Kopi Kenangan: Building a Brand People Love

Indonesian coffee chain, Kopi Kenangan, serves affordable brews made with local ingredients and recipes. The company, which employs a ‘Grab & Go’ model, delivers most orders through its app, making it a convenient alternative to traditional coffee houses. In this episode of Moonshot, Kopi Kenangan Co-Founder, Edward Tirtanata talks to Sequoia India & Southeast Asia Principal, Rohit Agarwal about how he’s building a well-loved brand with authentic Indonesian flavours, a deep understanding of what customers want, and staying true to his brand’s DNA.

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Show Notes

  • Kopi Kenangan’s sweet start (01:31)
  • How a ‘One Cup, One Customer’ approach and leveraging technology helped Kopi Kenangan weather the pandemic (07:09)
  • Growing brand equity with great service and coffee (12:48)
  • Stay true to your DNA to build brand love and recognition (16:24)
  • Commitment to your customers is hard for copycats to replicate (21:32)
  • Differentiate yourself based on your strengths (24:14)
  • Creating new brands and verticals to achieve compounding distribution (26:54)
  • Think big, start small, fail fast (30:45)
  • Build and lead from your heart (33:00)

Transcript

Introduction

Dewi: Indonesia is one of the world’s largest producers and exporters of coffee. And, while you can get a cup of coffee just about anywhere, most of the beans are exported, meaning that high quality ones are often expensive and beyond an average Indonesian’s budget. This means that most locals typically drink instant options or powdered coffee. Kopi Kenangan, which was founded in 2018 is changing this with its grab-and-go model. And, though the brand is only four years old, it’s already got a cult following among many Indonesians. With us to tell us more about how the company is building a well-loved brand, is Kopi Kenangan’s Co-Founder Edward Tirtanata and Sequoia India and Southeast Asia’s Rohit Agarwal. Rohit, Ed, welcome to the show. Ed, why did you decide to set up Kopi Kenangan and enter what could be perceived as an already crowded market?

Kopi Kenangan’s sweet start

Edward: So, just to give a little bit of background about myself, prior to building Kopi Kenangan, I was actually the Co-Founder of Lewis & Carroll Tea, which as of today is the largest premium tea house chain in Indonesia. And, what I mean by the largest is literally just seven to eight stores, right? Why we could not expand beyond seven to eight stores is primarily because I realised that most of the cafes in Indonesia, whether it be coffee or tea, they’re selling a cup of tea or coffee at Rp 40,000. If you do a quick analysis, Rp 40,000 times 30 days, that’s Rp 1.2 million or approximately 30% of the minimum wage back then. So, that’s when I quickly realised that, okay, it seems like in coffee, there’s a big missing gap, right? But most Indonesians are drinking instant coffee at Rp 1,000, and, I’m sure that many of you here can imagine that most instant coffee is just flavouring, over-roasted coffee, and sugar. And, that’s when I realised that there is a big missing gap in the market. People want a good and affordable cup of coffee, but the only option is just something that is either really cheap or something that is really expensive and unaffordable. And, that’s why we decided to open Kopi Kenangan in 2017 with that missing gap in mind.

Dewi: So, Rohit, when you first met Ed in 2019, Kopi Kenangan already had 56 stores and they were just starting to build out this online-offline new retail business model. Talk to us about the business model, and what excited you about it?

Rohit: When I first met Ed, I remember he brought me a cup of Kopi Kenangan Mantan. It was honestly very different from what I’d expected. I mean, it was sweet, it was milky, it was… To put it simply, it was the kind of coffee I had grown up drinking. But now that I live in Singapore, I’ve grown used to the cappuccinos and the americanos served by all the multinationals. So, I remember telling Ed, this is pretty nostalgic for me because this is the kind of coffee my mom would probably make. And, it was a very sweet start, if you will.

But, as we delve further into it, we realised that there are many aspects of design choices that Ed and team had made, which were very authentic. And, frankly, first-principles thinking – so, it was not accidental that the coffee was sweet. Ed understood from his days in Lewis & Carroll that no matter how much you try to copy or you try to bring American recipes to Asia, Asians still love sweet. And so, when he started Kopi Kenangan, he had first developed a sweet recipe. He also intentionally made recipes that were cold, instead of the cappuccinos and the Americanos.

