Who are Africans in America? New York USA

Posted by Patrick Gaincko | March 29, 2017
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ACROSS AMERICA, WHO ARE AFRICANS IN AMERICA

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Who are Africans in America? Boston USA

Posted by Patrick Gaincko | March 25, 2017
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ACROSS AMERICA, TRAVEL, WHO ARE AFRICANS IN AMERICA

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Who are Africans in America? Boston USA

Posted by Patrick Gaincko | March 22, 2017
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ACROSS AMERICA, EVENTS, WHO ARE AFRICANS IN AMERICA

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How I Created Africa’s Biggest Coffee Shop: Kevin Ashley

Posted by Patrick Gaincko | March 17, 2017
Kevin Ashley Patrick Gaincko

Java House has been called “Africa’s Starbucks” by the Western press. In reality, it is not only Africa’s largest coffee shop chain, it is also an epic entrepreneurial journey and an uncomparable leadership model.  

It all started in 1999 when Kevin Ashley, a Californian, co-founded Java House in Nairobi Kenya with an investment of $60,000. From a single restaurant/coffee shop, it is today this: 55 stores, 3 countries, $40,000,000 annual turnover, 2000-plus staff, 15,000 customers/day, 10-12 new stores/year towards 2020.

As a new owner is about to be announced, I sat down with Kevin Ashley for an insightful conversation. On the menu of this extract: the difference between data and insights, the employee-centric and customer-centric organization, the birth and rise of the coffee culture, the partnership between homegrown entrepreneurs and foreign investors, the tragedy at the Westgate shopping mall from a CEO perspective, and more.

PG: The legend says that Java House was born out of your frustration. You were not finding decent coffee in Nairobi, so you started a coffee shop.

KA: And that happened literally within about eight-nine months after I started my aviation business. So, it’s a kind of serial entrepreneurial type of things…we can do this, we can do that, we started Java…

PG: There are a couple of countries in Africa that have a higher consumption or a higher production of coffee than Kenya. I am thinking of Côte d’Ivoire and Ghana. Could they be Java’s next stops at a time when it dominates East Africa and looking at expanding its continental footprint?

KA: I guess it goes like the story a Kenyan friend told me. The hyena who smells meat on that hill, smells meat on that other hill. He doesn’t know which way to go. He ends up catching no meat. There are so many opportunities in Africa that if you don’t stay focused, you become a hyena.

For sure these countries are exciting opportunities because you have similar demographics, and possibly a more robust middle class than in Kenya. And Kenya’s middle class is robust! You may not have the level of entrepreneurship that you find in Kenya, but you still find a GDP per capita that’s more progressive.

The challenge is that in each country you will have to reinvent yourself because you have to deal with cultural issues, training issues, government issues. You have to deal with a lot of things. That makes it feel it may be wiser to continue growing in the markets we have. Then, when we’re really ready, we’ll jump in those markets in a big way.

PG: How far would you have to reinvent yourself?

KA: In Kenya, where we have forty-something shops, every time we open a new shop, it takes about thirty-five staffs. So, to open that new shop, we don’t really feel the pressure on quality control because we may take one staff from each of the other forty shops and bring in trainees to fill the roles that we made vacant. But in Uganda, where we have one branch, if we open a second branch, we would have to split the thirty-five staff, bring in another thirty five, and the whole quality control goes down. The pressure for maintaining the standards as you grow from one to ten shops is the most difficult growth of all. Going from ten to twenty, from twenty to thirty and so forth, is much easier.

Opening in a new country means you would need your brightest minds leading on the ground. And that same brightest mind is probably more needed where you have more shops like in Kenya. So the question is how do you go about growing in these new markets without diluting your senior leadership at the core country level.

PG: “Can you share more data?” is a question I get asked quite often. Entrepreneurs feel or see an opportunity out there but they need measurement, validation or a roadmap to approach it successfully. But in many cases, good quality data is scarce or just inexistent. We have to work with other tools. At the end of the day, there is a difference between data and insights. In the African context, dominated by face-to-face cultures and fast-changing economies, many investors and experts question the relevance of data, prioritize on-the-ground knowledge.

You also had no data at the beginning. What made you realise that there was a potential for Java?

KA: We never thought there was a potential in Java! We opened one because we wanted a place where we could get coffee and breakfast. I was in the aviation business making a lot of money. And I had this coffee idea in my mind for years because I had lived in San Francisco where there are nice coffee places everywhere. Finally, we all agreed, let’s do it. So we put the money together to do one. With no plan that even one would succeed, let alone a second or a third branch.

