The author | Sakuragi
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Cai Delin, the new CEO of Starbucks China, did not expect his crisis to come so suddenly.
Since taking office in August, the road has been smooth, with the easing of the epidemic and the recovery of consumption, the just-concluded fourth quarter performance report shows that same-store sales in the Chinese market increased by 17%. In the fourth quarter, Revenue from the China business was US$964 million (about RMB6.166 billion), an increase of 18% year-on-year, exceeding the target.
"Much of our growth in China has come from actively expanding our store footprint and bringing the Starbucks experience to more consumers." Starbucks CEO Kevin Johnson said that in fiscal 2021, Starbucks China added a record 654 new stores, including a net increase of 225 in the fourth quarter. By the end of the year, the company had opened 5,360 stores in 208 cities.
From the data point of view, when the world is still in a huge recession, Starbucks seems to be the lucky one who got out of the quagmire early.
But the facts don't seem to be as bright as the data. On December 13, the Beijing News published an investigative report "Reporter Undercover Starbucks: Expired Ingredients Continue to Sell, Shelf Life Is Changed At Will, Scrapped Pastries Are Put on the Shelves the Next Day", which shows the B side of Starbucks in the sun.
The use of expired food, the use of labels, etc., to evade inspection, everything is skillful and natural. When the reporter asked why the expired ingredients were not scrapped in time, a Starbucks employee explained that the company should assess the turnover and profit margin of the store, and if the cost of the ingredients is too high, the data will not look good, "If the ingredients that cannot be used are scrapped, even if the cost in the store, these things are spent in the store." ”
Employees admit that despite Starbucks' strict rules, there are still problems in implementation. The old employees in the early days developed a bad habit, "the master takes the apprentice, basically the people who teach it, generation after generation are like this, and they don't care about the rules." ”
According to the survey, the promotion and training cycle of Starbucks employees is about 6 to 9 months, and it takes almost two years for ordinary store staff to be promoted to store manager, so if you calculate it, the phenomenon of using expired food should also be a long-standing unspoken rule.
The problem doesn't stop there. Under the epidemic situation, Starbucks, which relies on passenger flow and highlights the third space effect, should be greatly affected, but from the perspective of data performance, the company is basically not affected, profits have increased, and the stock price has reached a new high. This also has to make people make reasonable doubts about starbucks' willingness to see ways to increase profits such as cost compression and cost savings. After all, Starbucks is a company that distributes stock to all employees, and the rise in stock price is also an incentive for employees, and just this year Starbucks raised 14 salaries for employees.
Does the Starbucks scandal mean that the reshuffle of the coffee industry has begun? Seed player Ruixing, how far is it from becoming a "coffee brother"?
01 The reality is the exact opposite
When reading news about Starbucks, there is always a sense of absurdity, because before the scandal came to light, Starbucks' brand marketing focused on food safety and the ultimate pursuit of hygiene. In a number of public articles, it can be seen that Starbucks is conveying to the public that it is strict about ingredients, for production processes, and for the pursuit of refined management.
For example, in a report about Starbucks, there is the following description:
Starbucks has obsessive-compulsive cleanliness, and every process is related to food safety. "Anyone who has worked at Starbucks has cleanliness compulsion." An employee who used to work at Starbucks and is now a veteran of tea research and development said. For example, Starbucks washes cups, at least 3 steps of rinsing, cleaning, and disinfection, and then put them in the dishwasher to clean. Containers of different materials, mixing sticks, cream guns, sinks, and ice tanks have different cleaning standards.
In addition to the conventional fly-killing lamp, a blower will be installed at the entrance of each Starbucks store, which prevents flying insects while isolating hot and cold air, while ensuring the hygiene standards and temperature of the store. The design of the second door can wrap the blower inside, which can reduce the noise of the blower, ensure the quiet environment of customers in the store, and optimize the customer experience.
In another report, the emphasis is on refined management. Starbucks employees have a particularly strong sense of SOP in opening stores, including all personnel arrangements, cleaning management, order volume, expiration management, food safety standards, and even store design, material materials and so on.
For example, for the material supply on the bar, Starbucks has a special position called "customer support". This post partner will carry out 8-20 minute cycle tasks according to the situation of the store, including cleaning, material replenishment, assistance in beverage production and other work.
It can be seen that Starbucks under the brand promotion is a company with meticulous management, quantitative assessment, accurate to the minute, and each design is considered for customers, and because of the transparency of various indicators, it seems that from which angle, there is no flaw.
But the problem actually occurs in companies that place such an emphasis on management and food safety. In fact, the reason is simple, as the Starbucks employee interviewed said, the cumbersome requirements may only be face, and the performance appraisal is the inside.
A brokerage company investigated three head coffee chains as follows:
Starbucks: The appraisal mechanism for employees is the largest in the same type, and the store manager has a six-month training period, which is the longest training cycle of the same kind. Performance appraisal goals are complex, including store sales growth, the number of visitors, the proportion of food product sales, and the sales of two main products and other non-catering products each year.
Luckin: In August 2021, it exceeded 5,000 stores, the store manager training cycle was 2 months, the performance appraisal was mainly customer satisfaction, and the supervision of food safety and production efficiency (punctuality rate) through store video, excluding sales.
Tims: The deputy store manager is responsible for sales, and the store has a large area of high rent, and only assesses the achievement of the goal of net profit margin.
It can be found that although there are many types of assessments, the goal is very clear, that is, sales, and the actual situation also confirms this hypothesis, Starbucks was exposed by the media: after the inspectors arrived at the store, the store duty supervisor signaled a clerk to clean the bar in time, and let him check the shelf life of the ingredients in advance.
