Core Tips:
1. Phoenix.com's "Eye of the Storm" contacted a number of affiliates and insiders in an attempt to restore the secret behind Cudi's rapid expansion. For example, in order to attract merchants, they use outdated data when attracting investment, and in order to increase the speed of expansion, they outsource investment positions and promise high commissions.
2. Even if the traffic does not meet the requirements of opening a store, Cudi Coffee has a way to deal with it. Investment promotion personnel can apply for special approval to open stores on the grounds that the traffic meets the standards after on-site inspection.
3. On March 1, 2024, after the salary reduction of the managed store manager, some store managers even openly bought Luckin Coffee during work and put it on the counter of Cudi Coffee store.
4. Since the end of last year, Cudi has begun to implement the strategy of "job transfer and layoff". Employees who were originally responsible for store operations were transferred to the investment promotion department with lower salaries, and once the investment promotion effect was not good, the company would dissuade them on the grounds that the performance did not meet the standards.
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Produced by Phoenix.com's "Eye of the Storm".
Text: Li Xiaoguang Editor: Wen Hua
Breaking news complaint email: [email protected]
01 The data is not real at all
In March 2023, Wang Ze was in full swing preparing for the upcoming opening of the Cudi Coffee store, but an unexpected discovery made him fall into an ice cave: the traffic data provided by Cudi's investment promotion staff was very different from the actual situation.
His store is located in a prosperous area of Jingmen City, Hubei Province. Merchants had sworn to tell him that the resident population around the store was as high as 8,630, including 3,227 residents and 5,403 workers, and also emphasized that there were 1,500 workers in nearby office buildings, which were potential coffee consumers.
However, when Wang Ze personally visited and investigated, he found that in the office building with high hopes, there were actually only two or three hundred people working. Most of them are engaged in e-commerce and gym-related businesses, "The salary is not as high as our store manager, how can they come to drink coffee every day?" ”
In the face of this huge data discrepancy, Wang Ze quickly reported the situation to the investment promotion personnel of Cudi Coffee. However, the other party's response surprised him. Not only did they not give a reasonable explanation, but they used a kind of sales tactics to exert pressure.
In fact, this data comes from the third-party traffic evaluation software used by Cudi Coffee, which is also an example of how hard Cudi Coffee is to be technology-driven. The software appears to be a powerful tool that evaluates a location based on a combination of factors such as resident population, gender, stage of life, education, spending level, mobile phone prices, and traffic indices on holidays and weekdays.
However, Li Hua, who was in charge of the audit of Cudi's stores, revealed to Phoenix.com's "Eye of the Storm" that the data used in this software came from a few years ago, so its accuracy is questionable.
But Cudi Coffee doesn't seem to care. In order to pursue the scale and speed of opening stores, they still put these inaccurate data in front of their affiliates as an important reference for site selection.
Even if the traffic does not meet the requirements of opening a store, Cudi Coffee has a way to deal with it. Investment promotion personnel can apply for special approval to open stores on the grounds that the traffic meets the standards after on-site inspection.
This practice has led to the opening of Cudi coffee shops in places where there is a significant lack of foot traffic, such as large home furnishing sales establishments such as Red Star Macalline and Actually Home on the outskirts of the city. Li Hua questioned: "There is almost no traffic in these places on weekdays, how long can the store last?" ”
To make matters worse, Cudi didn't do area protection for the point. Wu Haiming's store is in a shopping mall in Shanghai, but only half a month after opening, Cudi Coffee actually opened a directly-operated store in the office building of the same mall, and the distance between the two stores is less than 50 meters.
On social platforms, many affiliates have complained about Cudi Coffee's store opening strategy. Someone said that less than a month after its store opened, another Cudi coffee opened 170 meters away. Others said that there were already 2 Cudi Coffee competing within 1 km of their store.
In fact, there is a big information gap between the affiliates and Cudi's investment personnel, largely because Cudi Coffee's focus is more on the growth of store size than on the quality of stores, and the growth team (note: the team responsible for investment promotion) once had a lot of outsourced personnel.
A third-party person who does franchise training revealed that when Cudi was just starting out, many third-party companies he knew were helping Cudi attract investment, and the incentives were also very generous. "Every time a new store is opened, the investment promotion staff can get a commission of more than 10,000 yuan."
To a certain extent, this commission system, which is based on the number of stores opened, has prompted investment promotion personnel to pursue the speed of opening stores too much, and ignore the quality of site selection and the interests of associates. According to the above-mentioned third-party source.
Cudi Coffee seems to be going further and further on the road to scale, and it has set a new record for the development of coffee stores: 7,000 stores in just 14 months! That's faster than Luckin and Starbucks. But behind this frenzied expansion lies huge risks and problems.
