller, created the menu that ensures authenticity of flavours. The menu is not as extensive as those at the other kopitiam chains, but what it lacks in variety it makes up for in excellent taste. There are also a few items not found in other kopitiams, such as beef noodle soup and tom yam noodle as well as some pretty creative beverages like Pomegranate Sunshine, Passion Fruit Mint and Macadamia Nut Float.

There are currently 12 Pak Hailam Kopitiam outlets in the Klang Valley, most of which are in hypermarkets, such as Tesco and Carrefour, which is the company's strategy. Says Darren Yang, group CEO of Kingdo Holdings Sdn Bhd, "With standalones, you have to be very strong that people make it a destination. Tesco has the proven core market to help you. So our strategy is to go with the hypermarkets — maybe this year we might look at Jusco, one step at a time."

When Yang came on board the company 2½ years ago, he worked to streamline the processes and procedures and opened a few more outlets. He had wanted to go on a massive expansion drive by franchising the business, but his boss, Wong, did not want to expand simply for the sake of it. Says Yang: "It's about making sure the business partner survives and helps grow our brand… The father's face is attached to the brand, and that's why we don't do for the sake of doing."

But this year, Pak Hailam Kopitiam has put the word out that it is ready to be franchised, and Yang says there will be a slew of outlets opening this year.

"We give our franchisees the confidence to expand with us — they can open a new outlet as well as have the option to buy an existing outlet that is profitable. In normal circumstances, nobody would want to sell a profitable business because it takes time to build one. But our strategy is to give our customers the confidence," says Yang.

With Pak Hailam still being a relatively unknown name, Yang is working on building its presence. The company has signed on TV chef Jaafar Onn and Datuk Misbun Sidek as brand ambassadors, and there will be huge billboards advertising the kopitiam along the highway as well as banner ads online.

To ensure the quality of Pak Hailam's F&B offerings and service, Yang and his team keep track of what their competitors are doing. "Once a month, my team actually goes to the outlets of competitors and orders certain foods. Then they come back and tell me if there was anything new, how the service was and all that. That's a benchmark for us. If someone comes back to me and says, 'Boss, the food was not so good', I'll ask, 'If it's not so good, why is business still good? Why is it full house every day?'. They need to look at that."

The company is now supplying the Pak Hailam brand of coffee to a group of hotels in India and Hainan, and hopes to extend its reach via exports.

This story appeared in The Edge on May 21, 2012.