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Flash Coffee fuels Asia's growing middle class

Jovi Ho
Jovi Ho6/18/2021 07:00 AM GMT+08  • 8 min read
Flash Coffee fuels Asia's growing middle class
How did a coffee chain land US$15 million in Series A funding after launching at the start of a global pandemic?
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Despite its name and product, Flash Coffee is in the real estate business, says co-founder Sebastian Hannecker. With a goal to open an outlet every 500m in every major Asian city, location is key for the growing coffee chain.

“It’s very, very important to get great locations with a lot of foot traffic that are also not too expensive. The key pillar of our concept is to save on rent and pass the savings on to the customer, to have high-quality coffee at very affordable prices. So, the main cost lever is really real estate,” says Hannecker in an interview with The Edge Singapore.

To reach its goal, Flash Coffee is opening at a rate of four to five outlets a week, which will soon accelerate to 10 new stores weekly. The goal is to open 300 additional stores in the region by the end of the year, which will dwarf its current 60 stores.

Flash Coffee opened its first outlet in Jakarta in January 2020, before quickly expanding to Thailand that May, and then Singapore in September. “We managed to launch three markets at once, in one of the most challenging times for an F&B business,” says Hannecker, phoning in from Jakarta, Indonesia.

For much of last year, Hannecker found that landlords rented at a heavy discount due to the pandemic. “There was actually a huge opportunity for us to sign 24- or 36-month rental contracts and lock in the rates without increases,” he explains.

In April this year, the chain, already backed by Berlin-based incubator Rocket Internet, announced it had raised US$15 million ($19.9 million) in Series A funding in a round led by White Star Capital, bringing Flash Coffee’s total capital raised to US$20 million.

Notably, the investment was negotiated almost entirely over the web. While Covid-19 has created easy takings for the brand’s locations, the lockdown has kept New York investor White Star Capital from meeting Flash Coffee’s founders in person. “Sebastian and I have actually never had a chance to meet in person throughout this whole process,” says Sanjay Zimmermann, principal at White Star Capital.

Zimmermann first heard of the brand in February last year while in Singapore. “It was a very ambitious and daring vision to open 50 stores in 12 months, and in the middle of a pandemic that was just starting,” says Zimmermann, now based in Canada.

“They came back towards the tail end of 2020 and said, ‘Look, we’ve launched in three markets. Despite Covid-19, we’ve achieved profitability in a number of our stores and we’re growing at a relatively rapid pace,’” he recalls.

That set the stage for White Star Capital’s investment. “You can say whatever you want in the pitch deck, but there’s nothing that speaks more than executing on a vision, and that’s what the team did,” he says. “That’s why we decided to back them.”

Brewing industry

A coffee lover himself, Hannecker’s bad experiences with a major coffee chain drove him to create his own. “You queue forever, you pay way too much and it doesn’t taste good. The loyalty programme is also not working well. So really, the end-to-end experience at established chains, I think, wasn’t great,” he says.

“I’m a very impatient guy, so [I’m not impressed by] all the queueing and someone manually taking my order… I’m a simple guy; I have my Americano at the same time from the same store. I don’t want to do it all over again every day,” adds the former case team leader from consultancy Bain & Co.

With the backing of Rocket Internet, Hannecker and his fellow co-founder David Brunier began drafting plans in 2019. Emboldened by the Nasdaq IPO of Chinese chain Luckin Coffee, the duo identified a total addressable market worth more than US$80 billion for Flash Coffee.

“We respect Luckin Coffee for their operational excellence and swift expansion,” says Hannecker. “However, we would like to emphasise that Luckin Coffee’s fraud case had nothing to do with the business model.”


See: Why Luckin Coffee is now toast

“We are confident in Flash Coffee’s model of offering high-quality products with an aggressive price point. A brand that is being built up significantly through digital channels and a focus on efficiency in processes is a winning formula,” he adds.

But what makes Flash Coffee stand out in Asia? As Flash Coffee is a “tech-enabled” chain, customers can order their favourite cuppa and make payment online, heading to the store only to collect their drinks. Flash Coffee also offers delivery options right from its app, along with a loyalty programme and customer challenges.

