Exploratory Study of Kopitiam Business

Exploratory Study of Kopitiam Business A new breed of kopitiam (a coffee shop in local Chinese dialects) has gained popularity in Malaysia during the past few years. In fact, there are no less than a hundred different brands of kopitiam which can be found everywhere in Malaysia with little or no differentiation. In such saturated market, lowering the prices has become common strategy to attract customers, consequently, kopitiam business has been caught up in price wars and competing under the shrinking profit margin. Thus, it leads the business with nothing but bloody red oceans. However, there are limited studies in business strategies in kopitiam businesses. Therefore, this paper aims to bridge the gap by discusses a conceptual strategy approach, particularly, Blue-ocean strategy (BOS) in kopitiam businesses. Keywords: Kopitiam, Differentiation, Red Oceans, Blue-ocean strategy. 1.0 Introduction A new breed of kopitiam (a coffee shop in local Chinese dialects) has gained popularity in Malaysia during the past few years. However, the literature review suggests limited research attempts have been made in kopitiams business strategies. Thus, the purpose of this paper is to bridge the gap and it presented in four parts. The first part begins by reviewing the history of kopitiam in Malaysia. Following this, the second section reviews the new breed of kopitiam business in Malaysia. Lastly, the last two parts discusses the conceptual approach, Blue-ocean strategy in kopitiam and its untapped market respectively. 2.0 The History of Kopitiam 2.1 The Migration In nineteenth and twentieth century, British Imperialism had brought in diverse of people, mainly from China, India and Malay Archipelago. According to Kaur (2004), the growing economic opportunities in the region such as mineral and agricultural expansion were the pull factors to Southeast Asia during that time. In the colonial era of Malaya (before independent), British had introduced the practice of segregating economic activity along with racial lines such as Chinese migrant workers to work in the tin mines, Indian migrant workers to work in the rubber plantations and Malay Archipelago to work in the agriculture fields (Arif Abubakar, 2005). 2.2 The Hainanese Factor In 1900s, the main Chinese dialects groups in Malaya are Hokkien, Cantonese, Hakka, Teochew and Hainanese. According to Lai (2010) among the Chinese dialect groups, Hainanese were the late comers and the minority of migrant group. Due to the scarcity of job during that time, the other dialect groups would take any job offered or opportunity available. They became rubber tappers, seamen, cooks and just name to it a few. Most of them worked for the Europeans. In late of 1930s, Hainanese, individually or partnership, offers their personal skills such as culinary, service, housekeeping, and management skills which they learned from European households. They started to set up new concept of kopitiam (meaning coffee shop in local Chinese dialects) and involved in food and beverage related industries like coffee processing and food catering during that time. The growth fastiqium period for Hainanese distinct kopitiam were in the late 1920s to 1950s. Hainanese coffee merchants and kopitiam operators had developed their special method to roast the coffee beans and brewed the coffee (Lai, 2010). Some of them have their secret/special recipes which served as the key attractions to retain customers. In 1960s, the success of the kopitiam business had led the newcomers from other dialect groups to venture into this business. Subsequently, competition became more intense. 2.3 The Evolutions of Kopitiam Conventional Kopitiam, the basic formula was an outlet and simple menus. They served local coffee, toasted bread with margarine and kaya (a type of jam made of coconuts and eggs), half-boiled eggs and some traditional pastries. Prices were relatively cheap with a cup of coffee and other food charged which everyone could afford. In the past, the kopitiam sole proprietor dressed his white sweatshirt and stripped pajama pants making coffee. The kopitiam was a place as social centre where men could indulge eating, meeting, drinking and chatting on anything that came to mind, light or seriously in what had become known as coffee shop talk (Lai, 2010). Normally, it would be located in strategic location of the main street, village or neighborhood. According to Lai (2010), as populations grew rapidly, some of the kopitiam expanded into modest-sized eating shops in the more strategic location nearer to the towns, village, neighborhood or others. Proprietors sell both drinks and foods or solely drinks and rented out stall space to other food operators. It was the place that customers enjoyed their breakfast, lunch and dinner. Their target customers were industrial personnel, laborers, and residents. This kind of kopitiam set up remains until today. In the late twentieth century, new breed of kopitiam chains which trade on both modernized and nostalgia approach, started to emerge. The outlets are designed with old posters feature, vintage antiques and furniture to evoke a 1960s atmosphere (Euromonitor International, 2010). In the past few years, the popularity of new breed of kopitiam has begun in Malaysia. This brand new kopitiam emphasize eating experiences by offering value-added services like free Wi-Fi access, air-conditional environment and offered innovative breakfast and lunch set-meals and more choices on the menu to fulfill every level of consumers (Euromonitor International, 2009). To remain competitive, aggressive marketing strategies and management systems are implemented. They innovate and improve their kitchens technology for preparing foods and beverages (Lai, 2010). As such, kopitiam has gained the favour of young consumers to hang out at these outlets. 