Entrepreneurship: Leading the coffee revolution

This article first appeared in Enterprise, The Edge Malaysia Weekly, on October 14, 2019 - October 20, 2019.

I found that people who sold coffee — even in hotels — were not well trained. When I ordered a cappuccino, they gave me a black coffee with whipped cream on top. - Ngow

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In 1997, Kelvin Ngow’s company — which distributed upmarket hi-fi equipment and set up home theatres for clients — went belly up. Times were bad and everybody was tightening their belts. Even those who could afford such luxury goods were conserving cash.

Ngow was out of a job for a good six months and was slowly becoming desperate. After all, there were not many businesses you could start in a recession. And he really did not want to go back to working for the man.

About a year before that, his father Ngow Wing Hong had out of the blue acquired a coffee-related company in Australia — Coffex Coffee — from an Italian family who wanted to exit the business. The move had taken the whole family by surprise. After all, his father had built up an electrical engineering company, taken it to the initial public offering stage and exited.

With some cash in hand, the family thought Wing Hong would move into a similar business. Instead, when a friend told him about this opportunity in Australia, he flew there, took a look at the business and decided to buy the company.

When his father returned and conveyed the news to his family, Ngow remembers nearly falling out of his chair in astonishment. He had not expected his father to go into the food and beverage (F&B) business.

Although come to think of it, his grandfather used to sell crabs in Central Market and his father spent his teenage years delivering crabs to restaurants and collecting the payments. Wing Hong eventually took up engineering and did not have anything to do with F&B until that fateful trip to Melbourne.

Initially, all was well and good. It was 1996 and the Asian financial crisis had yet to hit our shores. So, Ngow started his own business and did not give much thought to what his father chose to do with his money.

But after his company closed and he was wondering what to do next, he suddenly remembered his father’s crazy investment in Australia. This was the perfect business to go into. After all, it was practically recession-proof.

“Coffee is such a basic necessity. If people cannot afford coffee or tea, what can they afford? So I said to myself, ‘Okay, I think I can do this, smack in the middle of the recession,’” says Ngow.

So, he told his father that he would start Coffex Coffee in Malaysia. It took another six months to do some market research, decide where his entry point should be, suss out his competitors and discover a gap in the market.

“When I decided to start the business, Dome and Coffee Bean had just entered the market and Starbucks was not even here yet. There was a KL Best Coffee in Bangsar and Benson & Hedges Coffee at the Life Centre was really popular,” says Ngow.

Now that he had decided to go into the coffee business, he observed it very closely. “I found that people who sold coffee — even in hotels — were not well trained. When I ordered a cappuccino, they gave me a black coffee with whipped cream on top,” he says.

Ngow also found that the customers of these businesses — cafés, restaurants and hotels — were not serviced well. “Coffee equipment suppliers were taking too long to service clients if a machine broke down. So, there was a gap in the market,” he recalls.

He had studied in Melbourne and was accustomed to the coffee culture in Australia. “And you know that Melbourne is considered the coffee-drinking capital of the world. I wondered how to get that sort of quality into Malaysia,” he says.

Ngow started a two-man company (himself and a technical person) and entered the market. He took care of sales and training while the technical guy handled machine maintenance and installation.

“In those days, I used to carry a little Gaggia coffee machine with me to do demonstrations. I carried it around, like a door-to-door salesman, so that people could sample our coffee,” he says.

“So, I know how tough the business is. I know how long it takes to set up things, get customers and service machines. We really started at the bottom.”

 

A huge breakthrough

After Ngow set up the company, he experienced a few breakthroughs that ultimately resulted in the survival and, eventually, the success of the business. “One of the breakthroughs occurred when we took over an existing company that was supplying coffee and equipment to hotels. It had about 30 clients,” he says.

“That was a major breakthrough because it is difficult to sell to hotels. Once they are on contract, it is hard to break. So, we bought the company with the biggest market share in terms of providing coffee to hotels.”

How did he manage that? “It was for sale. It was not doing well because of the recession and the owners offered to sell me the business. At the time, the company was almost broke and struggling to service clients,” says Ngow.