Behind the counter, Flash Coffee baristas never have to worry about manual stock counts. Sensors can also warn baristas of faulty equipment. “It’s all done automatically with our datadriven approach,” claims Hannecker.

That formula proved successful from the get-go. “When we launched in Pacific Place Mall in Jakarta, it was a huge success,” says Hannecker. “We were profitable from day one, with [sales of] up to 1,000 items per day.”

Zimmermann believes that there is plenty of growth potential. Asians consume about 150 to 200 cups of coffee per capita annually. While this is about half the amount that residents in the US and Europe consume, the figure is growing, he says. “There are two big macro trends that are huge tailwinds for fresh coffee.”

“Firstly, the number of coffee stores per capita is still two to four times smaller in most Asian cities than in Europe or North America,” he says.

“The second trend is the move towards premiumisation, but at a cost that’s accessible to the rising middle class. As the first generation to have more disposable income, they want to attach themselves to something premium that has a branded experience,” he adds.

Flash Coffee hopes to meet that burgeoning demand for the finer things in life. “In some emerging parts of Asia, if you buy three lattes from Starbucks, that’s already your average daily income, and you haven’t paid your rent or anything else,” notes Hannecker.

High sales volume and tech-enabled efficiency help Flash Coffee to keep prices low. Hannecker’s favourite Americano, for example, goes for IDR18,000 ($1.68) in Indonesia and $2.80 in Singapore, markedly cheaper than other coffee chains.

But with minimal interaction between customer and barista, could morning coffee runs feel somewhat sterile? With walk-in customers making up more than half of sales, Flash Coffee is eager to create a good first impression. “When I ask people why they go to a particular store, they often say it’s because of the barista. ‘The barista knows me and he’s a cool guy; I feel comfortable there,’” says Hannecker.

Such issues about customer experience keep him up at night, says Hannecker. “It’s very important to me that we have the best-in-class baristas in our stores, not only at making coffee but also in customer experience.”

On the go

With plans to grow rapidly across Asia, Flash Coffee operates with dual headquarters in Indonesia and Singapore. The tech and data teams sit in Jakarta, while marketing, legal and operations are based out of Singapore.

From its current headcount of about 190 baristas and 150 office staff, Flash Coffee hopes to hire another 2,000 employees this year to power its store expansion and to strengthen its local and regional head offices across all departments. The brand is also preparing to enter Hong Kong and Taiwan next, eventually expanding into 10 markets within the next 12 months.

See also: How business schools should pivot amid the Covid-19 pandemic

Hannecker himself is conducting many of the interviews for these top positions, especially for applicants from his alma mater, Insead. “It’s just such a great talent pool, not only on hard skills, but really on the personal side as well. They’re just people you would love to work with,” he says.

There is probably another reason White Star agreed to put the money in without a physical meeting. Zimmermann is an Insead alumnus as well, although he attended Insead two years after Hannecker and the two did not meet in school.

Nevertheless, thanks to this connection, the two hit it off immediately. “You always know, if that person is from Insead, the likelihood is very high that you will get along well [with them],” says Hannecker.

The programme also drew Hannecker to Asia. “I think I wouldn’t be here without Insead, or let’s say the likelihood would be much lower,” he says.

“Thanks to Insead, I just stayed in the region [after graduation]. I moved to Jakarta and joined the Bain office there. One year later, I met my co-founder, David, in Jakarta,” he adds.

Zimmermann’s involvement with Flash Coffee may have also been written in the stars. While at Insead, he presented on the coffee trade as part of the business school’s Master Strategist Day. “So, funnily enough, I had a bit of exposure to the global coffee supply chain,” he says.

“What’s really remarkable is that no matter where you go in the world, whenever you come across another Insead alumnus, there’s this kind of immediate trust, even if you’ve never met before,” Zimmermann adds.

As it turns out, that camaraderie and the connection were strong enough to land Flash Coffee the multi-million-dollar investment. “It felt like we had already known each other and had had a few beers together,” says Zimmermann.

Photos: Flash Coffee / INSEAD

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