And, there were just more and more design choices as we looked deeper and deeper into Ed and his team’s way of thinking that resonated a lot with us. I think on the market, what we had not realised… What we had initially gone in thinking was, “It’s food retail, and F&B has been a tough neighbourhood, there’s a lot of mortality in the sector”, but what we understood once we looked a little bit deeper and scratched the surface was that coffee is probably a very different game than the rest of F&B. I mean, first of all, the majority of F&B suffers from fatigue. I love my burger from XYZ place and I can have it maybe once a month, twice a month, or once a week. But, that’s it, right? I can’t go back to that place every single day.

Coffee, on the other hand, has immense loyalty. If I like coffee from the coffee shop downstairs from my office or near my home, I just keep going back to it. And, I think secondly, coffee’s probably got the most sorted supply chain of all F&B. I mean, there are no fresh ingredients. You’ve got coffee beans, milk, sugar, and water. You can mix them and make N number of drinks. So, it’s very easy to manage – very highly scalable. I was joking with my team internally that this is exactly like SaaS; what we VCs are so excited about. It’s got a high gross margin, it’s got very high repeatability, and it’s super scalable. So, a combination of lot of these interesting design choices that Ed and team were making, whether it be on SKUs (stock-keeping units) or on the format, making it grab-and-go, making the store a lot more compact, leveraging the food delivery players, initially, to deliver to people’s homes, and then gradually building out their own app to talk directly to their customers, get a lot of data on their consumption habits, and so on and so forth, to further improve the product to store locations. I mean, we could see that this had all the makings of an iconic consumer company and we hit it off from there, with Ed and team.

How a ‘One Cup, One Customer’ approach and leveraging technology helped Kopi Kenangan weather the pandemic

Dewi: Now, that model, Ed, really helped you shelter the storm when COVID-19 hit, right? All around the world, the F&B industry suffered, but what you had built was this really strong technology layer that helped Kopi Kenangan scale up the delivery side of the business and add new products, and even stores, that catered to the fact that people were working from home now. Can you tell us a little bit about that?

Edward: What kept Kopi Kenangan going during the pandemic is our one cup, one customer approach where no matter how big the company is – at the end of the day, it all comes down to serving one good cup of coffee. When COVID-19 hit the world in 2020, it really was a test of resilience to the company. And, maybe if we had to take a step back, we need to be reminded of what Kopi Kenangan is.

Kopi Kenangan is all about brand love. We would like to give the best cup of affordable coffee to our consumers with a five-star service. That is the core of the business. However, there’s the tech-enabled part that really differentiates us compared to other coffee shops as well; because if you think about it, any retail has fixed costs of both salary and rent. Any incremental productivity that you can bring to your store will help us pay those fixed costs inside the business. And, that is why with our new retail concept, we do believe that technology can improve store productivity.

And then, if we trace it back to COVID-19, what did COVID-19 do to our business? Basically, it reduced store productivity. First and foremost, we tried to really relaunch our UI/UX for contactless commerce, because back then, we did a lot of FGD (focus group discussions). In fact, in Kopi Kenangan, we spent hundreds and millions of Rupiah every month to make sure that we did FGD constantly to understand what the consumer’s pain point is. And, we did FGD on what is their pain point on using the app, and apparently, many of our customers feel that our UI/UX is not simple enough. The colour is not user-friendly enough. And, that’s when we actually tried to change the colour from a coffee colour inside our app to the Gojek ordering colour, because that’s the colour that people are familiar with. And, as a result, actually, our conversion rate jumped up by around 20% or 30%.

Other than that, obviously after we improved our contactless commerce, we invested a lot in our delivery as well. And, what started off as a purely offline business without much traction in the app, as of today, we are the number one F&B app in Southeast Asia in terms of active users. And right now, 30% of our business comes through our own app with the vision of expanding it to 40% by end of this year. We rely a lot on our loyalty program and our hyper-personalisation feature. Those are the two pillars that we use in order to make sure that we can increase store productivity through both of them.

