Starbucks, which has increased in price, and "Xicha", who have lowered their stature, are only for better survival.
Author | Zhang Chao Edited | Luo Lijuan
Starbucks, once again, is on the cusp of the storm.
On March 12, starbucks once topped the Weibo hot search list due to netizens breaking the news that they drank live cockroaches in Starbucks drinks.
In response, Starbucks China responded that the customer involved placed an order for a drink through a third-party takeaway platform on March 10, and the platform customer service subsequently received customer complaints and communicated in a timely manner. At the same time, the surveillance video shows that the operation process of the store is standardized, and the on-site inspection of the third-party pest service company has not found any related pest problems.
Starbucks China responded by "drinking live cockroaches in drinks."
The world's veteran restaurant chain is over 50 years old, with more than 32,000 stores in more than 80 markets around the world, and even though it only entered China at the end of the last century, the number of Chinese mainland stores has now exceeded 5,400, accounting for nearly one-fifth of its global market size.
The huge user base and extensive brand awareness have always been under the supervision of public opinion, and the slightest wind and grass will set off a monstrous wave, the last wave is the price increase event in mid-February this year.
On February 16, the news of Starbucks price increases was exposed and triggered a large-scale discussion on multiple social platforms. All-weather technology learned from the starbucks official mini program that the price of many drinks, including American coffee and latte coffee, has increased by 1-2 yuan compared with before; the price of matcha cocoa fragments star ice is close to 40 yuan (priced at 39 yuan), and the price of many new products in the season even exceeds the threshold of 40 yuan.
Starbucks seasonal drinks sell for more than 40 yuan
Interestingly, on the other hand, some local internet red tea brands have set off a wave of price cuts almost in the same period: in January this year, NaiXue launched the "Easy Buy" series, and the product price range was between 9-19 yuan; on February 24, XiCha announced that the entire line of products would be less than 30 yuan, and promised that the existing products would never increase in price during the year; on March 3, Lele Tea announced that the price of some drinks had been controlled below 20 yuan, of which the lowest price of pure tea fresh jasmine green was priced at 8 yuan.
In the context of rising global raw material prices, Starbucks price increases and internet red tea drinks against the trend of price reductions were staged at the same time, and the reasons behind it made people curious. How will the price-raising Starbucks and the lowered "Hi Tea" affect the industry pattern?
1
Coffee up, tea down?
Coffee and tea was originally two relatively independent tracks, in the past two years, under the mutual testing of products, the boundary has gradually blurred, and the outside world will inevitably compare the two types of enterprises.
According to Starbucks customer service, the company has adjusted the pricing of some drinks and foods in stores nationwide since February 16, and the prices of peripheral products such as packaged coffee beans and coffee cups will not increase.
The reason is that the official explanation is that the company decided after comprehensive assessment and consideration of many factors such as operating costs.
Netizens compared and found that the price adjustment range of this round is basically around 1-2 yuan. At present, the price of Starbucks large cup American style is 30 yuan, and the price before adjustment is 28 yuan; the price of medium cup latte has risen to 30 yuan, and the price of large cup latte has risen to 33 yuan. The price of large cups such as roasted badan milk latte/ star ice cream, toffee hazelnut latte / star ice cream, and the new cherry blossom latte has reached 41 yuan.
This is not the first time Starbucks has raised prices. Looking at the price of Starbucks China's products over the years, you will find that in 2007, 2012 and 2016, its products have raised their prices, the most recent price adjustment is about 2 years ago, and each price increase range is about 1-2 yuan.
Even if the price increase of Starbucks is not large, this time it still caused widespread concern. After all, 40 yuan a cup of coffee, even if it is a white-collar population, it is not easy to consume.
In fact, coffee brands including Luckin and Tims have also raised some product prices around New Year's Day this year; among them, Luckin has an adjustment range of about 3 yuan, and Tims has raised an increase of 1-2 yuan.
In stark contrast to the price increase of coffee representative brands, internet celebrity tea brands are lowering their stature and stimulating store sales by lowering the price of products.
On February 24, Xicha announced in the official public account that it would bid farewell to products of more than 30 yuan, and promised that it would not launch new beverage products of more than 29 yuan during the year, and all products would never increase in price during the year.
