This article first appeared in The Edge Malaysia Weekly on March 3, 2025 - March 9, 2025

THE battle for dominance in Malaysia’s lucrative coffee industry continues to intensify, with brands competing aggressively through pricing strategies and brand loyalty and by offering convenience.

Major players are accelerating their expansion efforts to strengthen their foothold amid a long-drawn-out anti-Semitic boycott that targets Starbucks Malaysia, owned by Berjaya Food Bhd (KL:BJFOOD), or BFood, and other brands perceived to have ties to the Middle East conflict.

Industry observers note, however, that inflationary pressures on food and beverage costs are also driving consumers towards more affordable options, further shaping the evolving market landscape.

Beyond pricing, the rapid expansion of local coffee chains has heightened competition, with domestic names such as Zus Coffee, operated by Zuspresso (M) Sdn Bhd, and ACE Market-listed Oriental Kopi Holdings Bhd (KL:KOPI) making headlines with their ambitious growth plans (see table).

Zus Coffee, which has 700 outlets in Malaysia, secured US$57.27 million (RM250 million) in investments last year from a consortium comprising private-equity firm KV Asia Capital, Malaysian pension fund Kumpulan Wang Persaraan (Diperbadankan)(KWAP) and Indonesia’s Kapal Api Group. This funding is supporting its expansion into Singapore and Brunei. Zus Coffee has two outlets in Singapore and three in Brunei, and 100 stores in the Philippines under a strategic partnership with Choi Garden Restaurant Co, which acquired a 35% stake in Zus Coffee in March 2023. The company aims to have 250 outlets in the Philippines by end-2025.

Asked about competition in Malaysia, Zus Coffee founders Ian Chua and Venon Tian tell The Edge that the brand’s 700 outlets in the country represent just 21% of the 3,300 branded domestic coffee chain stores, according to data from Allegra World Coffee Portal.

“There is still ample space to grow. Foreign coffee brands entering Malaysia indicate economic growth. Our strategy remains unchanged — focusing on product innovation, localisation and operational efficiency through technology,” they explain, highlighting the company’s approach to sustaining growth.

Hextar Group, which introduced new player Chinese coffeehouse chain Luckin Coffee to Malaysia, has ambitious plans to become among the top three players in terms of market share. Hextar Industries Bhd (HIB), via its wholly-owned unit Golden Aroma Sdn Bhd (GASB), entered into a strategic partnership with Luckin Coffee Holding Singapore Pte Ltd to bring the brand to Malaysia.

Having launched seven outlets in the Klang Valley in the last two months, the company announced an aggressive plan to open 200 stores within the next three years. “It will take about 200 outlets to break even, and our timeline to do that is between two and three years,” Hextar Group managing director Datuk Eddie Ong Choo Meng tells The Edge at Luckin Coffee’s headquarters in Petaling Jaya.

“We decided to go into the retail space in 2023, via a business-to-consumer model. After scouting brands locally and internationally, we met Luckin Coffee early last year, and found that the brand suits our local demographic very well in terms of taste and promotional strategies,” explains Ong. “With Zus at over 700 stores, we, too, aim to be among the top three players locally.”

GASB CEO Dr Jeff Lim Chee Lip says: “Accessibility [to Luckin Coffee offerings] as well as positioning it as a technologically savvy brand to appeal to the younger demographic will be our key strategies. All orders and payments will be done via the application so that we can customise and push out offerings geared towards customers’ preferences.”

Asked why Luckin Coffee now comes under Hextar Industries, contrary to the initial plan to position it under Hextar Retail, Ong clarifies: “The deal required bidders to have a 51% majority stake in the partner company. After evaluating Hextar Group’s companies, Hextar Industries emerged as the best entity for this business.”

BFood is not alone in having to navigate weak domestic sentiment as Starbucks faces mounting challenges in its core markets, the US and China.

Last Monday, Starbucks Corp announced layoffs affecting 1,100 corporate roles in the US and a freeze on hiring as part of a turnaround strategy aimed at arresting declining sales. In China, its second-largest market with 7,868 stores, a price war with emerging local brands is threatening its dominant market share.

Starbucks’ same-store sales in China fell 8% in the 12 months ended Sept 29, 2024, and 6% in the first quarter. The company also missed its target of 9,000 stores by 2025.

In Malaysia, BFood recently posted its fifth consecutive loss-making quarter. It reported a net loss of RM35.33 million for the second quarter ended Dec 31, 2024 (2QFY2025), which was a 17% year-on-year improvement from a RM42.6 million loss previously.

Revenue plummeted by nearly a third to RM123 million from RM182.6 million a year earlier. Inevitably, BFood’s stock has suffered, shedding more than half its value over the past year to close at 32 sen last Wednesday.

Berjaya Group founder Tan Sri Vincent Tan reportedly said Starbucks Malaysia was seeing an improvement in sales with the boycott of its outlets tapering off, and that “people are realising [that Starbucks Malaysia] is not hurting anyone”. Tan had previously appealed to Malaysians to stop boycotting Starbucks Malaysia, contending that it was only hurting Malaysians.

To mitigate losses from its Starbucks Malaysia franchise, BFood appears to be diversifying its café business into other markets by securing the rights to operate Starbucks in the Nordic region in August last year as well as expanding its Paris Baguette franchise into new Southeast Asian markets such as Thailand, Brunei and Laos.

Other brands under the BFoods umbrella include Kenny Rogers Roasters in Malaysia, Jollibean in Singapore and the vegan Tex-Mex-inspired restaurant, Sala.

For an idea of how profitable local coffee chains are, company records show that Zuspresso (M), which was launched in November 2019, grew its revenue from RM900,000 in FY2020 to RM204 million in FY2023, achieving a net profit of RM10.15 million over three short years. Zus was operating about 370 outlets at end-2023.

Gigi Coffee, which launched just two months before Zus, became profitable in its third year, posting a net profit of RM44,000 on RM7.69 million revenue in FY2021 with fewer than 36 outlets. By FY2023, Gigi Coffee had expanded to more than160 outlets and recorded RM4 million in net profit on revenue of RM53.9 million.

BB Coffee Sdn Bhd, a 100%-owned unit of Tealive founder and CEO Bryan Loo’s LOOB Holding Sdn Bhd, returned to the black with a net profit of RM807,634 for the financial year ended June 30, 2024, after posting a net loss of RM5.2 million in the previous year. Revenue came in at RM97.8 million, up 65.5% from RM59 million previously.

According to its website, the company operates 125 physical outlets nationwide.

Meanwhile, Oriental Kopi reported a net profit of RM43.13 million in FY2024, more than double its RM20.03 million profit in FY2023. The company operates 20 cafés in Malaysia and one in Singapore, in addition to selling packaged coffee, tea and other food products.

As for Palaterium Sdn Bhd, which operates Taiwanese speciality coffee chain HWC Coffee, revenue for FY2023 grew 323% to RM21.2 million, from RM5 million in FY2022. Net loss widened to RM7.7 million from RM2.4 million, as the company spent RM25 million to open 35 new HWC Coffee outlets in Malaysia in 2023.

The Malaysian coffee market remains fiercely competitive, with brands leveraging scale, technology and strategic expansion to secure their share. As competition intensifies, local and international players can be expected to refine their approaches to capture a growing, but increasingly discerning, consumer base. 

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