SINGAPORE — Surprised that a humble coffee shop can be the subject of a S$31 million buyout offer? Analysts TODAY spoke to are not batting an eyelid, and for good reason, too.

The enduring popularity of coffee shops among Singaporeans, being located in densely populated neighbourhoods, the lack of new coffee shops and low maintenance costs make them an attractive investment choice, the analysts said.

Food and beverage firm K2 F&B Holdings had reportedly offered to buy a coffee shop in Jurong West for S$31 million, as reported by Chinese newspaper Shin Min Daily News.

If the offer is accepted, it would rank among the priciest purchases for a single coffee shop.

Here is a look at how other coffee shops have been valued:

• A coffee shop in Hougang sold for S$23.8 million in 2013

• Another coffee shop in Bukit Batok sold for S$31 million in 2015

• Broadway bought all 23 of S11 coffee shops in 2018 for about S$200 million in 2018. This translates to about S$8.7 million for each coffee shop.

• Kimly’s 72 coffee shops were priced at about S$284 million, which works out to about S$4 million per coffee shop.

“Excluding many other factors at play, a single coffee shop can be negotiated for up to about S$30m,” said Mr Alfie Yeo, research analyst at DBS bank.

OTHER FACTORS AT PLAY

Analysts pointed out several other factors that can affect the value of a coffee shop.

Among them are: Location, level of competition, alternative choices around the coffee shop and operating efficiency.

Coffee shops tend to have lower operating costs than other F&B alternatives, due to their lower retrofitting and renovation costs and lack of air-conditioning, said property analyst Ong Kah Seng.

“The coffee shop business is also enduringly attractive to property investors and operators as it is relatively low-risk, and most coffee shops have a ready catchment of resident-customers who live in the vicinity,” he added.

In addition, Singaporeans from all income brackets frequent coffee shops, and not only those from the lowest income group, said Dr Tan Khee Giap from the National University of Singapore.

WHAT IT MEANS FOR COFFEE SHOP PATRONS

If this deal goes through, analysts believe that owners of coffee shops with a similar profile as the one in Jurong West might be gunning for a similar price.

A lot would depend on its location, and whether there are residential estates nearby that would guarantee heavy customer flow, said Dr Tan.

The high bid prices, however, might mean that residents around a newly acquired coffee shop would find its offerings more expensive, he added.

However, Mr Yeo said that selling prices and rents still need to be around market levels for the coffee shop to be competitive.

“Buyers will need to balance between paying too much premium versus whatever reasonable returns that the asset can generate,” he added.

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