Producer/Associate Column
Written/Associate Senior Advisory Board Member Old Knife
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When a consumer product has a specific and extremely distinctive cultural identity, it will endure for a long time, and there will be countless fans. Coffee, obviously, is a consumer product with such a distinctive cultural attribute.
Therefore, when entering a new era dominated by youth and further integrated global cultures, the small imported cup of coffee has exploded, the track is crowded, and their respective business models have become incomparably hot and hot.
01
The price of Starbucks with thick eyebrows and big eyes has risen
Starbucks's price increase mainly includes some products such as American coffee, latte coffee, and Frappuccino, with a price increase ranging from 1 to 2 yuan. In addition, the price of drinks such as caramel macchiato and oat milk rose by one yuan, and foods such as ham cheese coco song and Cuban-style chicken sandwich rose by 1 to 2 yuan.
This is Starbucks' second price increase in 4 months, the first in October 2021, for the price of dishes. Starbucks sources responded that from February 16, 2022, Starbucks will make small price increases for some drinks and foods in Chinese mainland stores. All packaged coffee beans and coffee cups and other peripheral goods are not within the scope of this price adjustment. Starbucks pricing is based on a number of factors such as operating costs.
On February 3, Starbucks CEO Kevin Johnson said on an earnings call that this year's price increase will be more than once. Although the price increase cannot reverse the unfavorable situation of the economic and consumption environment, it can pass on the impact of the rising cost on the performance to a certain extent.
On February 1, Starbucks announced its fiscal first quarter results, which dragged down profits as rising costs dragged down profits. Starbucks' fiscal first-quarter adjusted earnings per share were 72 cents, slightly below market expectations of 80 cents; revenue rose 19 percent to $8.05 billion, higher than market expectations of $7.95 billion; and net income was $815.9 million, up from $622.2 million in the year-ago quarter.
After the earnings report, Starbucks said that the cost of its entire supply chain was higher than expected, and more employees were taking sick leave, which also affected the entire industry. Global same-store sales rose 13% during the quarter. Outside the U.S., Demand for Coffee at Starbucks weakened, with international same-store sales down 3 percent and market expectations for growth of 3.3 percent. In China, Starbucks' second-largest market, same-store sales fell 14 percent in the quarter.
After the earnings report, Starbucks shares fell more than 4% after hours.
In the article "Coffee and milk tea have risen in price, will our happiness index fall" in January this year, the author pointed out that at present, whether it is tea or coffee, the reasons for the general price increase are often threefold:
First, rising prices of upstream raw materials lead to heat transmission; second, government currencies release water, leading to inflation and triggering coherent input inflation. Third, from the micro enterprise level, cost pressure and shrinking market demand.
Due to the price increase of all the necessary materials for economic life, energy, raw materials and commodities, it will inevitably spread to all walks of life and eventually fall on the shoulders of terminal enterprises.
02
How much impact will Starbucks price increases have?
As the head brand in the coffee field, Starbucks' price increase has a demonstration effect, which is naturally more likely to attract media attention. In fact, before that, there has been a large wave of brands quietly raising prices.
Luckin and Tims Coffee have also reportedly raised some product prices recently. Since December 2021, Luckin Coffee has raised the original price by about 3 yuan in hundreds of stores for delivery drinks and self-pick-up drinks. The reason for the increase is based on a comprehensive consideration of operating costs such as rent, manpower, and raw materials.
Canada's national coffee brand Tims has also made a price adjustment. Tims customer service said that this is a decision made after taking into account the current operating conditions.
In January 1999, Starbucks entered the Chinese mainland and opened its first store in China at Guomao, Beijing. For 23 years, Starbucks has cultivated a large number of loyal customers in China. For many professionals, a day's work may start with a cup of Starbucks. For Starbucks' target population, the price of a cup of coffee increased by 1 to 2 yuan, with little impact.
Therefore, starbucks price increases may not have any waves in the hearts of loyal fans, and its stimulation of the market is even far less than the tampering with production date incident of a Starbucks store in Wuxi last year, let alone the hot discussion caused by the "Chongqing Starbucks persuasion to leave the police at the door of the store" incident on February 13.