All-weather scientific and technological observation found that the adjustment range of this round of Heytea ranges from 1-10 yuan, and the highest price adjustment of a single product is 10 yuan. After the price adjustment, in addition to a few city-limited products, peripherals, as well as a small number of products from LAB stores and handmade shops, there are no drinks that begin with 3 characters on the standard tea menu of Heytea.
For the current round of price adjustment of Heytea, Ge Xiantong, founder of Jingcai Capital, believes that this is the choice made by Heytea out of strategic considerations. "Early brands have the attributes of Internet celebrities, and there is no need to reduce prices when consumption needs to queue; the offline market competition is fierce, and the brand returns to the mass catering position, and the price reduction can ensure store traffic and increase transaction volume."
As a representative of the new style of tea drinking, Heytea has always been famous. The opening of new stores in the early days, the long queue at the door, waiting for 1-2 hours, is a normal phenomenon, and there is no worry about selling.
In order to seize this wave of dividends and quickly seize the market, Xicha began to go out of Guangdong and go north to encircle the land. Although the speed of Opening Heytea stores in 2020 has been affected by the epidemic, according to the Heytea Annual Report, as of December 31, 2020, it has opened 695 stores in 61 cities around the world, of which 304 are newly opened in 2020, including 202 main heytea stores and 102 GO stores.
Just when Xicha is large-scale offline shops, Naixue's tea, tea face color, Lele tea, tea hundred ways, 7 points sweet, Honey Snow Ice City, Bawang Tea Ji, Shanghai Aunt and other types of tea are also actively opening up the market and occupying a regional position.
The entire tea market is roughly divided into four levels: high-end, mid-range, public and flat price, and Xicha ranks among high-end tea drinks with a unit price of more than 30 yuan.
Classification of tea chain brands of each grade (Source: Essence Securities)
The price reduction of this round directly pulled Xi tea back to the middle end, and even the ranks of public tea drinking. All-weather technology found that in the past few years, the price band of Heytea products has been between 20-32 yuan, and the change is not large; according to incomplete statistics, the price band after this price adjustment is 9-29 yuan, of which 9-15 yuan accounts for about 16.4%, 16-19 yuan accounts for 34.6%, and 20-29 yuan accounts for 49%. Overall, after the price adjustment, the proportion of products within 20 yuan of Heytea reached 51%, compared with less than 5% in the past.
It is worth mentioning that Heytea also stressed to the outside world during this price adjustment that "I have never been a high-priced tea drink, and in the time of growth and development, the mainstream product price band has been maintained between more than ten yuan and twenty yuan for a long time", showing a strong willingness to return to the public brand.
Once the price of the tea is adjusted, it is difficult for other homes to sit down.
All-weather technology learned from Naixue's tea that on the basis of the original products, the company added a "easy to buy" series on January 17 this year, covering a total of six products in three categories, with prices between 9-19 yuan.
On the other hand, Lele Tea also announced through the official public account on March 3 that the price of some drinks has been controlled below 20 yuan, of which the lowest price of pure tea fresh extract jasmine green is only 8 yuan.
From the perspective of effect, this round of price reduction still has a big boost effect on the sales of tea brand stores. All-weather technology has learned that since the launch of Nesher's tea "Easy Buy" series for one month, sales have exceeded 1.6 million cups; Heytea online mini programs have often stopped delivery services due to burst orders, and the waiting time in stores during special periods (such as Valentine's Day) is even more than 3 hours.
2
The logic behind price adjustment
The polarized price adjustment strategy adopted by coffee and milk tea in almost the same period is puzzling.
In particular, Starbucks CEO Kevin Johnson has also publicly stated that the company plans to raise prices further this year and "take more pricing actions."
Ge Xiantong, founder of Jingcai Capital, believes that the main reason for Starbucks' current round of price increases comes from the financial pressure of listed companies and the need to ensure the growth level of net profit in the statement; secondly, Starbucks has a strong moat, a large number of members and high loyalty.
According to the latest financial report data, as of January 2, 2022, the number of Starbucks stores in the Chinese market has reached 5557; the number of active members of the My Starbucks Rewards Club in the Chinese market in 90 days is close to 18 million, an increase of 2.6 million over last year, and these active members contribute about 75% of Starbucks China's sales.