Unlike the traditional franchise model, Cudi's affiliate model does not charge fixed fees such as franchise fees or brand usage fees, but adopts the form of gross profit sharing with affiliates. Cudi Coffee said that this model is risk sharing and benefit sharing with affiliates. But in fact, the biggest bearer of the cost is the associate, the store's rent, decoration costs, material costs, and employee salaries all need to be provided by the associate, once the site selection is poor or the operation is not good, it may lead to huge economic losses.
At critical moments, the sacrifice of the interests of affiliates in the pursuit of scale can be seen everywhere. Li Hua said that according to regulations, store drawings must be handed over within three days, but many designs are unrealistic. For example, some venues can only have one coffee machine, but the design drawings put two, which brings a lot of problems to the decoration. "At the end of each month, the leaders urged us to complete the approval quickly, and as a result, some coffee shops didn't even have the money to buy coffee machines, but they got the approval to open." These stores that are not ready are counted in the total number of stores and become Cudi's promotional tools.
02 The daily sales are less than 400 cups, and you can't make money
If it is only the externalization of Cudi Coffee's ambitions, but the follow-up problems caused by careless site selection will make the affiliates bear a heavy shackle.
Four months after running through the investment promotion, in February 2023, Cudi launched the "Coffee Carnival in 100 Cities and 1000 Stores" event, and more than 70 products were promoted from 9.9 yuan, which has set off a "low-price era" in the coffee industry. Not only that, Cudi then launched marketing activities such as "8.8 yuan for any point of the whole site" and "1 yuan for new customers to drink coffee", which set off a price war for Cudi coffee, which was directly aimed at Luckin and directly pulled the price of coffee below 10 yuan.
According to the investment information of Cudi obtained by Phoenix.com's "Eye of the Storm", according to the daily sales of 400 cups and the monthly rent of 15,000, the overall cost of a cup of coffee is 9.55 yuan, which is broken down into: raw material cost of 5.40 yuan, rent cost of 1.25 yuan, labor cost of 2 yuan, depreciation cost of 0.60 yuan, and water and electricity cost of 0.30 yuan.
However, the reality is that due to the careless location selection, many stores have little foot traffic around them, and it is difficult to reach the expected 400 cups per day. Wang Ze mentioned that Cudi's operations manager had shared sales in the Yangtze River Delta and Pearl River Delta regions in the consortium group, and he noticed that his store sold 200 cups a day, ranking among the top 30 among thousands of stores in the entire region at that time.
This also means that a cup of coffee costs more than 9.55 yuan in most regular stores.
Wu Haiming also calculated an account for Phoenix.com's "Eye of the Storm": the cost of raw materials for each cup of coffee is between 6-7 yuan, plus the labor cost of 2.3-2.5 yuan per cup, and then considering the daily operating costs such as rent, water and electricity bills, and property fees, the total cost of each cup of coffee actually exceeds 10 yuan. Even though Cudi's current price has risen, the price of 9.9 yuan still makes many stores face the dilemma of losing money every time they sell a cup.
Cudi Coffee's investment materials also make a comprehensive demonstration of cost and profit, in the case of a single cup of 16 yuan, different rents correspond to different daily profit cups. For example, if the monthly rent is about 15,000 yuan, then you need to sell at least 88 cups of coffee a day to break even. If the monthly rent is 20,000 yuan, you need to sell at least 108 cups per day.
Cudi Coffee's investment promotion data also gives a detailed calculation of the profitability under the average price of different cups according to the daily sales of 400 cups.
Cudi's break-even model, while well conceived, is out of touch with the current state of the market. In reality, it is difficult to reach the 16 yuan in the model, and Yang Bo, an associate in a small county town in Anhui Province, told Phoenix.com's "Eye of the Storm" that customers who come to the store are mainly inclined to consume 8.8 yuan and 9.9 yuan, and the slightly higher price of goods is not sold well.
In order to retain associates, Cudi offers a series of subsidy policies. For example, if the sales of a single store are less than 9.5 yuan per cup, it can be subsidized to 9.5 yuan, while multiple stores can enjoy the policy of subsidizing 10 yuan per cup, and secondly, for stores with a rent of more than 15,000 yuan, Cudi also provides an additional subsidy of 1 to 2.5 yuan per cup. In addition, if the store is within 300 meters of Luckin Coffee, there is an additional subsidy of 0.5 to 1.5 yuan per cup, depending on the distance.
The "price war" spearheaded by Cudi Coffee was also counterattacked by Luckin Coffee. In June 2023, Luckin stores will exceed 10,000 stores, and the official announcement will be the start of a nationwide 9.9 yuan discount promotion, and consumers will receive a 9.9 yuan coffee coupon once a week.