According to the latest financial report data, 75% of Starbucks' sales in the Chinese market are contributed by members, and the number of active members of Starbucks Starbucks Rewards clubs in 90 days is about 18 million.
It can be said that Starbucks price increases are fearless, and in recent years, the enthusiasm of the coffee track is enough to prove that there are still huge business opportunities worth developing and tapping in the coffee market segment.
03
The coffee culture of "learning from the West and learning from the East"
From the late Ming Dynasty onwards, Western culture began to be introduced to China, which is called "learning from the West to the East". Slowly, Western culture set off a boom in China, especially after the reform and opening up, cola, coffee, hamburgers and other foreign gadgets have become a fashion for consumption in China.
Coffee was not popular in China for a long time, and coffee beans began to be grown in Yunnan in the middle and late Qing Dynasty. In the 1930s, Shanghai's first cafes opened on the Bund for foreign sailors to indulge in coffee. At that time, coffee was called "cough potion" by Shanghainese. After entering the 1980s, instant coffee was widely recognized by the public, and Nestlé's advertising slogan "Share a good time" was widely advertised.
Since 2020, China's homegrown cafes have sprung up.
According to the report of the investment network, the coffee market in 2021 is visible to the naked eye.
A number of new coffee forces rose rapidly during the year and frequently raised funds. For example, the financing rhythm of coffee brands such as Manner, M Stand, NOWWA, and Shicui is at least 2 rounds per year, and some can even be financed 1 round in 1 month. Sequoia China, Qiming Venture Capital, Gaorong Capital, Tencent Investment, Temasek, Qimei Tuanlongzhu, ByteDance, Heytea, Mushroom Street and so on have all shots.
The valuation of coffee brands is also rising. According to publicly reported company valuation data, Manner's post-investment valuation reached $1.3 billion at the time of the Series A+ financing in February 2021; three months later, in May 2021, Manner received the blessing of Meituan Dragon Ball, with a post-investment valuation of nearly $2 billion; and another month, that is, after ByteDance entered the market in June 2021, Manner's post-investment valuation rose to $3 billion. In less than half a year, the valuation doubled.
As a high-end specialty coffee chain brand M Stand, which is different Manner's main small shop model, the valuation has not risen slowly. In January 2021, the valuation of the M StandA round of financing was 700 million yuan, and 6 months later, the valuation of the B round of financing rose directly to about 4 billion yuan.
Looking at the entire track, in 2021, both the amount of financing and the scale of financing have reached the highest value in nearly three years. CVSource investment data shows that in 2019, 2020 and 2021, the number of financing events for domestic coffee brands was 24, 25 and 32, respectively, and the transaction amount was 1.599 billion yuan, 1.582 billion yuan and 3.936 billion yuan, respectively. It can be seen that in terms of financing scale, 2021 will more than double compared with the previous two years.
According to Ai Media Consulting data, the size of China's coffee market in 2021 will be about 381.7 billion yuan. With the change of public diet concept, China's coffee market is entering a stage of rapid development, and is expected to maintain a growth rate of 27.2%, and the size of the Chinese market will reach 1,000 billion yuan in 2025.
In the coffee industry chain, the profit margin of the downstream consumer end is the highest.
Planting and roughing can only account for 1% of the profit, finishing accounts for 6%, and the profit of the downstream sales end is as high as 50%-70%. Among them, the gross profit margin level of ready-to-drink coffee is the highest, which is 70% to 80%, while the instant coffee with the lowest gross profit margin can also reach 30% to 50%.
04
China Post also sells coffee
On February 17, the hot search topic #The country's first post office coffee shop officially opened# has reached 38.21 million times, causing extensive discussion across the country.
According to the "Post Office Coffee" WeChat public account news, the country's first post office coffee landed in Xiamen International Trade Building, officially opened on February 14. From "post oxygen tea" to "post office coffee", China Post has always tried different transformation and development directions.
In this regard, Han Junwei, a researcher at the Strategic Development Department of the Postal Savings Bank of China, proposed in an interview with reporters that in recent years, postal outlets have actively promoted the transformation and development of traditional general service outlets to a postal comprehensive service platform, and postal oxygen tea, post office coffee, etc. are the positive results and highlights of this transformation.
