Porter Generic Strategies

Cost Leadership

The company is a leader in its channel, running one of the leading successful local chained cafés in Malaysia.

The company has more than 50% of its outlets in the state of Selangor and Kuala Lumpur region. As of June 2012, 100 out of 171 outlets in Malaysia were situated in this region. Other key cities for Old Town include Johor (14 outlets), Penang (14 outlets) and Perak (10 outlets). White Café Sdn Bhd, a subsidiary of Old Town Berhad, will bear the construction costs of a new manufacturing facility in Ipoh. The purpose of building a new facility is to increase its manufacturing operations capacity five-fold, and centralize its manufacturing operations to increase efficiency. It will cost RM37 million. The company will use cash from the initial public offering, bank borrowings and internally generated funds to finance the project. The factory is expected to be completed in the third quarter of 2012. The company plans to expand its number of cafés in Malaysia. It also plans to expand its outlets in Singapore (2012: nine outlets) and Indonesia (2012: two outlets). The company has reached the tipping point in terms of expansion, and looked to the initial public offering to gather more funds for its future plans. The company achieved double-digit growth in terms of revenue between 2007 and 2012, but has been slowing down as the size of the company and its operations increase. Usage of its own coffee brand in the Old Town outlets from its commencement was a good strategic move by the company. It is expected to grow steadily for the next few years, by increasing the number of outlets locally and abroad, and increasing the coverage of the country to export its instant products. Cost Focus

Comparative to traditional coffee shops, Old Town White Coffee positions itself in the middle of the market. A cup of coffee in Old Town White Coffee is priced at RM3.90, whereas it is priced between RM1.50 and RM2.00 in a local coffee shop. This situation is also the same for its food. Consumers choose to go to Old Town over a local coffee shop for its ambience and more comfortable seating. The company experienced strong growth since its opened its first café in 2005. Other cafés with similar styles have also grown in terms of the number of outlets, such as PappaRich, Haliam Kopitiam and Killiney Kopitiam. The company is expected to experience slower growth in the future, as it has already increased its presence by covering 11 out of the 13 states in Malaysia. Nonetheless, the company is expected to post steady positive growth.

Differentiation

The company was ranked second in chained cafés in 2011, with a 13% share of value sales. The company’s value share was the same in both 2010 and 2011. The chained cafés channel is growing in Malaysia, and Old Town White Coffee is one of the brands which is contributing to growth. The company is a leader in its channel, by being the first company to set up a chained café which follows the style of a traditional Malaysian coffee shop, but with a modern outlet design. It surprised industry players that consumers were willing to pay an upmarket price compared with local coffee shops for street food. Few of its competitors have managed to reach the level and coverage of Old Town White Coffee. Its closest competitor is PappaRich, which had 57 outlets in Malaysia in 2011.

Differentiation Focus

In 2011, the company had 78 fully-owned outlets, 16 partially-owned outlets, 85 franchised outlets and one licensed outlet (which was converted into a franchised outlet later in the year 2012). The company will probably expand the number of outlets in Malaysia using varied models, based on the demand for franchises, and whether there are suitable locations for company-owned outlets. It will expand using a partially-owned model in Indonesia, as a joint-venture was set up between PT Old Town Indonesia and a local firm.