But then as for today, we own our customer – this is a D2C brand, right? We know who our customers are, who is ordering what and when, and how frequently, and that’s when we can actually decide, “Okay, what kind of loyalty points do we want to give them and how can we be creative about it?”. For example, if you purchase at Kopi Kenangan, you will get loyalty points in the form of Kenangan Points. Right now, we are working so that people can actually convert those Kenangan Points into Bitcoin or into airline miles. And then, other than that, right now we are really shifting away from a one size fits all promo engine.

Right now, we are trying to do a lot of user segmentation. Right now, all of the users at Kopi Kenangan are segmented into seven different customer buckets. And, we really know which customer at one end of the spectrum is at risk of churn, and on the other end of the spectrum are customers that are VIP. If you want to give a promo, give it to the one that is at risk of churning, right? And, of course, on top of that, we don’t just use technology on the consumer-facing part, but we actually use it to expand our stores as well. We have our customer data. We know where they are. And, back then, actually we had a little bit of controversy during our board meeting – “When the pandemic hits, we should stop expanding. We should cut CapEx (capital expenditures) and OpEx (operational expenses)”. But I told them, “No, the key to getting out of the pandemic is to actually expand further, because if you look into the data, our customers did not disappear – they just moved to somewhere else”. And, this is when we can really use our heat map data, and we tried to locate where our customers are, and open a store near them. And, as a result, we are profitable again and store productivity actually increased compared to the pre-pandemic [time]. And, that is all due to the power of technology and data.

Dewi: So, help our listeners understand – when Rohit met you in 2019, you had 56 stores. Because of all these things that you’ve done till now, how many stores are you at now? How big is Kopi Kenangan?

Edward: So, right now we have over 600 stores. Back then, when I met Rohit, we only had stores in greater Jakarta, but right now, Kopi Kenangan is pretty much in every single big island in Indonesia. And, we do believe that going forward our new retail grab-and-go business model will expand not just in Indonesia, but then overseas as well. At least that is the vision.

Growing brand equity with great service and coffee

Rohit: Ed, just building on that, I think what you guys have done, leveraging technology to navigate through COVID-19 is simply incredible. I think the part about technology is that only 5% to 10% of it is visible. People only see the app or the ordering system that they can use to order the coffee, but the amount of data that you guys process to make decisions on an everyday basis, from which new SKUs to launch, to which customers to send promos to, where your customers are, where to open stores – all this invisible stuff that you do is actually even more critical and translates into the immense amount of user loyalty and brand love that you’ve been able to build. One of our partners has a philosophy that the hardest things are the toughest to measure – all the good things in life, love, honesty, kindness, courage. These things are very hard to measure. And, I think, the same holds true for brands. Products have a formula, so they can be copied and you can replicate them, but brands have a soul and they can’t be described sometimes and they can’t be formulated. They don’t have a formula, and therefore, brands are very hard to copy. I would love to understand from you, how were you thinking when you were first coming up with the Kopi Kenangan brand? How has that changed since, and how important is the brand for you in Kopi Kenangan?

Edward: So, I think brand is everything in a business like us. Because, if you think about it, for example, in McDonald’s, can you think of five better burgers than McDonald’s? I can think of 10, right? It’s very easy. Every product can be copied, but then brand cannot be replicated just like that. Why do people keep on going back to McDonald’s? Because, there is brand love, right? Even in one of our FGDs, we actually showed four different logos – Audi, McDonald’s, Kopi Kenangan, and Mercedes Benz. And, we didn’t show the typography. We just showed the ‘M’, the golden arches, the Kopi Kenangan heart, and the Audi logo. In fact, most people recognised the golden arches and Kopi Kenangan heart in Indonesia, but I guess most of the ladies inside the FGD could not recognise the Audi logo. And, that’s when we realised that, “Okay, that means we are really getting brand equity”. And, that’s why every year we do FGDs to make sure that our brand equity stays the same or [keeps] increasing. And, how do we get that brand equity? Simply by doing the right thing to your customer, honestly. That’s the mentality that we are trying to implement at Kopi Kenangan – that no matter how much funding we get, whatever our status is, at the end of the day, we need to serve the best cup of coffee to our customers. And, it’s not just from the recipe. But it’s actually about giving the best service to your customer. Are you being polite? Do you ask, “How was your day?” to your customer? Those are the little things that matter, and if you do it consistently and over time, only good things will happen to your brand. Even though there’s COVID-19, even if there’s a supply chain shortage and then coffee price goes up, if you have this brand power, at the end of the day, you can be an enduring brand that will be here for many years to come.

