Competition hot for capital’s cafés

When Sar Thida spent around $100,000 to set up a coffee shop in Phnom Penh early last year, she expected that the business would reach a break-even point in late 2019 because of the capital’s booming cafe market.

While she declines to have her franchise name mentioned, she says the first year of operation proved her right as hundreds of customers flooded into her shop every day. As it generated a good income, Thida decided to expand by opening a few more outlets.

However, to her surprise, business at her new branches was not as strong as the first. It seemed that she wasn’t the only one who was adding new cafes in the capital.

“The market is getting even more crowded as new players pop up near us and share our customers. Some outlets in good locations are fine, but some are struggling as revenue is just enough to cover operating costs,” she says, adding that she now has four branches.

The coffee business in Phnom Penh is getting more crowded as the market has seen supply grow larger than demand.

Experts in the industry say bringing in coffee franchises from abroad or establishing brands in Cambodia today is more difficult than it once was.

While no official data is available on the number of coffee shops in Phnom Penh, sector insiders estimate that there are more than 300 such outlets. Thai brand Café Amazon alone counts 104 stores.

Heng Sengly, general manager of Park Café, a local restaurant chain with 15 outlets, says the coffee business is becoming more competitive, and that entry into the market is becoming quite difficult.

He contrasted the current state of the market to the past when owners enjoyed success as long as they had proper capital. Now, he claims, businesses need knowledge and expertise.

“The booming of modern coffee shops is like a growth bubble. It will burst someday soon. Some [outlets] will die along the way and only those that offer ‘special techniques’ will move ahead.”

Several brands seem to suffer from this added competition. Thailand’s True Coffee, which had four outlets last year, now only operates one.

UK-based Costa Coffee also shuttered some of its outlets. The brand initially launched with seven branches last year, has since scaled back to only three.

Tep Virak, the operation manager of Express Food Group (EFG), which operates Costa Coffee in the Kingdom, told The Post that coffee shops are often expanded without proper market studies.

“If the number of coffee shops keeps increasing, I think there will be a problem,” Virak said, adding that entrepreneurs who saw high profits in the sector and decided to establish their own outlets have already experienced dismal numbers.

Despite the growing competition, local chains Park Café and Brown Coffee seem to be expanding operations. The former has added four outlets over the last six months and now operates 15, while the latter has also added four since last year and runs 19 coffee shops.

Brown Coffee and Bakery brand manager Chem Srey Oeun said there has been more competition over the last few years, but she does not see the market as highly competitive just yet.

“There is an increase in both demand and supply in the coffee business. The more competition, the healthier the market becomes as it will benefit customers in terms of quality and innovation,” she says.

Por Lim, the general manager of Starbucks Cambodia which operates 12 stores in the Kingdom, acknowledged that the market is getting crowded.

But he says it is not something the company considers worrisome as it has a strong customer base and is always creating new products to satisfy them.

“We are not just offering coffee. We even offer merchandise, so people can buy souvenirs. Fact is, we keep innovating,” he says.