3.0 An Overview of New Breed Kopitiam in Malaysia Local food beverages (FB) face some challenges which are beyond the issue of rising cost of raw materials and shortage of workers but the scene with intense competition among the food service operators. This was mainly due to the low entry barriers and switching costs of buyers/suppliers. According to Selamat et. al. (2003), the entire Malaysia food industries make up from the total of 172,252 units of food service entities which consist of food stalls/kiosk and restaurant. In the new concept of kopitiam alone, there are more than 100 brands of new concept kopitiam in the market today. Statistically, the percentage of units/outlets growth in both independent and chained kopitiam accounted for 9.1 percent and 16.1 percent in 2008 respectively (Euromonitor International, 2009). Generally, the new breed of kopitiam entering the market by integrating the old fashioned of traditional kopitiam in a more trendy, hygenic, and air-conditioned environment. No doubt that the movement of these kopitiam has successfully created a new wave of eating experiences in Malaysia. However, there is little or no differentiation against one another in terms of (1) product offerings (i.e., coffee, bread toast, and other local authentic foods) are nearly the same from one outlet to another regardless of the brand; (2) targeting the same group of consumers, for example, professionals, managers, executives, and business owners; (3) physical environment such as decoration was found to be the same among these outlets. Today, marketing tasks has become complicated and more challenging than ever. Businesses today are competing in fragmentation, saturation, and storm of novelty that exist every day in the market. In fact, when the industry become more intense, businesses will continuously increase their market share by identifying and creating niche market (Kotler Tiras De Bes, 2003); strive to retain and develop existing customers (Kim Mauborgne, 2005) which would result in finer segmentation. Thus, it ends-up creating too-small target market. Besides, the increase of commoditization of products and services leads consumer hardly to differentiate their product offerings. As a solution, reducing prices has become the common competitive strategy for kopitiam businesses as competition intensifies. According to Euromonitor International (2009) found that prices of offering items in cafes/bars (including kopitiam) will likely drop gradually. Thus, promotions such as value set breakfast and lunch with lower price can be easily found in these outlets. Commonly, we found that lowering the prices with the purpose to beat competitors, but, it is often not a wise strategy in business like kopitiam as every player can do the exactly same thing. Trout Rivkin (2000) illustrated that price is always the enemy of differentiation. Consequently, the above mentioned scenario will lead the business with nothing but a bloody red ocean. Red oceans stand for the industries that are around today. In the red ocean, the rules of the game are known as it had been around for ages. Thus, businesses tend to compete to get a bigger chunk of the pie. When this happens, the market space becomes smaller, resulting to a drain in profit and growth. As this prolongs, the stiff rivalry among the companies would turn to be a bloody red ocean (Kim Mauborgne, 2005). 4.0 Swimming towards Blue Oceans Kotler Tiras De Bes (2003) described the current market is not the same as compare to 1960s and 1970s. Typically, product is designed to fulfill consumer needs; however, consumer needs are hypersatisfied today. Kim and Mauborgne (2005) pointed that business strategies and management of the 20th century are becoming extinct as the business evolves in an industry that is changing to be a shade of red, the management has to be on its feet to think on how to make it ocean blue. Generally, blue oceans denote the new market space, new creation, and high probability for growth. Most of the blue oceans created within known markets but there are a few that are completely new industries rivalry among companies are not predominant in the blue ocean as there are no known rules to follow. Indeed, Kim Mauborgne (2005) describes the future of a company depends on how the management can create and use this new strategy. Besides, both authors indicate that 86 percent of launched business (improvement within an existing red-ocean market) which accounted 62 percent of total revenue and only 39 percent of total margins. On the other hand, the remaining of 14 percent launched businesses was in blue oceans (non-competing market space) which accounted to 38 percent of the total revenues and 61 percent of total profits. Apparently, the benefits of creating blue oceans are more promising. As more and more kopitiam will be trapped into red bloody oceans in this saturated market, hence, blue-ocean strategy is significant for the industry. Unfortunately, blue-ocean strategy is literally new to Malaysias businesses. Even though, many CEOs are aware of the existence of blue-ocean strategy but they have yet to fully understand and adopt the strategy to their businesses (as cited in Yap and Ang, 2007). Most