The Ministry of Domestic Trade and Cost of Living has set a target for the country’s franchise industry to grow between 20% and 30% in 2023, driven by encouraging prospects for the sector, despite the current economic challenges.
In keeping with this call, Kopitiam Asia Pacific Sdn Bhd, the franchise owner of the OldTown White Coffee café chain, has announced it plans to open 50 new outlets across Malaysia and South East Asia this year. Founded in 2005, OldTown White Coffee’s F&B brand currently operates 180 stores across the country, as well as outlets in Singapore, Indonesia, and Hong Kong.
Speaking to BusinessToday exclusively, Kopitiam Asia Pacific Sdn Bhd CEO Dawn Liew said it is all about returning to our pre-pandemic levels in terms of revenue earned in 2019 because the last three years have been spent in survival mode, as revenue was largely flat from 2020 to 2021.
Improving Franchise Revenue
OldTown White Coffee, which is a franchise driven business, saw full recovery in 2022 but the brand has not reached the revenue streams attained during pre-pandemic levels. “Over the 15 years in business (2005 to 2019) we have never experienced a negative year. So, it was quite an unexpected journey from 2020 to 2021,” said Liew, adding, 2022, was a good sign as the business returned to profitability, not only for us but for majority of the brand’s franchisees and outlet owners. It means that we are on the road to recovery.
In 2023, the company aims to ‘to achieve parity with our pre-pandemic levels’ by promoting franchisee growth, our own corporate store openings as well as our international licensee growth. And, this is meant to be done in a sustainable manner. OldTown, has set key milestones in three areas which are improving business sustainability through diversity, equity, and inclusion, returning to pre-pandemic revenue, and balancing profitability with our ESG goals.
The company is targeting growth in Malaysia’s northern and eastern suburban regions as it seeks to provide new customers with ‘a choice of Asian-style products they can rely on’ and to set up more OldTown outlets in Perlis, Kedah as well as East Coast states like Kelantan, Terengganu, and Pahang.
It’s important to note that within the set targets, the company, along with the franchisees (franchise owners), employs in excess of 2,000 people.
Tremendous Support
Liew said since the brand began its venture into the franchise industry, support from the ministry and other interrelated agencies has been tremendous. In Malaysia the franchise industry is robust very much due to the support that is given by the Ministry of Domestic Trade in setting the course for the industry and the various initiatives taken to develop Malaysian franchise brands. Key efforts realised by the ministry, the Malaysian Franchise Association (MFA) and other agencies were to facilitate loans to raise working capital for the franchisees to start their own businesses along with various grants based on their eligibility.
Unlike many countries, I think they have been super supportive in the sense that the ministry and agencies conduct various initiatives to promote franchising and the companies involved across local and international markets via exhibitions, online webinars and the programmes run by the MFA, specifically. They have created a viable ecosystem which goes beyond supporting the franchise industry in this country to create demand and trade, not to mention opportunities for Malaysians to take on franchising as a business endeavour.
Franchising is all about minimizing the risks for both, franchisors, and franchisees. It’s about growing the business through centralised management of a business model to provide franchisees with a system to follow without having to build a brand from scratch, as well as an infrastructure to support the business.
Liew shared that many underestimate the objectives and effort it takes to set up an SME brand, for example. It’s not just about cooking great food and setting up shop, that’s not all it entails. Franchisees get to participate in a reputable business with a reputable brand at a fraction of the cost.
It’s about getting into a business that one may or may not be familiar with, it’s guided by a franchise owner, who has got the capacity, knowledge, capital, and a track record. It’s safer for a franchisee as major risks are undertaken by the franchise owner.
The fact is that not all franchisees have got experience in a particular business that they want to start compared to a franchise owner. It’s always better to have a franchise which already has a brand and product that is recognizable. It’s always good to find a franchise brand that a person or franchisee is passionate about and not just pick one off the shelf because you think that it will give you the better returns, because it’s not all about the money.
The other benefits of franchising are the lower capital investment and the payback periods into a business which many find to be a big hurdle to cross. A franchisee needs to pick a business that they have passion for as well as the ability to commit their time and effort. In terms of branding and marketing, choose a franchise or franchisor that has got clear visibility in the market, that is not afraid to spend it’s A&P funds and cares enough about the brand to have a vision for it.
OldTown has also made strides in terms of creating more Bumiputra ownership as franchisees. Franchisees have grown by 56% since 2019 with the outlet count increasing by 120% for Bumiputras. “Over the last couple of years, people have begun to diversify their interests, and I think the pandemic has really made people look inwards as to what exactly they want to do with their lives,” said Liew, adding that there are franchisees who own unrelated businesses who have come onboard as they see the opportunities to diversify within franchising.
On a related point, we had our central kitchen and bakery certified from the get-go. Its Halal certified by JAKIM and we began certifying the outlets from 2011. Halal governance and OldTown’s compliance system is also aligned to the global HACCP standard, which manages health, hygiene, safety, and critical control points from the point of origin of raw materials, processing, packaging, and distribution.
OldTown’s ESG Initiatives
OldTown emphasises greater environmental social governance in focusing on being environmentally sustainable in line with the UN’s sustainability goals. The outlets have Energy Management Systems to regulate electricity so as not to overuse the resource aside from the use of Environmental initiatives like solar panels at our production facilities.
The company is working on reducing the Co2 carbon emissions footprint through better fleet management and using electric vehicles.
The company will continue to source for packaging which is 100% recyclable and/or compostable. This also extends to managing the type of cutlery used in outlets. We are also evaluating the direction practiced by EU nations to move away from single-use cups. The company has also signed on to an Animal Welfare policy globally which promotes humane treatment of livestock and works closely with Humane Society International towards this goal.
OldTown is a successful franchise industry leader in Malaysia, and their outlets are sustainable to the extent of being bankable, and even handed to the next generation of franchisees as part of a business inheritance, Liew shared.
Malaysia Franchise Association’s (MFA) Role
The Malaysian Franchise Association was formed in 1994 to support the implementation of the Government program to promote entrepreneurship through franchising and development of franchising in Malaysia. MFA serves as a resource centre for both current and prospective franchisors and franchisees, as well as for media and the public.
Among the main functions of the MFA are to set and enforce standards of ethical business amongst members, act as a registry for information pertaining to franchise business operating or intending to operate within the country, coordinate and offer educational programs, seminars, and exhibitions specially oriented to franchising matters.
