Costa Coffee exits S’pore, as tide turns in favour of indie coffee shops

Percolate buys roasted coffee from roasters in places including Singapore, Australia, Italy and Germany.

The Dutch Colony Coffee Company's co-owner Suhaimie Sukiman said that independent coffee houses, which tend to roast their coffee on-site or buy from roasters here, have a slight edge in serving quality coffee at the same prices or cheaper than the offerings from global chains.

Another edge that these independent cafes have is that they tend to understand their customers better. Mr Harry Grover, director of Common Man Coffee Roasters and Forty Hands, said: "It's always good to have an independent owner-operated store as your local coffee shop, where the barista knows your name and your order, (and it is) not just another cookie-cutter generic offering."

While this is not entirely different from neighbourhood kopitiams (food centres at public housing blocks) where the drinks stall-holders are familiar with residents and know how they want their cups of coffee, the majority of the customers at indie cafes is typically the younger set who are active online.

These customers seek the "experiential factor", Mr Grover pointed out. "People want to advertise their lifestyle on their social media feeds. This is good for us — but it also keeps us honest and we have to really deliver."

Mr Terence Ong, 26, an executive who visits independent coffee stores weekly, said of why he preferred these places: "The taste of coffee is more to my liking, as I don't like the over-roasted coffee taste that is served by most commercialised coffee chains. Also, I find the quality is generally better at independent coffee shops."

Still, Mr Suhaimie acknowledged that each cafe has a selling point, and he would still visit major chains such as Starbucks for their "ice-blended coffee".

On how customers' changing taste keeps businesses on their toes, Ms Esther Ho, director of the School of Business Management at Nanyang Polytechnic (NYP), said that food-and-beverage (F&B) chains could take a leaf from independent coffee brands, which focus on "experiences" that help command premium prices.

The bigger coffee chains could introduce unique options — such as wholly different offerings — rather than replicate stores with the same products, she suggested.

A spokesperson for Starbucks told TODAY that Singapore, where it has more than 2,600 baristas across 140 stores, remains an important market for the company. Seeing that more consumers here seek "unique coffee experiences" and to cater to this demand, the chain has introduced new products, including Starbucks Reserve coffees, which are available in limited quantities.

HIGH RENTAL COSTS

On the operations side, while independent cafes tend to anchor their businesses in public housing estates where the operating costs are lower, bigger chains such as Costa have had to contend with hefty rentals weighing down on their bottomlines.

NYP's Ms Ho said that the situation is more pronounced in F&B, as some coffee chains are located in areas with high human traffic, which fetch high rents.

Mr Gary Lin, course manager for the diploma in marketing at Temasek Polytechnic's School of Business, said that F&B businesses have had to devise new ways to retain existing customers and reach new ones. "All this means keener competition, and the need to pay higher rents for prime locations and higher salaries to keep good staff to provide a good and consistent service experience.

"Added to all these are the usual reasons of limited manpower locally or from overseas sources," he added.

Even the independent cafes are not spared the brunt of manpower shortage and high rental costs.

Mr Suhaimie said: "Rents are definitely a killer in Singapore and slow down the scalability of growth for indie (coffee shops). Developers are definitely giving prime locations… to brands that can meet their expectations of rental and this is where we pale in comparison… to commercial brands."

Apart from the rivalry with independent operators who have a better understanding of what they sell to customers, coffee chains also face competition of another sort: Sophisticated coffee machines that allow users to make their own drinks from the comfort of their homes.

Associate Professor Ang Swee Hoon from the National University of Singapore (NUS) Business School said: "I don't have to go to the outlet to drink… There must be something very special about (the store for one to do so)."

Moving ahead, Mr Grover from Forty Hands said that the F&B industry will face many challenges, with rising rents and the labour crunch posing major threats to continued growth.

"While there are plenty of new places that open, there are also many, or most, that don't survive past their first year or two."

Among those that do is The Dutch Colony Coffee Company, which now has three cafes in eastern, western and central Singapore. Mr Suhaimie said that its retail business has used about 30 per cent more coffee beans this year — up until August — compared with the whole of last year.

Mr Tan from Percolate hopes to open a second outlet within a year once it finds the right space, while Forty Hands, which started its business in Tiong Bahru, recently opened its second store in East Coast.

Mr Grover is hopeful that the coffee-drinking trend will continue to "favour the independent operators who can do a good job, as this is what the new consumer is looking for".