Then we just started opening one branch per year for ten years without thinking there’s going to be a day with forty or sixty branches. It never occurred to us. It really occurred more when… Part of it is my then-partner who was more focused on how we could take more dividends out of the business.

When a private equity fund bought in, I was the growth guy, they bought out the other two partners. Suddenly I had someone more aligned with my thinking. I don’t have an extravagant lifestyle. So let’s just put the money in, let’s grow it. And they were like “yeah, let’s grow it”. That’s when the big change happened, when the investors came on board.

PG: So, without data, how can an entrepreneur convince investors?

KA: The data is simple. If you know it can work in Nairobi, it’s proven. You know it can work in Uganda, proven. You know it’s working in Rwanda, proven. Then… The funny thing about the Java brand, it works for the aspirational, for the middle class who want to be upper class, it works as an upper-class brand. You can go to Rwanda, we’re serving the upper class, and the middle market as it grows will want to be seen there.

We’ll grow more branches as more people adopt Java. In a place like Ghana or Côte d’Ivoire, you know the basic economics of the country are favourable, you can see it, you can go on the street like you do in your research, you look at it. Especially in Côte d’Ivoire, they have an appreciation for quality. That’s why Paul Bakery is there and they’re doing well.

The problem may be how do you modify the product a little bit for the local taste, rather than the question of would it work or not. The real question is: if I have five million to build ten new branches, where on the continent is the right place to spend them? Is it in Côte d’Ivoire or is it another ten branches in Kenya or is it in Tanzania who is closer and easier to manage from Nairobi. All these questions are going to play.

PG: The model favoured by many brands for entry and growth on the continent is franchising. Franchising has seen an exponential growth over the last decade. But you are yet to take that train. You still personally open every new store.

KA: For us, the way we look at it, is to have a local partner who is operational. Not a franchisee, not a silent partner either. Because franchising…it’s too difficult to maintain standards at this time. It might happen later. But to expect somebody to just get it and execute? This is why there’s no other Java’s.

We know how our product should look like, taste like, feel like. Someone else might like the idea of owning a Java but wouldn’t have the slightest idea on how to execute those standards, right? That’s what franchisees do. That’s what Paul Bakery does.

We won the franchising rights for Eastern Africa from Paul Bakery. Their modules for franchise and execution are very detailed, the training is good. And it’s a pretty good concept if you do a small version of Paul Bakery. But really [for Java], we’re not in a position to write and break down all those manuals and so forth. It’s specifically a French brand. France is what’s their brand stands for. As opposed to Java which is not anything, it’s American, African, Kenyan…recently we started to put African dishes in the menu. With Paul I don’t think you would be able to do that.

Coffee Java Kenya Gaincko
Java Group operates a chain of cof­fee shops/restaurants under the Java House brand, a chain of frozen yoghurt outlets called Planet Yoghurt, and a pair of pizzerias called 360 Degrees Pizzas. At Nairobi International airport, I’m capturing a duet of Kenyans making their last stop at a Java House before their backpack trip to Uganda.

PG: Another question I often receive is what conditions to look at or to put in place for expanding the business, particularly as they consider entering a new country. Something I watch closely is the shifts in how people spend, consume, circulate. There are precise moments that a business must not miss. So the “middle class growing” line is just one element among many that I use when shaping a company’s next step.

KA: Look, what I have been trying to explain to the potential buyers of Java is very similar to where America was in the eighties. Middle class families started to go out, to learn how to eat out, and that’s when you saw the rise of Applebee’s, Chili’s, Olive Garden and all these family restaurant chains where people go, sit down, they are served by a wait staff, the kids get to have their games or drawing things, mum and dad have a drink or a coffee, they can relax.

They enjoy being middle class, they’re out of the house, they’re spending money having a treat. What’s happening in Africa is that people have jumped over that part of the cycle and they’re going straight to fast casual food. Because executing this, most of the big brands are already in decline and they don’t know how to execute in Africa. Yet Africa is prime for that experience, not the fast food experience where you get a plastic tray and you have a plastic Coke bottle on the tray and you feel like “is this supposed to be a good experience???”

Maybe the spoiled teenagers, that’s what they want to do after they go out of the international school, they want to go to KFC. But the middle class want to sit down and act like they’ve arrived. The whole definition of the middle class to me is: in America, it meant that you could get a job without a college degree, buy a house, your kids could go to a local public school, get a decent education, you feel safe.

But the middle class in Africa doesn’t mean that. In many parts, they are going to private clinics and private schools, they have private security, they have high fences and bars at their windows… What type of middle class is that? They have the financial muscle but they don’t have the experiential part of the middle class.