He went to the clients that were still on contract to persuade them to give his company six months to turn things around. “Some of them were already out of contract and on the verge of changing suppliers. I managed to convince about 90% to stick with us for at least six months and give us time to turn things around. The majority of them are still my customers today,” he says.

Ngow went all out to service these clients. “Some of them needed to invest in new equipment. So, we started being more responsive, got the machines fixed faster and supplied them with better quality coffee,” he recalls.

For many of the clients, the machines were too old to repair. “The clients did not have the money to buy spare parts. We owned the machines and leased these out to the companies. The majority of them do not buy machines, so they either rent or do a long-term lease. They buy coffee from us and we continue to maintain those machines,” says Ngow.

He scrapped the machines that were too old or if the spare parts were no longer being produced. “We have a huge warehouse in the Temasya [Glenmarie] area, where the machines are stored and some are waiting to be serviced,” he says.

Before Coffex Coffee (M) Sdn Bhd got into roasting coffee, it bought roasted beans from Australia. But in the early 2000s, Ngow decided that it was time for the company to do its own roasting.

“Our first roaster was an antique machine from Melbourne. We brought it here and played around with it. It was easily more than 30 years old. At the time, if you asked people to teach you how to roast coffee properly, they would refuse. This was before social media or YouTube, where you can learn almost anything today,” he says.

“So, we took some time trying to roast our beans. After getting the hang of it, we invested in our own roasting machine. Then, we got [Lai] Yee Fei, who used to roast for San Francisco Best Coffee, to come over. She became my head roaster eight years ago, when we bought a new roasting machine.”

When Lai came on board, the company had two machines. Now, it has three — two with a 60kg capacity and one with a 5kg capacity. “The 5kg one is used to roast speciality coffee, small batches and trial batches of beans,” says Ngow.

Coffex Coffee managed to expand as the coffee culture caught on in Malaysia. Ngow did his part to prod the industry in the desired direction.

“Back in 2006, I started the first Malaysian barista competition because at the time, I felt that the best way to promote coffee was through the voice of the barista. We created a platform for baristas to showcase their craft and passion and we let them drive the industry,” he says.

“Before the barista movement, if you wanted to drive the industry, you had to spend money on marketing, advertisements and so on. We did not want to go down that route. So, we needed a more sustainable, long-term effort.”

Ngow was also instrumental in forming the Malaysia Specialty Coffee Association. “Once we had an association, we became very much aligned with world coffee events and organisations that had the rights to the world barista competition. So, we were able to send our national barista champion to the world stage. This helped to further promote the barista movement in the country and it contributed to the growth of the local café industry.”

When the coffee movement was flourishing, he decided that it was time to get the hotels on board. “Hotels were losing ground. No one was drinking coffee there. Everyone was going to cafés. So I said, ‘Look, you need to up your game to attract customers. You need to bring your coffee to the level of the cafés,’” he says.

Weren’t hotels always on a par with cafés in terms of the coffee served? “No. At the time, hotels were all driven by price. When you negotiated contracts with them, it was all about how much you could bring down the price. Quality was not exactly their main priority,” says Ngow.

“But once their business was impacted by cafés, they were forced to look at the quality of their coffee. Because if they just focused on the price, no one was going to drink their coffee. That is not to say that hotels are the best places to drink coffee now. But at least they have improved a lot. You can get Lavazza, Illy, Coffex ... at least now, there are better choices. They are not just buying the cheapest coffee on the market.”

Ngow is proud of having contributed to the coffee revolution in Malaysia and building the market. “We needed to build the industry so that the companies could flourish and not be aggressive with one another in the pursuit of business. If we build a bigger pie and I get 10% of that pie and the others can get 10% as well, everyone will be happy. But if you do not build that pie, it will be just a tiny piece of cake and the competition will be very aggressive because everyone will want to monopolise that piece of cake.”

 

More than just a business

A little while ago, he came face to face with the social enterprise concept and it changed his thinking about how to run the business. He started feeling uncomfortable with the way the world was going and how humans were destroying everything. It came to a point where he believed that humanity’s very existence was under threat.

“So, I got in touch with the Gawad Kalinga Community Development Foundation (GK), a Philippines-based poverty-alleviation and nation-building movement. I went there wanting to know more about what they do, how they can help you contribute towards building a nation,” says Ngow.