Although Cudi Coffee claims that the short term is still for promotion and brand building, this stage can be very long. After Luckin Coffee announced that the low-price discount campaign would last for at least two years, Cudi Coffee also adjusted its subsidy policy.
Phoenix.com's "Eye of the Storm" learned that previously, the subsidy policy announced by Cudi Coffee lasted until December 31, 2024, but on April 29, Cudi Coffee announced that the current store subsidy policy would be extended to December 31, 2026.
In the eyes of many franchisees, the real initiative in this war still seems to be in the hands of rival Luckin Coffee. "The profitability of Cudi Coffee depends largely on Luckin Coffee's marketing strategy, especially whether it chooses to subsidize it." "No one wants to spend hundreds of thousands of dollars to open a store, and then have to prepare hundreds of thousands of dollars to continue to lose money."
"To put it bluntly, we're running for Cudi Coffee," said Yang Bo, an associate of Cudi. In his opinion, it is only possible to make a profit when the price of coffee rises to 15 or 6 yuan per cup and 250 cups can be sold every day. "However, once the price is lowered, it will be difficult to raise it again," he said helplessly, and his store can barely sell more than 200 cups a day.
03 Ambiguous store closure rate
In the fierce battlefield of the coffee market, the risks of frenzied store opening are also increasing. Although the low-price strategy of chain coffee brands can attract customers, many Cudi coffee affiliates still feel that life is not easy.
In June 2023, during the peak coffee consumption season of the year, Wang Ze made an unexpected decision - he wanted to transfer the Cudi coffee shop, which had just been open for two months. His logic is very simple, the density of Cudi stores is getting bigger and bigger, and it will be more and more difficult to make a profit, "the sooner you get rid of it, the better, otherwise you may not even have the opportunity to change hands in the future." Although he lost nearly 100,000 yuan in the end, Wang Ze felt an inexplicable relief.
Less than 7 months after the store opened, in September 2023, Wu Haiming also chose to close the store. In the early stage of renting a storefront, decoration, buying equipment, raw materials, etc., he invested as much as 420,000 yuan, but since the nearby direct store and Luckin reduced the price to 9.9 yuan, the average daily sales volume has dropped from 800 cups to 300-400 cups.
The monthly rent, manpower, property fees, garbage fees, warehouses and other costs add up to more than 60,000 yuan, "I can't see any hope of making a profit, so I have to close down." He bluntly said that the main problem of Cudi Coffee is the excessive pursuit of speed and capital market data, and the neglect of the symbiotic relationship with franchisees.
Yang Chao's Cudi coffee shop was in business for 10 months before moving out in February this year. This decision cost him nearly 400,000 yuan. On major social platforms, there are not a few posts about the transfer of Cudi's stores, and they don't want to play with Lu Zhengyao anymore.
Phoenix.com's "Eye of the Storm" once consulted the person in charge of Cudi Henan Investment Promotion in an anonymous identity, and the other party said that the store is not closed at present, and the changes are basically relocated.
The people in charge of investment attraction at Cudi Coffee seem to be trying to avoid the "real" store closure figures. Phoenix.com's Eye of the Storm failed to get a direct response from Cudi Coffee. However, in the eyes of at least 4 associates contacted by Phoenix.com's "Eye of the Storm", two of them chose to close their stores, and two of them transferred their stores.
The monitoring data of the Jihai brand on April 28 this year is more intuitive, and the number of stores closed by Cudi Coffee in the past 90 days is 250, which is equivalent to nearly 3 stores closed every day. Comparatively speaking, the total number of stores is more than twice that of Cudi Coffee, and Luckin Coffee has only closed 89 stores in the past 90 days.
On the one hand, there are many affiliates who have closed their stores and left, and on the other hand, Cudi Coffee's vague store closure rate. This also makes the team that has successfully built the brands of Shenzhou Travel, Shenzhou Limousine and Luckin Coffee face a lot of doubts. Although their past wealth narrative has attracted many people who sell insurance and run fruit shops to become associates, these inexperienced associates are experiencing a big swing in the face of many complex factors.
After being attracted by the business aura of Lu Zhengyao's team, many people found that this was a process of burning money with Lu Zhengyao, and they could not see the prospect of making a profit, and they were worried that they would become a "companion runner".
04 Salary cuts, layoffs, and store managers have resigned
Based on the small profits of the associates, Cudi Coffee also seems to have begun to "reduce costs and increase efficiency".
In order to ensure that people with less experience join Cudi Coffee, Cudi has launched a "hosting model", where the head office hires an agent manager to manage the store. This is also the main model outside of the self-operated model of the associate.
But since March this year, Phoenix.com's "Eye of the Storm" has learned that the "custody model" has existed in name only, and there are cracks in Cudi Coffee's self-proclaimed "benefit sharing" - Cudi Coffee has reduced the performance commission ratio of the custodian store manager in an all-round way.