That’s why when someone walks in at Java, they feel like “Ah, that’s what we’re talking about! We’re at home, nobody is pressuring us, we can stay as long we want”. That’s a part of the culture we built. People coming at home and they feel like we give them a good experience. Businesses have not understood that that’s what’s missing in Africa.

Businesses can create that middle class experience as long as they get the value proposition right. There’s a great opportunity. People will pay for that. It’s not even aspirational, like they want to be above the poor. They just want a decent cup of coffee in a clean place served by people who are trained. That’s it. In many parts of the continent, like you’ve described, they are ready, they have the money. But I don’t think they’re waiting for fast food, they’re waiting for someone who provides an experience.

PG: One societal feature I come across again and again is that people, as they are moving up the social ladder, want their achievements to be validated and recognized. So the dining out place serves bigger purposes, beyond the food and drink.

KA: Exactly! You’re right on it…in their achievements. Most of the middle-class folks are people who got the good grades at school, who study hard, work hard, get a decent job, play by the rules. But there’s no one to validate their achievements. They work harder than anybody in this country who get to the same level.

PG: The number of made-for-Africa investors and frontier-market investors needs to increase. Right now, it is a tight elite force made of highly experienced, smart, culture-sensitive, risk-taking, long-term-committed entrepreneurs. They are greatly needed. Some are in this club for the high rewards, others are in thanks to something running in their vein. What is it? What would it take for you to continue investing in Africa?

KA: Money is not everything. I went to Africa with nothing. I mean no-thing. When I got my first real paid job, I had fifty dollars in my pocket. I was living in a suburb of Nairobi. I had my camping gear. I didn’t know how I would go back to USA. And a guy, a Frenchman offered me a job. I made three thousand a month, four thousand a month, in two years I had saved thirty thousand to start my first business with the planes.

The idea wasn’t to become rich. I came to Africa to help, to make a difference. So I need to figure out how to channel that original motivation which is still in me, in a way that I feel energized. Now business doesn’t energize me. Business is easy.

PG: Is it?

KA: It’s a game. If you understand how these things work, you can execute and do about everything well. The entrepreneur has that sense about what works and what doesn’t work. I know how to do these things. What I don’t know how to do is to influence people to take that ability and turn it into social change. That’s a bigger challenge, that’s more exciting than how to launch the next Java.

PG: I am yet to see brandished everywhere or written in caps, Java’s big catalogue of initiatives in the realm of social impact. Many brands like to promote their good-doing. But you have a subdued approach.

KA: Part of the mystique of Java is that we under-promised but we overdelivered. First off, many brands didn’t start to talk about the good things they do until they could afford it. I used to laugh at a billboard in Nairobi talking about a company who sent two kids to college. And the billboard costs more than the tuition fee! I said to myself I’ll never tell people about the good things I do. Just be good. If you are genuinely good, people will feel it, will see it. Otherwise, making noise, in a sense, reduces your power and your brand. Because you’re taking some of the good and losing it as a currency.

I believe in Africa by Africans. I left behind Java 100% African. My CEO is African. I believe Africans need outside money though, but outside money who believes in that.

PG: Across the continent, coffee culture is growing. But I see a difference between the countries adopting coffee today, where they might jump straight to premium coffee, and the countries with an established coffee culture, where there is a varied range of coffee experiences.

KA: To me, in general the coffee culture is really growing. If you look at our growth in Kenya, from one coffee shop to forty, if you look at a very interesting statistic: Kenya produces fifty metric tons of coffee per year, of which ten are premium. Java has gone from buying a small fraction to buying almost two percent of that premium. And Kenyan premium coffee is known worldwide. Starbucks is heavily marketing Kenyan coffee in America. Well, one coffee shop in Kenya is using two percent of that premium production, that’s a lot!

Coffee has gone from an upper-class experience to a middle-class experience. Now you see more and more young people coming. They see coffee date as a better experience than a date over a beer. Kenya is in advance in comparison to, say Uganda. And it will continue to grow.

PG: You are generally credited for starting the coffee culture in Kenya. But traditionally it used to be a tea drinking country. How big of a challenge was that tradition as you were creating a new market?

KA: We definitely started the culture, I hate to say that we ‘created’ it. We were the first to focus on the market, to build a brand and focus on quality. The best coffee used to be exported, but we bought it, kept it in the country, roasted it and served it fresh.

When we started, it was for self-interest. I bet there was a bunch of people who also wanted to be coffee drinkers and they were like “we can’t get a good cup of coffee in this town”. So, let’s just start it, just create the coffee. That’s the journey of the entrepreneur, when you create something that’s been missing.

