May 30, 2024
JAKARTA – Prices for freshly brewed coffee-to-go have been tumbling, marking a new wave in the coffee culture of Indonesia, the fourth-largest coffee producer in the world.
Pedaling around the city, mobile coffee sellers are brewing the nation’s bestselling beverage of milk coffee with palm sugar for just Rp 8,000 (55 US cents), while the same beverage previously was hovering around Rp 18,000, forcing established brands to step up their game.
The aggressive down-pricing is driven by more efficient coffee-making equipment, the rising middle class and increasing consumer spending on coffee each year, according to Edward Ismawan Chamdani, treasurer at the Indonesian Venture Capital and Start-ups Association (Amvesindo).
“The mass market in Indonesia still prefers kopi susu [milk coffee] and is less influenced by the premiumization trend,” Edward told The Jakarta Post on Monday. “The Rp 8,000 price point is achievable because of these new technologies, which lower production costs without sacrificing taste.”
Read also: Mobile café start-up Jago lands $6 million in series A funding
Indonesia’s coffee consumption rate surged by 18.2 percent year-on-year (yoy) in 2023, according to the International Coffee Organization (ICO).
The country’s coffee market is projected to reach $2.22 billion in 2024, driven by the rising middle class and increasing awareness of health problems associated with sugary drinks, according to a Fitch Solutions report.
For venture capital firms, this new wave was “promising”, Edward said, but with a caveat: “Success for these coffee ventures will hinge on effectively balancing quality, cost and scalability.”
The coffee cart start-ups will need a unique value proposition, optimized supply chains and diversified offerings to ensure sustained growth and profitability, and achieving this balance could “make investments in these ventures highly attractive,” he explained.
Edward himself is nurturing NgopiNgapa, a coffee cart start-up following the same price strategy under venture builder Starventure, launched in April.
The trend of lower coffee prices can be traced back to 2020 with mobile café start-up Jago introducing the lower price point by selling through coffee carts pedaling around Central Jakarta.
Jiwa Group’s Sejuta Jiwa and Tencent-backed Rindumu Coffee joined the fray just last year, both offering their brews at similar prices.
These ventures leverage instant commerce models, allowing customers to order directly from the bike carts or through delivery apps and receive their beverages within minutes.
The one who started it all
Jago cofounder Yoshua Tanu told the Post on Monday that the company’s pricing strategy was inspired by the typical coffee purchase habits of Indonesian consumers. “Our goal is to offer similar value per liquid volume to our consumers.”
Most people buy coffee for Rp 5,000 to 6,000, Yoshua said, usually opting for instant, bottled or canned options. Instant coffee, in particular, costs around Rp 3,000 to 4,000 for 120ml, while Jago offers 240ml for Rp 8,000.
“By matching these price points, we tap into a broader audience already accustomed to spending within this price range,” he noted. “This strategy ensures we meet consumer expectations and preferences, making our product competitive in the market.”
Jago sources its beans directly from farmers and operates its own production facilities, which improved the company’s cost margins.
While he noted that coffee in general was not an expensive product to begin with, affordable sourcing of beans was supported by Indonesia’s position as a coffee-producing country.
Additionally, the café-on-wheels model avoids some of the costs of traditional retail stores.
“Less overhead means we can price the product closer to the actual spending power of the Indonesian consumer,” Yoshua explained.
Indonesia has the largest modern coffee market in Southeast Asia with an estimated $947 million in annual turnover, according to a modern coffee report from Singapore-based market research firm Momentum Works published in November 2023.
While the domestic coffee industry is extremely competitive, many new players remain eager to enter the market as investors seem excited about Indonesia’s overall market size, Momentum Works CEO Jianggan Li said on Monday.
However, “we think they might be overly optimistic about entrepreneurs’ abilities to deliver a much more efficient solution at a much larger scale compared to what is currently available in the market,” he continued.
Li also expressed skepticism about the long-term viability of the low-price strategy, saying “it only works without freshly ground coffee, practically no rent, a very efficient supply chain and very large scale.”
Bigger brands tapping in
Kenangan Brand, the parent company of Kopi Kenangan, launched Satu Kenangan earlier this month to tap into the tier-three market with coffee starting at Rp 7,000 per cup, slightly below the trending price.
Not pursuing the coffee cart concept, Satu Kenangan adopts a grab-and-go food stall concept. The company plans to open 20 stores by July and targets 200 by the end of 2024 and 400 by 2026, DealStreetAsia reported, depending on the market response.
“We saw that the Indonesian market was diverse, with different socioeconomic statuses, so a one-size-fits-all approach to penetrating all market segments in Indonesia with one brand is not feasible,” said Ruth Davina, corporate affairs head at Kenangan Brand.
To maintain price margins, Satu Kenangan will minimize its capital expenditure by reducing rental and equipment costs, as well as using different raw materials from Kopi Kenangan, Ruth added.
Momentum Works’ Li viewed the response from major players like Kenangan, with its much larger fixed costs, as a defensive move to try and push coffee cart competitors out of the market promptly.
The lower price push would give the coffee cart players positive gross margins, but a larger consumer base would likely respond positively to lower prices with the same brand image and product quality, he opined.
Moreover, the new market share was not necessarily an attractive value proposition for all players, but Li noted that some of the larger players were willing to take short-term losses to gain or defend their market share.
However, he cautioned: “Branded players need to be careful in balancing their existing product portfolio with the low-price defensive products.”