Stay true to your DNA to build brand love and recognition

Dewi: Just building on that Ed, the Kopi Kenangan name – did that have a part to play in it? I mean, it literally means ‘the coffee you know’, right?

Edward: So, whenever you’re starting a brand, honestly, people would not care about what you’re serving, or would not care whether you are you being polite to the customer or not. So, we really needed branding that is differentiated; something that will make people remember – because the first funnel of any brand equity is always awareness. People have to be aware that you exist. And, that is why I decided instead of creating a coffee name of, for example, ‘Arabica’ or ‘Robusta’, that is generic, we decided to go with Kopi Kenangan, which literally translates into “coffee memory”. And then, our number one SKU is called Kopi Kenangan Mantan, which literally translates to “memory of my ex”. And, we even had a definition for that coffee when we first started. It literally means, “a sweet memory that is not there anymore, but occasionally pops up into your mind”. So, those are the little things that we do that are different, that really creates interest to our customer. And, it applies to any business, whatever business you want to create. Do you want to create a burger brand? If you want to call yourself McBurger, most probably nobody’s going to remember you. But then, you need to create something that will sound different, that makes people want to try. And, that’s when you can really start to get brand love out of your customer.

Rohit: Ed, that’s a very cool story. I remember the first burst of public awareness came when lots of young people started posting their pictures with the Kopi Kenangan cup and started tagging their exes on Instagram. And, that was what drove lines and lines of customers outside Kopi Kenangan stores in the early days. So, that’s a very cool story. But Ed, as we discussed, brands evolve. You started with this cool story about coffee, which is a very Instagrammy and lots of people are posting pictures of and so on, and that worked, but as you’ve now scaled to 600 plus stores across tier one, tier two, tier three cities in Indonesia, and you’ll probably also want to go international – there are lots of dimensions of this brand that have needed to scale. And, I remember there was this one moment when we were debating the name itself, whether we should retain Kenangan in the name or not, because as we go international it might not be intuitive for people to understand what Kenangan means, especially for all the non-Bahasa regions where we would want to expand to. And, a very senior marketer from the industry recommended us to go for an English name, which would make our brand a little more universal and easier for people to understand what it means, and so on, but you did not agree. And, I think that’s also another really cool story about how you continue to make authentic design choices, not just when you started, but continuing to hold on to those principles even as you’re scaling, I would love for you to share that with our listeners.

Edward: So, basically, I mean that same senior marketeer actually didn’t just suggest us an English name, but suggested we use ‘Kiki the Komodo’ as a mascot. So, it’s a pretty funny Komodo. I mean, literally there’s a cartoon of a Komodo [dragon] with the tongue coming out. And, I asked, “Why Komodo?” And, they said, “Because Indonesia has Komodos. It’s a dinosaur. It’s something that is very differentiated.” But honestly I said, “I cannot imagine myself opening a coffee brand with a lizard as the logo, even though maybe it will create interest, but there is a thin line between creating a genuine interest and a disgusted interest.” You need a little bit of feeling, and guts in this case, because honestly, whatever you want in whatever business you do, you need to be data-centric. But then, when you’re starting a business, sometimes this feeling or gut is really important. And, it doesn’t need to be an English name. It’s actually quite generic, if you try to do it like that. Your brand needs to have a soul, your brand needs to have a DNA, and we need to stay true to that brand story that we have.

Commitment to your customers is hard for copycats to replicate

Rohit: You’ve created this massive awareness at a national scale in Indonesia. And, I think you often credit it to the value of touch and feel – the fact that you’re not just existent on an app, but you exist out there in the real world, and people can see your stores, which drives a lot of that mass awareness. And, I think, especially in the digital era, a lot of startup founders that are building digital products, actually under-appreciate the value of this touch and feel. And, I remember we were discussing this with you, that even among the digital players, arguably the greatest brand is Apple, which has a touch and feel component to it, compared to Google or Facebook. And, that actually enhances its brand awareness, brand love, and consumer love. So, talk a little bit about how important it is, this touch and feel. In fact, your products have taste to it as well. So, how important are these sensory communications with your customers in building a brand.

