Flash Coffee in major consolidation amid Taiwan bankruptcy, sale of Thailand unit
FLASH Coffee has retreated from several markets, three years after it raised funding and started blitzscaling across Asia.
The company has declared bankruptcy in Taiwan, citing challenges in paying off debt due to operational difficulties.
Its Taiwan subsidiary owes at least NT$120 million (S$5.1 million) to its creditors, a court document seen by The Business Times showed. The application for bankruptcy there was filed on May 6.
Flash Coffee exited Taiwan on Mar 31, closing 10 stores in Taipei.
The company last month said it was undergoing consolidation to double down on promising markets that could turn profitable.
Its Thailand unit, which operates 46 stores, was recently bought out for an undisclosed sum by investment firm Turn Capital, which specialises in business turnarounds. The firm had passed on acquiring the Taiwan unit after evaluating its potential in April, general partner Ho Kheng Lian told BT.
In Singapore, where it is headquartered, Flash Coffee closed its remaining 11 outlets and filed for a voluntary winding-up in October.
The local entity owes about S$14.9 million to around 120 creditors, including S$13.4 million to holding company Digital Services SG Four.
Flash Coffee is part of the new wave of tech-enabled coffee chains in Asia that target the “premium but affordable” consumer segment. Within two years, it reportedly launched more than 250 stores across markets including Indonesia, Thailand, Hong Kong, Japan and South Korea.
The company’s exit from Singapore and Taiwan came amid signs that its operations were under pressure. A former Flash Coffee Singapore employee told BT that salary delays were happening “almost every month”.
A source close to the business in Taiwan said similar delays were happening for some employees there. A court document dated Sep 13 showed an estimated NT$3.7 million owed to local staff, including payments for insurance and late fees.
Aside from employee claims, the Flash Coffee’s unit there owes NT$17.2 million to its parent company, its single largest creditor. The document also showed the unit has a further NT$93.2 million in non-current debt, which Flash Coffee CEO David Brunier told BT was owed to the parent company.
Hot battleground
The company, backed by Rocket Internet and foodpanda owner Delivery Hero, is among players jostling for a share of the market in South-east Asia, one of the largest coffee-producing regions in the world.
Flash’s rivals, including China’s Luckin Coffee and Indonesia’s Kopi Kenangan, are rapidly expanding to capture a slice of the market worth US$3.4 billion, as estimated by venture builder Momentum Works.
But it is a fiercely competitive business dominated by Starbucks and other premium brands. South-east Asian countries also have their own versions of traditional coffees that are staples for many locals.
Flash Coffee targets consumers that prefer premium coffee at below the price point of Starbucks. It may have opened as many as 21 stores in Taiwan as at end-November 2022, according to a review of online archives that listed its outlets.
But analysts have pointed out that it likely struggled to gain a foothold in a market where even convenience-store coffee is known to be of decent quality.
A sample analysis by market researcher EOL Group found that nearly 80 per cent of people who bought Flash Coffee in Q4 2021 did not do so in the next quarter. The pattern could have been resulted from aggressive promotions mounted by Flash Coffee when it entered Taiwan, the report said.
Among the consumers who did not repeat their purchase, 72 per cent bought freshly brewed coffee at 7-11, and more than half bought drinks from Starbucks and FamilyMart.
Amid the company’s retreat from Singapore, a Flash Coffee spokesperson last month said most markets “show strong unit economics and future growth potential, with some nearing Ebitda breakeven in the coming months”.
Ebitda, which refers to earnings before interest, tax, depreciation and amortisation, is a profitability metric favoured by loss-making startups.
Indonesia is Flash Coffee’s largest market, with reportedly more than 90 stores. The company is going up against rivals Kopi Kenangan, which has 927 stores that are mostly in Indonesia, and Fore Coffee, which aims to have 200 stores by year-end. Both brands recently expanded to Singapore, home to one of the most active coffee-consuming populations.
Turn Capital, the Singapore-based firm that bought out Flash Coffee Thailand, plans to improve the company’s bottomline and expand its network of stores to more than 200 in the next two years.
The firm said it was attracted to the company’s brand value and the opportunity in Thailand to launch stores in strategic locations with low rentals.
“We have very strong digital marketing experience, and we have always been consumer-facing,” added Ho, Turn Capital’s partner. “These are ways in which we see our abilities being well-integrated into what (Flash Coffee) already has.”
In Taiwan, the company’s bankruptcy case is awaiting a court ruling on the date and location of the first creditors’ meeting, said James Chen of New Hope Law Firm, the appointed bankruptcy trustee.
Other top creditors holding ordinary claims include coffee machine manufacturer CMA Industrial Technologies, to which NT$1.5 million is owed; dairy products company Ming Wei Marketing, owed NT$372,000; and a landlord who is owed NT$310,695.
