ZUS Coffee's Southeast Asia Play: Can It Dethrone Starbucks?

ZUS Coffee, the Malaysian coffee chain, is embarking on an ambitious expansion in Southeast Asia, aiming to add 200 stores by 2025 in a region where Starbucks has long dominated. With $250 million in new funding and partnerships in place, ZUS is positioning itself as a local alternative to global giants, leveraging technology, affordability, and cultural resonance. But can it unseat Starbucks, which is grappling with financial losses and shifting consumer preferences? The answer may lie in the interplay of strategy, execution, and market dynamics.

The Southeast Asia Coffee Market: A Battlefield
Southeast Asia’s coffee market is booming, driven by urbanization and rising disposable incomes. ZUS sees this as its moment. The company already operates 700 outlets in Malaysia—21% of the domestic branded coffee market—and plans to add 150 stores in the Philippines by year-end, where it has partnered with local conglomerate Choi Garden. Meanwhile, Starbucks Malaysia, owned by Berjaya Food Bhd (BFood), is in turmoil. BFood reported a net loss of RM35.33 million for Q2FY2025, a 17% improvement from the previous year but still a financial setback. Starbucks’ global struggles—declining Chinese sales, missed store targets, and U.S. layoffs—have further weakened its brand equity in Malaysia, where an anti-Semitic boycott briefly crippled sales.

Yet Starbucks is fighting back. BFood is diversifying its portfolio, expanding Paris Baguette into Thailand and Laos while exploring Nordic markets. Still, ZUS is capitalizing on Starbucks’ vulnerabilities. Its tech-driven model, including app-based customization and localized menu items like kopi sus (sweetened condensed milk coffee), aligns with Malaysian and Filipino tastes. “ZUS isn’t just competing on price—it’s competing on relevance,” said one analyst.

(Note: BFood’s stock has dropped over 50% in the last 12 months, reflecting investor concerns about Starbucks’ underperformance.)

The New Challenger: Luckin Coffee
ZUS isn’t the only disruptor. China’s Luckin Coffee, backed by Hextar Group, plans to open 200 stores in Malaysia within three years. Armed with aggressive pricing—such as MYR2.99 beverages at launch—Luckin aims to exploit Southeast Asia’s inflation-sensitive consumers. However, its tech-centric approach may clash with regional preferences for personalized service, a strength of both Starbucks and ZUS.

ZUS’s Financial and Strategic Edge
ZUS’s parent company, Zuspresso (M) Sdn Bhd, has seen meteoric growth: revenue surged from RM900,000 in 2020 to RM204 million in 2023, with net profit hitting RM10.15 million. By late 2024, it employed over 4,000 people across 530 stores in Malaysia and the Philippines. Its partnership with Choi Garden, which holds a 35% stake in ZUS Philippines, gives it a foothold in a market where Starbucks has just 3 stores.

(Note: 2020: 0.9 → 2023: 204)

The Calculus of Success
ZUS’s strategy hinges on three pillars:
1. Localization: Adapting menus to regional tastes (e.g., adding halal certifications in Malaysia).
2. Tech Efficiency: Streamlining operations via apps to reduce wait times and improve customization.
3. Affordability: Pricing beverages 10–20% lower than Starbucks, which is critical in inflationary markets.

Yet risks loom. Luckin’s price war could erode margins, while Starbucks’ recovery from the boycott—sales have shown tentative growth—might reignite its dominance. Meanwhile, ZUS faces competition from local rivals like Gigi Coffee, which grew from 36 to 160 outlets in Malaysia and posted a RM4 million net profit in 2023.

Conclusion: A Golden Opportunity, But Execution Is Key
ZUS Coffee is in a prime position to capitalize on Starbucks’ misfortunes and Luckin’s growing pains. With a 5% annual growth forecast for Malaysia’s coffee market (projected to hit RM1 billion by 2029), there’s ample room for multiple players. However, ZUS must avoid overexpansion and maintain its operational edge.

The numbers are compelling: ZUS’s 2023 net profit of RM10.15 million on RM204 million revenue suggests a healthy margin, and its 150 new Philippine stores alone could add significant scale. If it replicates Malaysia’s success—where it commands 21% of the branded coffee market—across Southeast Asia, ZUS could become the region’s top coffee chain by 2025.

Investors should watch two critical metrics: ZUS’s store openings in the Philippines and BFood’s ability to stabilize Starbucks’ performance. With Luckin still struggling culturally and Starbucks financially wounded, ZUS’s localized, tech-savvy approach may just be the recipe for victory in Asia’s coffee wars.