Edward: It’s very important, this touch and feel [aspect], because whenever you are starting something you don’t have a big budget to get David Beckham or Messi as your brand ambassador. So, that’s why in Kopi Kenangan, we really focus on this touch and feel. For example, there is Starbucks, which designed their coffee with an espresso machine. And then, there are a bunch of other coffee shops as well, that sell coffee with an espresso machine. But then, nobody’s selling coffee at Rp 20,000 with an espresso machine. And, that’s when we decided, “Okay, let’s get an espresso machine, and then let’s get high-end premium milk. And, let’s get Arabica beans as well”. And, we really showed it to our customers, right? Whenever you are coming into the store, you’ll be welcomed with the smell of freshly ground and freshly brewed coffee. For example, many of our copycats try to imitate the business model as well, and the recipe, but none of them actually would want to give the best coffee machine to their customers – they feel, “Ah, okay lah, I think I can just get like a Rp 2 million coffee machine, and most probably, it will look the same.” But, that’s what copycats do, right? They cut corners and they try to be like Kopi Kenangan, but most probably they are not able to replicate the same commitment that we have to our customers.

Differentiate yourself based on your strengths

Rohit: Ed, I think it goes back to, again, you can copy what’s visible, but you can’t copy what’s not visible. And, 80% of what goes into building a brand is not visible. Ed, I remember another incident and it goes on to maybe explore for our listeners a little bit of how you cannot brand yourself with everything that’s cool out there. And, I know we had this debate – one of the investors was recommending that you guys go more aggressively and brand yourselves as the technology F&B player vs. a coffee player, because a lot of your competitors were doing that. They were very aggressively pushing their app as the main point of differentiation. And, you continued to stick to pushing your coffee as the main point of differentiation, because you said people come to us for the coffee and not for the app. And, I think it’s super important that companies know what their strength is and differentiate around their strength, and build their brand from that position of strength vs. what’s trendy. And, today we hear a lot of buzzwords in this space from tech F&B to food technology, to grab-and-go, to asset-light, to a house of brands, to D2C brands. How do you make sense of all this? And, what’s your definition of Kopi Kenangan’s brand positioning?

Edward: First and foremost, we need to remember that at the end of the day, people drink the coffee, not the app, right? So, that is the core value of Kopi Kenangan. We are not a tech company. We’re a tech-enabled company, meaning that, at the end of the day, if people are happy with what they touch, feel, and taste at Kopi Kenangan, then most probably we can actually increase store productivity or make sure that we can increase the revenue inside the store by using technology. That is our approach. And, that’s how we are able to generate a lot of revenue into the business, because we do sell a good cup of coffee with much loved branding, as shown in our latest Kantar or Nielsen research, that indicated that we are the number one local coffee player by far as well in terms of brand equity. So basically, we are a coffee brand that is tech-enabled, I would say.

Creating new brands and verticals to achieve compounding distribution

Rohit: Got it. And Ed, while we are on this topic, you’re not just a coffee player anymore – we have Chigo, which is our fried chicken brand. We have Cerita Roti, which is our bread snack, and we have Kenangan Manis. And, you’re coming up with more and more concepts to provide Indonesians with an affordable and premium dose of their favourite foods. How are you thinking about these new brands? I mean, we’ve debated a lot about whether these should all be Kopi Kenangan branded or whether these should have an identity of their own. We have obviously gone down the path of creating new brands for different food categories, and I think it’s resonating very well with customers. But, from your perspective as a founder, how do you think about all these different brands? Do you see them all having like a mother-child relationship that Kopi Kenangan is the mothership, and each of these brands look and feel a lot like Kopi Kenangan, or are these just very independently built brands that look like a nice collection of different food brands, but don’t necessarily have a lot of DNA similarity?