PG: Who were your first adopters?

KA: I saw a statistic some time back then. There were more Kenyans overseas getting their college degrees than all the other countries combined, except Nigeria. A lot of Kenyans have travelled. So when we started, there were a lot of Kenyans who got it. There was a base of people looking for that as well. So, it’s not like Kenyans didn’t know coffee.

PG: Once you’ve done the product, you still need to do pricing. Many entrepreneurs struggle with that process of doing the right pricing. What can they learn from how you handled it?

KA: We started with a price at around $1 for a small coffee, now we are speaking $1.40. In the eighteen years that we’ve been growing, it’s only gone up by 30-40%. The margins on coffee are very good. When you sell by the green beans, say 500 grams, you might make 50 cents, if you sell them roasted, you might make $3, you take the same amount and brew it, you can make $30. In the cup, that’s where the profit is. So you don’t need to charge $3-4 for a latte, unless you’re paying huge labour costs.

For us, it was more how much can we afford to sell it at, rather than what’s the most we can get out of your pocket. We actually look at scale, get the product accessible to a wider pool of people. We didn’t price it premium. We spent a lot on getting the pricing fair. That’s the secret. The fact that you can have shared success.

If the shareholder can get a EBIDTA margin of 23-25%, if the employees feel like they’re being treated like best-in-class in all way, the customers are getting value for money, isn’t it a beautiful world? Why should you exploit one to the benefit of another? By overpricing your customer, underpaying your staff, to think you’re going to get a better margin…everybody is going to walk away from you: high turnover of staff, poor customer service, poor value for money, because the prices don’t feel right.

You shall always make sure everyone sense that things are getting better, as a customer, as an employee, as a shareholder. I think you have to take care of the first two, and the third will take care of itself. You have to take care of the first two as your primary goals: value proposition and great experience for your staff combined, will give you return.

The problem is that people start from here [the shareholder] and try to do some engineering of those two things [customers and staffs]. If fact you have to start from here [customers and staffs] and that takes care of the numbers.

I didn’t know what EBIDTA was when the outside investors came!

westgate shopping mall gaincko
Over the years, Java House’s model for establishing its presence has been shopping malls. But not only is the company no longer present at the Westgate mall, Nairobi’s most famous mall, it is also absent at both the just-opened Two Rivers mall and the upscale mall the Hub Karen. This signals that, for its future stores, Java is considering other formats and will focus on second-tier cities, such as Kisumu. Here, a photo of the Westgate mall’s new branding as it still recovers from the 2013 terrorist attack.

 

PG: You would think that what business owners do, is keeping a close eye on those multiples and dividends day and night. On the continent, with the terrible credit situation, entrepreneurs are in greater need for fresh cash. Thus, some go into deals that make them obsessed about the return for the shareholder.

Say an entrepreneur is in front of his dashboard, what buttons should he be pushing, what numbers should he/she be looking at, to create value for all the stakeholders while at the same time getting a little bit of space for him/her to breathe?

KA: The numbers matter. I was thinking PBT (profit before taxes) because I had partners who were concerned about dividends. So the only way I could look at dividends is that I knew my depreciation amount, I knew my profit after taxes, combined with how much cash I have to use for investment, how much I have to pay back to investors.

You’re trying to grow your profits straight up, you’re not looking at things like EBIDTA or multiples or valuation. You’re constantly focused on taking care of your employees and making sure your price points are fair to your guests, looking at a continuous improvement of the culture. And the profit will take care of itself.

PG: Early on you were serious about investing in the employee. How did that come about in a geography, in an industry, in circumstances where it is not a priority?

KA: I came to Africa as a relief worker. I was a development man. You’re there thinking about human beings and the development. See, the problem in Africa is that we’re still struggling with this: we look at people either as citizens or subjects. And business leaders are aligned with the political class where they look at people like subjects, not as citizens. They’re expendable in the minds of business owners.

It’s still a culture issue where people should realize that this could be your granddaughter, your grandson working for or starting a company: how do you want them to feel that experience?

They don’t realize that if you want to scale, you cannot afford high attrition levels of staff because you’re constantly trying to retrain, retrain, retrain. You can’t grow, your quality sucks, you’re losing people, because you’re treating them badly.

PG: What’s the rotation rate at Java?

KA: 1% a month. I was reading a story recently: Chipotle have a 130% turnover per year! We’re losing 13-14% each year. And some brands talk about having a great culture. How can you have a great culture when the whole company turns over in one year? It’s impossible to have a culture! You can have a culture when 85% that were here today, are here next year.