Although China is already Starbucks' second largest market in the world, its business has been under significant pressure in recent years. In the first quarter of fiscal 2022 (October 4, 2021 to January 2, 2022), Starbucks same-store sales in the Chinese market fell 14% year-on-year, average customer unit prices fell 9% year-on-year, and transaction volume fell by 6% year-on-year.
In addition to the pressure of financial performance, rising costs are also a major problem facing Starbucks.
Zhu Yue, a partner at CIC Insight Consulting, told All-Weather Technology that the reason for this round of Starbucks price increases is that raw materials are in short supply and the cost of circulation has increased, resulting in an increase in the price of coffee beans, "In the face of China's declining performance and increased operating costs, Starbucks can only maintain single-store growth and alleviate profit pressure by raising prices." ”
In the first quarter of fiscal 2022, Starbucks' total cost was $6.913 billion, up 16.8% year-over-year. Among them, the largest proportion of storage operating costs increased by 18.6% year-on-year; the product and distribution costs, which had the second largest share of expenditure, grew the fastest during the period, increasing by 23.3% year-on-year.
Image source: Ap research institute
For decades, Starbucks has long formed a unique pricing method. Starbucks CEO Kevin Johnson revealed that Starbucks is able to use analytics and artificial intelligence, and is led by a very capable team, through modeling to continue to focus on demand elasticity and pricing behavior.
Obviously, the current product price has been difficult to maintain the company's profit level, Starbucks can only deal with inflation and various cost problems related to the epidemic caused by the squeeze on profits through price increases.
People in the industry understand that most of the milk tea brand suppliers overlap, and in fact, coffee and milk tea brands also have some common suppliers. Cézanne Dairy, which produces thick milk, is a dairy supplier that Starbucks and Heytea share, while matcha produced in Shaoxing, Zhejiang Province, is also used by brands such as Starbucks and Heytea.
In the case of some excipient suppliers, why do new tea drinks such as Heytea go against starbucks and choose to cut prices against the trend?
Many voices also questioned the practice of reducing the price of Xicha, believing that its price reduction is to lower the brand positioning, lose the brand social attributes, and is not conducive to the long-term development of the company.
A tea industry person to the all-weather technology analysis, Heytea's current net profit margin is optimistically estimated at about 10 points, in the case of hundreds of stores has been a good level; but in the fourth quarter of last year, sales have declined significantly, in the brand power and bargaining space reached the ceiling, only by reducing prices to increase sales to reduce marginal costs, so as to achieve overall profitability.
Since Xi Tea has not yet been listed, it can only be spied from the financial reports of similar listed tea companies.
Taking Nesher's tea 2020 data as an example, the annual revenue is 3.06 billion, the material cost is 1.16 billion (37.9% of revenue), the staff cost is 920 million (30.1% of revenue), the depreciation of the right to use assets is 350 million (accounting for 11.5% of revenue), other rent and related expenses are 100 million (accounting for 3.3% of revenue), and other costs such as advertising and promotion expenses, water and electricity expenses, distribution service fees, logistics and warehousing fees are considered, and the loss during the year reached 200 million, and the adjusted net profit margin was only 0.5%.
Partial profitability of Nesher's tea in 2018-2020
Although Naixue's tea and Xicha have strengthened the construction of the supply chain in the past two years, Naixue's tea has also tried to reduce circulation costs through the central kitchen, and still cannot get rid of the fate of loss. Especially when the low-end brands are gradually becoming more influential, the "survival" of new tea drinks is far more important than "guaranteeing positioning", and it is not difficult to understand the price reduction promotion.
Putting aside the company-level reasons, only from the analysis of the consumer purchasing power of coffee and milk tea drinks, Starbucks does have more confidence in price increases.
Ai media consulting data show that 70% of China's milk tea consumers are women, and show the characteristics of youth, the consumer group aged 16-25 accounts for 41%, basically locked in school students or just participated in the work population, no income or limited income; the consumer group aged 26-35 accounts for 36%.
