By G. Sharmila
When ex-banker Abdul Rahim Zin decide to venture into the coffee business, he had no idea what he was really getting himself into. Here, he shares with KiniBiz details of his tumultuous journey and what he has learned from it.
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Most entrepreneurs will tell you that their venture into entrepreneurism was fraught with many ups and downs, trials and tribulations that made them wiser and deepened their passion for their business.
Things weren’t much different for former banker Abdul Rahim Zin, who ventured into the coffee business during the global financial crisis of 2008. Having been in banking for several years (he was even chief executive officer of Bank Pembangunan at one point), he was confident that success in the coffee business was more or less a sure thing.
Abdul Rahim Zin
“After working long hours with banks, I felt like going into a lifestyle business because I associated it with retirement,” Abdul Rahim admits during an interview with KiniBiz recently, when asked what attracted him to the coffee business.
The fifty-one year old is chairman of Lyndarahim Ventures Sdn Bhd, the owner and operator of local coffee chain San Francisco Coffee (SFC). He is quite frank about why he took over the coffee chain.
“In 2008, I came into the picture because the company had grown too fast and was mired in financial difficulties. It looked like a good opportunity to come in at a low entry price because the brand had already been established and had patents and operations,” says Abdul Rahim. “But it has not been an easy business, the company had a lot of operational issues and people issues. Competition was and is very keen,” he adds.
According to Abdul Rahim, SFC was founded by an American from San Francisco called Robert Boxwell. “He came to Malaysia on a management consulting assignment for Petronas and noticed the coffee culture was non-existent in Malaysia so he decided to start a business with friends in 1997,” explains Abdul Rahim.
“SFC was the first gourmet coffee franchise in Malaysia, even before Coffee Bean and Starbucks came to Malaysia. Boxwell expanded the franchise to 10 stores, bringing it to Singapore, Hong Kong, the Philippines and in Japan he bought over Seattle’s Best Coffee,” he adds.
“By the time I came into the picture, the company had either shut down or sold the outlets so the ones remaining were in Malaysia and Singapore. I had been a banker for close to 20 years, I thought that it would be a pure corporate finance exercise to turnaround the company but it turned out to be more difficult than I could handle,” Abdul Rahim says.
His initial investment in the business was RM800,000 to take over the business, with a total of RM5 million investment in the business to help it stay afloat. “There was a big gap between expectations and reality for me. At the time I took over, it was the height of the global financial crisis and I thought I wouldn’t have to use all of my money. Just before I completed the purchase of the business, I was unable to get funding for acquisition and working capital. I couldn’t get creditors to extend their credit so I had to use the money to pay off creditors,” Abdul Rahim explains.
His next move was to license out five SFC outlets to raise cash and get the business going. Licensing out the stores helped stabilise the business, he adds.
Getting it wrong first
Abdul Rahim acknowledges that his initial approach towards the coffee business was wrong. “I went with my own instincts and made the decision to expand the business and open new stores. I invested a lot of money in this instead of looking at demographics and this didn’t turn out well. Sales went down,” he says.
A double whammy hit when a renowned coffee chain opened an outlet around the corner from Ampang Point, where SFC had an outlet. Due to competition from the more established competitor, they had to close down the Ampang Point outlet.
“We decided to open outlets in new malls, again I was wrong and sales didn’t pick up. We ended up having to pull out of IOI Mall in Puchong,” he recalls. To a question on how the repeat failures took its toll on him, Abdul Rahim quipped: “Berat mata memandang, berat lagi bahu yang memikul” (loosely translated to mean the bearer of the burden suffers more than the observer who empathises with him or her).
Was there a time when he felt like giving up? “Many times I wanted to give up, especially every time Sue San (the SFC general manager) reported to me we needed more cash,” he laughs.
“But I persevered, I knew that there was going to be a solution at the end of the day. My advice to people who are really serious about business is that you need strong cash flow to withstand teething issues in the business,” Abdul Rahim adds.
What did he learn from his early experiences? “They taught us valuable lessons. If I had had the benefit of foresight, I wouldn’t have done things this way. In the end, I had to let a few people go and improve the company’s cash flow,” he says.
Attracting investors
Under his leadership, SFC finally registered a positive cash flow. “When we started to have positive cash flow in 2010, I started approaching investors such as Ekuinas, which at the time wanted to set up a food and beverage group of businesses,” he says.
Ekuinas, short for Ekuiti Nasional Bhd, is a government-linked private equity financing firm which invests in high-growth businesses. “We needed fresh capital and managed to convince Ekuinas to invest in us, which helped a great deal,” he said.
Ekuinas, which invested in SFC in September 2011, pumped in RM17.5 million into the coffee franchise in return for a 90% stake in Lyndarahim Ventures. Abdul Rahim owns the remaining 10% stake in the company. The total committed investment by Ekuinas in SFC is RM33 million.
After Ekuinas entry into the company, SFC closed down its outlets in Singapore upon their advice. “Singapore was a good market but the rent went up and we didn’t have enough resources to take care of operations. We had three outlets but it didn’t make sense to keep them so in late 2012 we exited Singapore,” Abdul Rahim explained.
“Now that we are on the cusp of turning around, Ekuinas would rather invest new money in the Klang Valley outlet operations,” he says, adding that he expects the coffee chain to break even this year. SFC currently has 35 outlets located in the Klang Valley.
In our next article, Abdul Rahim shares his thoughts on the coffee business and plans for SFC.
Tomorrow: SFC today and the road ahead
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