According to reports, the post office coffee will be the original International Trade Post Branch has been a new upgrade. After the transformation, on the basis of retaining the universal postal service, coffee drinks and postal culture creative services are superimposed, and the post office is no longer a simple postal service place, but also a new scene that can be socialized, can taste high-quality coffee, and experience postal culture.
From the "Post Office Coffee" Mini Program, it was learned that the store sells categories including coffee, tea, desserts and cultural creations around the post office, etc., of which coffee and tea are priced between 20-40 yuan, and the store can provide two services: pick-up and delivery to the home.
In the photo of the official account tweet, there is the words "COFFEE POST Postal Coffee". According to relevant news, in 2022, post office coffee will successively open a number of special post office coffee shops in first- and second-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen.
Not only postal services, PetroChina and Sinopec are selling coffee.
In 2019, Sinopec EasyJet released a new brand, and the first batch of easyJet coffee shops opened simultaneously in nine Sinopec gas stations in Suzhou. Not to be outdone, PetroChina's Kunlun Hospitality Coffee Project was established to lay freshly ground coffee at Kunlun Hospitality Convenience Store. According to reports, in 2021, PetroChina Hospitality Coffee sold 100 million yuan a year with 3 product lines of freshly ground + ready-to-drink + freeze-dried.
Enterprise investigation data shows that there are 159,000 coffee-related enterprises in the mainland. In 2019, there were 27,900 new coffee-related enterprises in the mainland, an increase of 1.55% year-on-year. In 2020, 22,700 new ones were added, a year-on-year decrease of 23.02%. In 2021, 25,900 new stores were added, an increase of 12.50% year-on-year. From the perspective of regional distribution, Guangdong Province ranked first with 34,000, Yunnan and Jiangsu had 13,200 and 10,200 respectively, ranking the top three. It is followed by Sichuan, Zhejiang, Fujian and so on.
05
Domestic coffee, who can challenge Starbucks?
At present, a large number of emerging offline coffee brands are more like "speculation", and capital is also fighting for the future - who is likely to become the next Luckin.
But where are the opportunity points in the domestic coffee market? Without unique innovation and absolute competitive advantage, relying solely on bragging and pushing up valuations (according to reports, the valuation of a store of some fledgling coffee brands has reached 100 million), is purely a cover-up and self-deception.
From the current point of view, none of the domestic local coffee brands can challenge Starbucks' status. Not only because of the number of Starbucks stores and market size, but more importantly, Starbucks' brand association and positioning cognition, such soft value is deeply rooted and difficult to shake.
When domestic coffee brands sprang up, they basically did not think clearly about how to build their own brand differentiation and moat:
First, there must be model innovation. With the new model of "Internet coffee", Luckin subverts the traditional coffee model represented by Starbucks. After Luckin, what is the new coffee model? When a large number of so-called specialty coffees emerge offline, is the unique decoration style enough to challenge Starbucks' "third space" brand positioning?
Second, we must have a high cost performance in the product and have sufficient competitive advantage. In terms of product pricing strategy, Starbucks is undoubtedly the leader of the first camp, and later challengers when the brand awareness reputation and loyalty are not as good as Starbucks, the product is more attractive in terms of cost performance.
Third, we must have unique cultural propositions. When specialty coffee intends to surpass Starbucks and create a small and beautiful higher-end positioning, then the brand's values need to be more lively and more fashionable. For Starbucks' perception, there is already a negative brand perception of "old" and old-fashioned, and this deficiency is precisely the opportunity point for new brands.
Fourth, rely on the advantages of existing resources. Whether it is PetroChina, Sinopec or China Post selling coffee, the confidence comes from a huge number of outlets across the country. When there are natural advantages in channel resources, selling coffee only becomes a "product problem". Therefore, the existing coffee brands can completely carry out cross-border cooperation, for example, for the postal service, selling coffee is not professional after all, and the brand awareness is completely 0, if you cooperate with Luckin, it will inevitably be a huge win-win situation.