In early 2024, the coffee market faced an extraordinary upheaval as robusta beans—the robust, bitter alternative typically used in instant coffee—surpassed arabica in price for the first time. This dramatic shift stemmed from a combination of climate-related crop failures in Vietnam, the leading producer of robusta, and erratic weather patterns in Brazil. The consequences for café owners and coffee chains have been immediate: shrinking profit margins, disrupted supply chains, and a swift need to adjust pricing strategies.
This upheaval has hit Southeast Asia’s coffee markets particularly hard. In the Philippines, it comes at a time when the local coffee scene is evolving into a competitive landscape of fast-growing, venture-backed chains. According to an interview by The Independent Investor with a coffee trader who wished to remain anonymous, the global coffee crisis is now putting significant pressure on the country’s café operators. He noted a significant rise in coffee bean prices in the Philippines over the last year: “Based on our purchases, arabica has risen 30%, but robusta surged by 100%.”
This challenging environment comes as emerging players in the Philippines like PICKUP COFFEE, TOMO Coffee, ZUS Coffee, Don Macchiatos, and BigBrew are scaling aggressively, focusing on convenience, affordability, and unique customer experiences. However, as they compete with giants like Starbucks and Dunkin’, the global coffee supply crisis threatens to squeeze margins and stall growth.
Adapting to the coffee crisis
The coffee trader noted that historically, prices go down when there is a good forecast during harvest seasons of major producing countries like Brazil or Vietnam. While it looks like problems with Brazilian and Vietnamese harvests have plateaued, he says there is still no indication of prices going down.
According to the trader, although climate concerns play a role, he emphasizes that coffee trees are typically resilient to most typhoons. This resilience shifts the focus to a more pressing issue: the need to increase volume production.
In this context, local players are adapting and evolving their strategies to meet the challenges ahead. Among these, PICKUP COFFEE has emerged as one of the fastest-growing brands in the Philippines. Coming off a $40 million Series A round led by Argor Capital Management (formerly Go-Ventures), the brand expanded from 60 to 230 branches in just one year—a clear indication of strong consumer demand and operational efficiency. Renowned for its value-for-money proposition, PICKUP COFFEE is exploring other innovative concepts such as Love Coffee to sustain its appeal, according to various sources. The introduction of this sub-brand could signal a move to diversify offerings to a different market. As the brand navigates these turbulent times, its ability to balance aggressive expansion with effective cost management will be a key test of its resilience.
Meanwhile, TOMO Coffee, backed by Kaya Founders and with 32 branches in Metro Manila, has turned to local sourcing to mitigate risk. The brand has begun incorporating local coffee beans into its lineup, reducing dependence on volatile imports and promoting homegrown flavors with a subtle Japanese twist. This strategy not only aligns with a growing consumer preference for locally sourced, sustainable products but also sets TOMO apart in a crowded market.
On the other hand, Don Macchiatos and BigBrew are attacking the lower mass-market segment by embracing uniquely Filipino ingredients, such as ube and pandan, to create distinct offerings. Their emphasis on local flavors helps diversify the menu while appealing to a broader range of tastes. Combined with their aggressive franchising models, this approach has fueled rapid expansion across the country. However, without clear visibility into their financial structures and total number of branches, it remains to be seen if this pace of growth can be sustained amid rising coffee prices.
ZUS Coffee, a Malaysian-born brand, is making its mark with a different approach. Known for its “affordable luxury” positioning, ZUS aims to deliver a premium experience while keeping costs competitive through tech-driven operations and data analytics. With 12 branches currently operating in the Philippines and a goal of scaling up to 150 by the end of 2024, ZUS is mirroring its success in Malaysia, where it has grown to over 400 outlets. The brand’s focus on urban centers and larger store layouts suggest it is targeting a more affluent, tech-savvy demographic—a move that could set the stage for rapid growth if consumer demand aligns.
Incoming competition
Amidst intense competition, there are still foreign brands that see the Philippines as an attractive market. The Indonesian grab-and-go coffee unicorn Kopi Kenangan has leveraged a tech-enabled model to remain resilient and enter the country’s coffee market. For example, Kopi Kenangan employees use a specialized system that allows baristas to order raw materials more efficiently, minimizing errors and reducing waste. They also utilize digital tools for store reporting and maintenance to ensure seamless operations, while their app boosts customer engagement by promoting repeat visits and encouraging larger purchases.
Known as Kenangan Coffee outside Indonesia, it is set to open its first outlet in SM Mall of Asia in Pasay City by October 2024, with plans to roll out at least 10 more outlets in major malls during its initial expansion phase. With its proven model of rapid scaling, Kopi Kenangan’s entry could significantly reshape the local landscape, especially as it tries to replicate the same success that saw it grow to over 400 outlets in Indonesia and expand to Malaysia and Singapore within just a few years.
However, its aggressive expansion comes at a cost—Kopi Kenangan reported a 70% increase in net losses last year due to its push for growth. If the brand can adapt its offerings to suit Filipino tastes and navigate the same supply chain pressures faced by local competitors, it could unlock substantial value in the Philippines and set a new bar for scaling amidst the global supply crisis.
Looking ahead to future challenges and opportunities
Despite rising costs, the trader notes demand hasn’t slowed down. “Market growth has continuously been rising despite price surges, so I think there is still enough room for more people to go into the coffee business in the Philippines. In fact international players are looking into entering the Philippine market because of this, I think,” the trader added.
As the local market continues to evolve, demand for higher quality is also growing. “Consumers now expect better quality coffee than they did just a decade ago,” said the trader. “Coffee will continue to dominate.”
Aside from the demand for higher-quality coffee, evolving trends and preferences also reflect a shift in consumer taste, particularly with the rising popularity of beverages like the Spanish latte. This sweet and creamy coffee drink has gained a loyal following, indicating that Filipinos have a growing appreciation for innovative coffee concoctions. As coffee culture continues to flourish, we may see even more unique variations emerging, catering to the local palate while enhancing the overall coffee experience.
“There are no signs of coffee in the Philippines slowing down anytime soon, so I think it will continue to grow in the next few years. Possibly as vibrant as the Australian coffee scene, in terms of specialty coffee, or, if we improve our local volume production, maybe even the Vietnam coffee scene,” concluded the trader.
This article was written with the assistance of AI tools.