With only one inspector, the clerk can dispose of expired ingredients or quickly replace them with new shelf life labels as they inspect other items. Sometimes, in order to avoid accidents, the clerk will tear off the old label in advance to hide the true shelf life. Unsurprisingly, in the end, the inspector found small, innocuous problems.
In stark contrast, Starbucks' problem is far more than food safety, but more of a long-standing contradiction under the business model and employee incentive mechanism. Such drawbacks hidden under the iceberg, even such a rigorous assessment can not be monitored, proving that there is a problem with the operation process within the model.
02Ruixing is still a few steps away from killing Starbucks?
A few joys and a few sorrows, almost a few days before the Starbucks scandal, Luckin's financial report also came. According to the report, in the third quarter of this year, Luckin Coffee recorded revenue of 2.35 billion yuan (unidentified, all in RMB), an increase of 1.207 billion yuan over the same period in 2020, an increase of 105.6% year-on-year.
To sum it up simply, it is a strong growth. What is more counterintuitive is that Luckin also raised the price. In response to the growth of the third quarter performance, Credit Suisse Coffee said that it was mainly due to the increase in customer ownership rate and order volume, while the average price of products also increased, and the expansion of franchise business also contributed to the growth of revenue.
In terms of the number of stores, in the third quarter of 2021, the number of franchised stores of Luckin Coffee grew rapidly. As of September 30, 2021, luckin Coffee's total number of stores was 5671, with self-operated stores increasing by 6.4% year-on-year to 4206, and franchised stores increasing by 66.7% to 1465.
Luckin's high growth is actually inseparable from the change of its operational thinking. Thinking back to a few years ago, Luckin mainly focused on commercial coffee, relying on discounts to attract customers, the actual price of each cup is about 30% of the original price, and the gross profit margin is only 65%, so each cup is basically a loss of money.
After the counterfeiting incident, the company's management changed greatly, and after the change of the person in charge, Luckin began the road of self-help. After April 2020, 60-80 new products have been launched to attract customers of different ages, and the discount coupons are not below 4.8% off, and now the lowest discount is 5.5% off, the unit price of shopping mall stores has been raised by 4 yuan, and ordinary stores have been raised by 1 yuan, on the whole, the price has increased by about 70%. At the same time, the product sku is more abundant, and the category is no longer limited to coffee. After this card is played, the effect can be said to be very obvious.
At present, taking Shanghai as an example, as of November 2020, all stores have achieved profitability. The financial statements are gratifying, but Luckin's advantages are more than that.
According to the research report of Zheshang Securities, in order to compete with Starbucks, mid-range brands generally have better cost performance. Luckin's self-collection model saves rental costs. Starbucks has a large number of customers who drink from outside but still bear the cost of rent, and Luckin has strategically reduced the gross material gross margin of the product (material gross margin is (product revenue - material cost)/product revenue).
According to the announcements of various companies, Luckin's indicator is only about 50%, while Starbucks is about 70% (including some logistics costs, so it may be higher). Therefore, the higher cost performance of mid-range brands such as Luckin can not only obtain Starbucks' "self-pick-up" customers, but also sink to the crowd that high-end brands such as Starbucks cannot reach through lower prices.
At the same time, the taste emphasized by specialty coffee on the product side does not seem to be sensitive under the data. According to the comparison of front-line researchers, the unit price level of Starbucks parts is generally more than 30 yuan, while Luckin is about 16 yuan, and the raw materials used (such as coffee beans and milk) do not have obvious disadvantages. In addition to the difference in coffee beans, the type of coffee machine and the extraction method will also affect the taste. Starbucks first used la marzocco, later mastrena. Rising uses a schaerer, but according to the survey, for the coffee roasting process, the sensitive range is only for consumers who buy more than 10 cups per month. And ordinary people can hardly drink it.
03 sinking market, Starbucks that was thrown away
Another major advantage of mid-range brands is that the expansion space of the number of stores is much larger than that of high-end brands, and Starbucks can be said to have been thrown away.
The target audience of the self-pickup mode is very large, higher than the third space mode. The third space is not just what coffee consumers need. According to the data of Huajing Industry Research Institute, the coffee consumption purpose that requires a third space such as business social networking is currently only ranked fourth, and the refreshing functional consumption is the most important coffee consumption purpose at present.
According to GeoHEY, Luckin currently surpasses Starbucks in the number of stores. Specifically, Luckin now has more than 5671 stores covering 217 cities, and Starbucks has about 5360 stores covering 212 cities, which is better than Starbucks.
For Starbucks, the absolute advantage is still the brand premium, and once a brand preconceived occupy the consumer's mind, Starbucks's expansion will also show fatigue. This can be verified in comparison with Starbucks' expansion path in Europe, starbucks founder Schultz once said that Europe has a unique small café culture, making Starbucks' expansion in Europe not smooth. Emphasizing the tradition of family-based consumption has brought obstacles to Starbucks' entry into the European market, and in this case, the local coffee brands in Europe have made it more difficult for Starbucks to get a share of the European market. This point is compared with the reality of Our country, in fact, it is also very suitable, the 20,000 stores in Mi xue ice city, to some extent, have occupied a very large space in the sinking market. At the same time, the rising new tea brands between regions are also devouring the space of the sinking market.
After this incident, CCTV, People's Daily and other official media continued to report that the Discount of starbucks brands has become a fact. In the sinking market, the continuous efforts of Michelle Ice City and Luckin will also make Starbucks' expansion in this market segment less cost-effective.
The reshuffle of consumer goods is often in an instant, especially in 2021 in the context of the post-epidemic situation, a blockbuster makes Luckin come back to life, and a scandal may also make Starbucks collapse, and no matter what the outcome, the myth of Starbucks in China has been shattered, and then it depends on Luckin, Xicha and Michelle Ice City.