Chen Nan, who has been the manager of the custodian store for almost a year, is the most impressed, and since Cudi Coffee began to adjust the salary of the custodian store manager this year, her monthly salary has dropped by nearly half.
The salary of the managed store manager is mainly composed of the basic salary and the performance bonus, usually the basic salary is taken care of by the affiliate, and the performance bonus is paid by Cudi. According to the new performance appraisal scheme, only store managers who sell 350 cups or more on the day are eligible for bonuses. But Chen Nan's store can only sell 200 cups a day, even in peak season.
This means that she does not receive Cudi's performance salary at all every month, and can only receive a basic salary of 5,300 yuan from the associate.
According to the previous incentive policy - specifically, entering the top 10% of the country's stores can get a bonus of 7,500 yuan, the top 20%, 30%, and 40% will receive 5,000 yuan, 4,000 yuan and 3,000 yuan respectively, and even the top 50% of the stores have a bonus of 2,000 yuan - Chen Nan's monthly salary can easily reach eight or nine thousand, and even more than 10,000 yuan is also common.
Even though the company later offered a package with a monthly salary of 6,800 yuan but not social security, it failed to retain her. After mentioning his resignation in early March, Chen Nan completely let go of himself, and even openly bought Luckin coffee during work and put it directly on the counter of Cudi Coffee store.
Even when eligible for performance incentives, salaries have shrunk dramatically. In the case of Liu Lin's store, the performance plan of his store is now based on 10% of the profit. But Cudi's low selling price, limited profit margins, and performance can't be compared to the past.
"I work six days a week, only one day off, and I work hard to make profits, and my monthly salary is theoretically more than 6,000 yuan." Liu Lin said helplessly. In the past, his store sales ranked among the top 10% in the country, with a monthly income of more than 10,000 yuan.
With the adjustment of wages, the custodian store manager has to sign a labor contract with the associate, the store manager has to listen to the command of the associate, and all wages are paid by the associate, and the custodian model has existed in name only.
Although Cudi officially declared that "the purpose of the performance adjustment is to focus on the operating profit of the store and fully stimulate the ...... of ownership and consciousness of employees", Wang Ming, the manager of the custodian store who also chose to leave after the salary plan adjustment, has a different view. He believes that behind this adjustment may be the tension of the company's capital chain.
Wang Ming has long sensed signs of the company's financial constraints. Since the end of last year, Cudi has been implementing a strategy of "job transfer and layoffs". According to Wang Ming, "because many operators are not familiar with investment promotion, once the investment promotion effect is not good, the company will dissuade them on the grounds that the performance is not up to standard." ”
This adjustment not only affected the grassroots staff, but also the store managers who had been responsible for the opening acceptance of new stores and recruitment and training. All of them were demoted to regular store managers, and if they could not accept the change in position, they had no choice but to leave.
After more than a year of expansion, Cudi is now trying to find ways to reduce costs and ease financial pressure to stay afloat. But Cudi still has a lot to consider, such as the most critical supply chain issue.
In the coffee industry, a stable and efficient supply chain is essential for the health of the brand. Previously, due to the unstable supply chain, the shortage of goods or the frequent replacement of supply chain brands also affected the cost control and worries about the future of the associates.
In July last year, Cudi announced that it would invest US$200 million in Ma'anshan, Anhui Province, to build a supply chain base in East China integrating R&D, production and quality control. The base, which is expected to have an annual production capacity of up to 45,000 tons, was originally planned to be put into operation in the second half of the year, covering coffee bean roasting and food processing.
However, the progress of the project was far less smooth than expected, and the production date was repeatedly postponed, and it was not until January 30 this year that the first project, "Kuyi Packaging", was barely put into production. On April 29, Cudi announced that the Anhui supply chain base was officially put into operation. However, Phoenix "Eye of the Storm" learned from people familiar with the matter that until mid-April, only 90 of the 120 workers needed for the Kuyi packaging production line were successfully recruited. The rest of the projects have not yet been put into production.
Although Cudi announced that it would invest $200 million to build a supply chain base, the reality is that the money will not be invested in a one-time investment, but will be invested over 10 years. Many projects are still in cooperation with supply chain enterprises, taking Kuyi Packaging as an example, its main company, Kuyi Packaging (Anhui) Co., Ltd., is jointly held by Cudi and Beijing Hayi Packaging, with a shareholding ratio of 60% and 40% respectively. The latter's main business is to process and manufacture paper cups and paper plates.
Whether it is from the associate model or to the supply chain base, the upfront investment cost of Cudi Coffee is lower than that of other coffee brands, but Cudi Coffee, which has not been declared financing, still needs real money investment.
(At the request of the interviewee, the names of the people in the article have been changed)