In contrast, according to the Data of the MobData Research Institute, the main age distribution of Starbucks consumer groups is 25-34 years old, accounting for 54.1%; followed by 35-44 years old people, accounting for 25.1%; and its users are mainly corporate white-collar workers, accounting for nearly half (48.8%) of the income of more than 20,000, with strong purchasing power.
Image source: Essence Securities
The gap between coffee and milk tea in the age group and income level of consumer groups determines that Starbucks can continue to increase prices, and "xi tea" has to adjust prices.
3
The situation of coffee and tea is different
So far, this round of price changes does not seem to have set off much waves in the coffee market, but it has made the tea market pattern more likely.
This is mainly because the Chinese coffee market is still in a stage of rapid development, and companies are still in the process of continuous trial and adjustment.
The environment has brought pressure, but also given more opportunities for enterprises, CIC Consulting partner Zhu Yue pointed out that price adjustment is one of the strategies made by different types of enterprises in the industry competition dynamics, enterprises should combine market trends, timely launch in line with their own enterprises in the product, price, marketing and other dimensions of the latest development strategy.
Zheng Songmao, founder of Shanghai offline coffee brand Quality Pavilion, told all-weather technology that the rising pressure on costs is faced by all enterprises, "Everyone is in the same situation, and there is no price increase plan in the store at present." ”
The founder of yongpu coffee, a premium instant coffee brand, also told all-weather technology that although the rise in global raw material prices has a certain impact on costs, "we have no plans to increase prices for the time being."
In the domestic coffee market where the brand pattern has not yet been solidified, both new and old coffee brands have great development opportunities. "We believe that the current coffee market is still in the stage of a hundred contending, and more and more players will enter the market in the next three years, and the competitive congestion of the entire coffee market will be further upgraded." Zhu Yue said.
Just in February this year, China Post and Dogbury also announced their entry into the coffee market.
On February 14, the country's first post office coffee shop landed in Xiamen, selling products including coffee, tea, desserts and post office areas. From the price point of view, the price of its drink is between 20-40 yuan.
Eight days later (February 22), Gaoleya Coffee Food (Tianjin) Co., Ltd. was established with a registered capital of 500,000 yuan, and the legal representative was Zhang Yansen, chairman of Dogbury Group. Tianyancha shareholder information shows that the company is wholly owned by Tianjin Dogbury Food Co., Ltd. Zhang Yansen once said that the intention of operating coffee is to diversify its development, hoping to use the profits obtained to feed back the "old brand".
However, in the tea market, the price of high-end tea drinks is explored, which means that a price war may be set off.
According to iResearch's report, the market size of China's new tea industry will be about 77.3 billion yuan in 2020, and it is expected that by 2023, the overall market size will exceed 170 billion yuan. It can be seen that There is still a large market space and development potential in China's new tea industry. However, this does not mean that every family can sit back and relax.
Image source: iResearch
Looking at the Chinese tea market, there are not only happy teas represented by fresh fruit tea, Naixue's tea, but also Chinese tea drinks representing tea yan yue, neon tea dance, bawang tea ji, and the sinking market representative Mi Xue Ice City. They all want to open up sales channels in various regional markets and gradually shop all over the country.
And the product is in the price of 13-20 yuan with the majority of players, even if the special drinks are slightly different, still can not jump out of the milk tea category, inevitably there will be a round of frontal fighting.
Especially when the flow of the tea industry enters the stage of stock competition, the competition of various brands will be more intense, whose "ammunition" is more sufficient, who is more prepared, who can laugh to the end.
Zhu Yue, partner of CIC Insight Consulting, believes that for enterprises, it is necessary to do a good job in quality, brand, service system, customer stickiness, and scene innovation at the same time to stand out from the fierce competition.
Today, when the brand accurately positions users at different levels, Starbucks continues to move upwards, and net red tea drinks strive to hold on to young consumers and stabilize the position of tea drink leaders, while other brands have sprung up like mushrooms.
Under the new round of price war, it is difficult for brands to rely on traffic dividends and marketing publicity to do large-scale, they need to find a good business model on the basis of stabilizing the regional market, to achieve single store profitability, and corporate channels and supply chain capabilities may become the key factors affecting the final pattern of the industry.