He had observed that in many areas, the nation was breaking down, and wondered what he could do to help. “Because a nation comprises people and if people are not functioning properly, you cannot build a nation. I am curious to learn how to turn slums — which are considered improperly functioning communities — into proper communities that take responsibility for themselves and work towards becoming something better,” he says.

“It has a lot to do with self-respect, self-governance and discipline. In the slums, there is a lot of drug addiction, gangsterism, murder, rape and prostitution. Basically, it is a hopeless community. So, I was curious about what GK was doing to turn things around.”

The solution, of course, was to build a functional community that could contribute to the companies and industries surrounding it. “It is about getting your house in order, your family sorted out, eradicating gangsterism and making yourself employable. Then, the rehabilitation cycle begins,” says Ngow.

“So, that got me thinking a lot and the next phase of my journey had to do with building a social enterprise. I went for the first Global Social Business Summit held at the GK Enchanted Farm (in Angat, Bulacan, the Philippines).”

He eventually went for three of those summits. Then, he organised one for the Entrepreneurs’ Organization Malaysia, also at the GK Enchanted Farm. “How did I apply what I learnt? I did not apply anything straightaway. It was more about changing my mindset, from being just a business person to becoming a person who wants to do good while doing business,” he says.

This was not easy, Ngow admits. “To transform a business into one with social impact ... I was thinking whether I should change my business model or start anew.”

It would have been easy for a coffee-related company like his to do corporate social responsibility projects in Colombia or other coffee-producing countries. “But it would not have any connection whatsoever with local consumers when I wanted to market the product. If I told Malaysian consumers that I was helping coffee farmers in Colombia, they would not care,” he says.  

“But if I started a project here, people would know about it. They would know where Kota Kinabalu is. They would know there are coffee farms there. So, it would make more sense if I started this here, rather than overseas. I quickly latched on to the idea and said, ‘Look, I really want to do something here because I want to help Malaysians.”

In the same way, if he were to do business in the Philippines or Vietnam, he would activate something in those countries.

One of the biggest problems Ngow sees in the Malaysian coffee industry has to do with packaging. “If you look at most of the trash in the landfills, it is all packaging. A lot of it also ends up in the ocean, killing the fish. Even birds are feeding on the trash and dying. Nothing good comes out of this,” he says.

“So, we need to do something about it. I am not saying that I can contribute in a big way. I just want to do my part. If there are any solutions, I would like to know about them. I would like to support these. I do not think I can change the world, but I want to make an effort. If every single person makes an effort, we can solve bigger problems.”

On packaging, Ngow says, “Every bag of coffee has packaging material. If you look at coffee packs, most of them are not recyclable. Or the coffee cups either. We need to do something about this and figure out a solution. How do we go about collecting these things and how do we recycle them?”

Another trend in the coffee industry that he is concerned about is that every café is roasting its own coffee. “Do you know how much energy it takes to roast coffee? You need energy just to warm up the machine when you start it. Then, they roast a batch before shutting it down. Later, they turn on the machine again to warm it up and so on. That is a lot of energy being wasted,” he says.

Ngow naturally thinks that it is better to work with a larger roaster. “I am not trying to promote myself. I am just discouraging them from having little roasters. They do not need one. In fact, if they want to, they can collaborate so that one person works with the roaster and they all share the roast. This would maximise the use of the roaster,” he says.

“But if you go to Melbourne, you will see that every café wants to have a roaster. I think the whole idea is very stupid. It is completely crazy because they are not maximising the ownership of the roaster — they are not using it efficiently.”

Ngow acknowledges that his own utilisation is less than 50%. “I can use the capacity to roast another 50% for other people. For us to be efficient, we need about 75% utilisation,” he says.

He does not have children so at some point, he would like to exit the business. “I will not live forever and I have nobody to pass the business to. So, there is a possibility of an exit plan in the future. I am open to options,” says Ngow.

He has given himself five years. “Then, I can work on smaller projects that require less time and stress. The next project I would like to do could be farming or helping people solve environmental problems. That is what I would like to do,” he says.