PG: Customer service remains an under-invested, overlooked area. The only customer feedback forms that I filled in 2016 were that of the Casablanca airport and that of the Java House branch at Nairobi airport. I was greatly surprised when hearing that Casablanca airport actually collect and read the forms as they are guided by the principle of respect. What governs your focus on customer service?

KA: It started with the first shop. Customers were 50% Whites and Indians and 50% were Africans. We made a policy point that when a white family sits down here and a Kenyan family sits down at this other table, serve the Kenyan family first. So first off, we had to break that expat complex.

We were making a point that no Kenyan would feel discriminated against in our restaurant. Supposedly they don’t give big tips like the Whites do or whatever. Well, we ingrained that principle. We created a social contract between that core Kenyan customer and the Kenyan staff.

As you know Kenyans are not bling. They are socially inclusive; a CEO of a bank would want to have a conversation with a wait staff. In some other African countries, it’s “who are you to talk to me?” You are either somebody or nobody. In Kenya, everybody is somebody somehow. So we created that bond with the guests based on the culture.

You can come at Java with your laptop or your book, you can stay four hours or longer even if you buy only a cup of coffee. We don’t want you to feel pressured to go to your pocket. By doing so, more people came and emptied their pockets to us. By doing the exact opposite of what businesses felt you should be doing: upselling, upselling. “Have you tried this?”, “You want to try that?” We’re counter-intuitive, it works.

PG: In February, Nairobi saw the opening of Two Rivers, the largest mall both in Kenya and in Eastern Africa. It’s the latest addition – and not the last – to the overpopulation of malls in the country. How do you position yourself in this context?

KA: We didn’t go to Two Rivers. We’re not in Village Market, we’re not in the Hub. We’re in Garden City, Thika Road Mall, Capital Centre, Galleria, Junction, Yaya Centre. We purposely didn’t return to Westgate after the attack. To me, it was karma.

None of our people died. We had a Java and a Planet Yoghurt there. My view is that if I don’t want my own kids to go there, why would I want someone else’s kid to work there?

PG: Can you walk me through your personal experience on the very day of the attack?

KA: When the events happened, I was in California. My kids were in Nairobi. First I didn’t know where they were…they could have been in the mall. When I heard the news, I was on the phone with our yoghurt shop manager who was on the floor hiding. I could hear the gunshots.

I was telling her to make sure she had nothing in her hands, to keep her uniform on. “Don’t move because a security guard might walk in and shoot you, thinking you’re a terrorist. Stay calm, relax, keep your uniform”. Got on a plane, and 36 hours or so later, I was in Nairobi. There were still things going on at the mall. They were still unsure about killing all the terrorists. I met with all the staff, no one was hurt.

We turned our whole headquarters including my own office into a counselling center. We had the Red Cross coming. They did two weeks of individual and group counselling. Then we integrated that staff into different branches and we coached the branch managers into how to handle that. It was dramatic. Emotional.

It’s one of those things you just don’t forget. That’s part of the reason I couldn’t go back to Westgate. The human loss, the suffering…

PG: What would you respond to those who would argue that your return to that mall would mean you’re part of the revival of Nairobi centre?

KA: I agree with the fact that we shouldn’t coward and fear terrorists. But every shop owner has to make a decision. People are showing that they are not afraid of terrorists every day by going to every Java in the city. We’re making a stand already at other shops. We’re not shutting down.

We’re still doing what we do best. It’s our way of countering that. I don’t think we should look at one particular mall… That’s a place for profit. A landlord wants to make money, everybody wants to make money, we can make money in other places.

People died there. There’s no plaque, no memorial, no park, there’s nothing there! We don’t need to go back in there with a profit motive and try to make a point. It’s karma…

 

 

You’ll love GainXperience Newsletter! It’s an easy-readable, inspiring pack of exclusive, behind-the-scenes, inquisitive pieces, particularly if you like travelling and discovering. For instance, an additional extract of the discussion with Kevin Ashley is available in the next edition due early April.

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ACROSS AFRICA, FOOD & DRINKS, KENYA

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What’s Couples’ Decisions in Johannesburg South Africa

Posted by Patrick Gaincko | March 14, 2017
family shopping south africa gaincko

family shopping south africa gaincko

RETAIL, SOUTH AFRICA

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What’s Happening in Johannesburg South Africa

Posted by Patrick Gaincko | March 11, 2017
Fashion South Africa Patrick Gaincko
FASHION, SOUTH AFRICA

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What’s Being a Potential in Congo Brazzaville

Posted by Patrick Gaincko | March 7, 2017
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CONGO BRAZZAVILLE, RETAIL

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