recently, an interview session with Kotler on Getting savvy in newer media, narrated: They [Asian marketing professionals] need to improve their strategic capabilities with Blue Ocean thinking and Lateral Marketingà ¢Ã¢â€š ¬Ã‚ ¦.Companies that employ Blue-ocean strategy use innovation to find uncontested blue oceans of opportunities that their competitors have yet to discover, while lateral marketing requires companies to look beyond narrow, vertical segmentation and be creative to create fresh ideas and new markets. In response to such market, Kim Mauborgne (2005) provides set of analytical tools and framework in creating blue oceans. For example, both authors urge businesses to take a reverse course from focusing on existing customers to focus on noncustomers. By doing this, businesses are able to exploits new market space that never existed before. Air Asia, for example, a successful Malaysia low-cost airline that had identified a Blue Ocean to unlock the unaddressed market space by focusing on non-customers (i.e., the masses that cannot afford the expensive flight tickets and government employees) instead of customers (i.e., corporate and customers who can afford to buy expensive tickets) to avoid head on competition with Malaysia Airline (MAS) and other regional airlines (Lau, 2007). 5.0 The Untapped Market Knowing the nature of ones market is significant to business success. As such, the changes of cultural, social, personal, and psychological factors cannot simply be ignored in the fast-changing market. Friedman (2008) pinpoints that the world is heading to a new era called Energy-Climate Era whereas the world is currently facing three pitfalls namely, global warming, flattening, and crowding that affect all of us today. Hence, not surprisingly that sustainability has become a buzzword and being discussed by people from all walks of life. Even though, the sustainable practices are still hotly debated by both scholars and practitioners, but, this is a fundamental shift in how companies should function in this era. In fact, the contemporary environmental issue provides businesses the greatest prospect for return on investment and growth that never existed before (Friedman, 2008). However, going green is far more complicated than what we think. Numerous studies found that the main force for businesses being sustainable was mainly driven by legislation, marketing, and values (Gummerson, 1994). Typically, Malaysia is one of them from launching No-Plastic Day to stem duty exemption for green buildings and New Economic Model (NEM) that emphasize on economic growth and environment. No doubt, sustainable practices are still new to Malaysia, but, these new policies are important as a head start for Malaysia. As a result, several industries such as telecommunications, plantation, and real estate are taking different steps to balance between their business growth and sustainability. Unfortunately, sustainable practices with the initiatives to reduce food waste, water consumption, and energy consumption are literally new to the local FB industry. Revell Blackburn (2005) found that sustainability practices are considered as low priority because restaurateurs foresee their impact towards environment as insignificant. Besides, numerous studies found that low awareness of the environmental impact as one of the barriers to change (Hillary, 1995; Holland Gibbon 1997; Rutherfoorrd et. al. 2000). According to Consumer Association of Penang (2009), Malaysia restaurants discards more than 10 tons of left-over food daily with a total 490 tons carbon dioxide produced annually per restaurant. Even so, many restaurateurs have the attitude of wait and see on the environmental issues because they foresee the impact has yet to affect their business. Parsa et. al. (2005) denotes that inability to understand, anticipates, and adapt to the current market trend often lead to restaurant failures. As environmentally sustainable practices are important to todays consumers, hence, local FB industry such as kopitiam should take advantage of the opportunities by creating a win-win situation between the growth of business and sustainability of environment. Friedman (2008) indicates that, green is going from boutique to better, from a choice to a necessity, from a fad to strategy to win, from insoluble problem to great opportunity. Beside, Jogaratnam et. al. (1999) urges that restaurateurs should incorporate their business by adapting to the environmental changes and find ways to link with, respond to, integrate with, or exploit environmental opportunities. In summary, there is totally an untapped market from conventional kopitiam to sustainable or green kopitiam that emphasize on both growth and sustainability. 6.0 Conclusion There is a paradigm shift from traditional kopitiam to new concept kopitiam. The shifting has gained popularity among young generation, thus, more and more entrepreneurs venture into the business. Consequently, the business become intense and eventually turns the kopitiam business into red oceans. As such, businesses should take advantage of the blue open sea. Make itself impossible to be the target, isolate from possible followers at the same time lead them far away. The goal is to make the ocean theirs and prevent other competitors from invading it. Even so, in the long run there may be competitors that follow the same strategies making the pristine blue ocean red. The company would have to distance itself from the followers by changing their game plan to create another blue ocean.