Edward: Why we created those brands actually comes down to listening to our customers. One thing that we noticed throughout this conversation, is we listened a lot to our customers, whether it be on our app UI/UX, whether it be on, okay, is our coffee too sweet, or our gula aren taste is too strong, for example, we always listen to our customers, whether it be through FGD, whether it be through our customer complaints. And, that is why even though we are already at 600 over stores, we only have 20 complaints per month. And, I’m really proud of that fact about Kopi Kenangan. In fact, one region in Kopi Kenangan has zero complaints because we kept on listening; what went wrong inside the Kopi Kenangan store and how we can improve it. And, we really take every complaint seriously. And, one of the things that we listen to from our customers is the fact that they feel the coffee is great, but I would like a piece of bread to go along with our coffee. And, that is why we decided, “Okay, then let’s launch a bread brand called, Cerita Roti”. And, since we feel that this is such a good opportunity to actually build a new brand out of Kopi Kenangan, that is why we created a new branding on top of it. Because, at the end of the day, it’s not just a brand play, but the distribution play as well. Imagine this – when we have 2000 stores and then we are selling 20 million cups to 10 million customers, imagine selling just one piece of bread a day to 10 million customers. That is worth 10 million [pieces of] bread a day. So, that is the power of compounding distribution, and that is what we are trying to achieve. And, imagine if we can add a branding element to it, that is powerful. And, that is what we are trying to achieve in Kopi Kenangan. We are trying to create new verticals that have strong brand awareness as well. And eventually we’ll be able to become a company that is not just focusing on one vertical, but we’ll have many different verticals that are all pooled around both our online and offline distribution.

Think big, start small, fail fast

Dewi: Ed, there are so many things that early-stage founders can take away from what you’ve just said, as they build out their brand. But if you had to give the top three things, what would they be?

Edward: First and foremost is that every brand is built through a group of people. The first is your customer. That is the most important thing. You need to listen to them. You need to make sure that they are attracted to it, by the touch and feel and if they are happy, most probably your investors are going to be happy too, which translates into sales. And then, secondly, you need to actually listen to your employees as well. Your company is only as good as the people you hire. In fact, Rohit told me this and we really took this to heart. And, in the beginning of the pandemic, we quickly announced that nobody is going to get a pay cut. Nobody’s going to get fired, because this is actually the toughest time and we need to be there for our employees. I even took a Rp 1 salary during that tough time, because I do believe that if your employees are protected, if they feel safe about their job, then they can serve our customers well. But then, if they cannot even feed their family, most probably they cannot even serve our customers well. And then, I like to say this as well, whenever you are starting something, you’ve got to start small. So, think big, start small, and fail fast, because whatever you do, you have to do something that is worthwhile, right? And, for myself, I want to create the largest coffee company in Asia. And, that is why I’m thinking big, but I start small – start small by giving the best cup of coffee, one cup, one customer at a time, right? I failed many things, many times in life. And, your time, at your age, is honestly worth a lot more than money. So, that is why you need to fail fast as well, just to make sure that you are doing something that is worthwhile.

Build and lead from your heart

Dewi: Wow, that’s a lot for early-stage founders to think about. Rohit, what would your advice be?

Rohit: I think, I would say build and lead from the heart. Build products that you genuinely want to build and that you’re passionate about. Otherwise, it’s very hard to be authentic. And, as we have heard from Ed today, building enduring companies, enduring brands is a lot about tenacity and authenticity. It’s a very long journey. It’s not a straight line. And, in those moments when things are not working out, when you’re running out of capital, or your employees are in pain, your co-founders have a conflict – in all of those moments, the only thing that can keep you going through is your conviction, and that conviction cannot be borrowed. That conviction only comes when you have a dream, and when you have the passion to make an impact in that space that you’re chasing. So, I would say again, I would repeat what Ed was saying – have a large ambition and start somewhere. Start today. Don’t wait to start and you will find your way through.

Dewi: Ed, Rohit, learning about Kopi Kenangan’s brand journey has been fascinating. Thank you so much for sharing your brand building lessons with us. I’m Dewi Fabbri and for more interesting startup stories, visit our website sequoiacap.com or follow us on your favourite podcast platform. Terima kasih untuk mendengarkan kami dan sampai jumpa lagi.