The coffee track is now in full swing, and even white-collar workers have invested hundreds of thousands of yuan to open stores in the coffee track after resigning. So is a coffee shop good or not? Are there any investment prospects? What is the competitive landscape of the coffee market today?
The first financial reporter spent a month, on-site visits and investigations from all parties to learn that the coffee market has been full of gunsmoke, and under the impetus of capital and a new round of coffee brand franchise fever, accelerating the opening of stores, new product competition, cross-border marketing, etc. have become the way for major businesses to "roll" each other. Previously, brands such as Manner, Seesaw and other brands had arrangements to accelerate the opening of stores, but in the end, the market's attention still fell on Luckin Coffee and Coody Coffee, plus Starbucks, COSTA and other giants are also trying to maintain market share, so a new round of coffee battles has been set off.
According to the "China Coffee New Wave - 2022 China Coffee Industry Development Report" jointly released by Ali's new service research center, Ele.me and Tmall Coffee, the market size of China's coffee industry reached 381.7 billion yuan in 2021 and is expected to exceed 1,000 billion yuan in 2025. China's coffee market is still relatively early, and its total consumption and per capita consumption are far lower than those of mature markets such as Europe, the United States, Japan and South Korea, and the growth potential is great. According to the report, in 2021, mainland coffee bean imports were 122,800 tons, a year-on-year increase of 74%, China's coffee imports were 526 million US dollars, a year-on-year increase of 68%, at the same time, the national coffee and products exports in 2021 were 35,300 tons, down 39% year-on-year. This reflects the expansion of the mainland coffee market. The mainland coffee machine market has also entered a stage of rapid development. According to the "2023 China Urban Coffee Development Report" released by CBNDATA, Meituan and the Institute of Cultural Innovation and Youth Development of Shanghai Jiao Tong University, the scale of the mainland coffee machine market has reached 2.63 billion yuan in 2022 and is expected to reach 4 billion yuan in 2025.
These data show the rise of China's coffee market consumption, and coffee has become a hot track for consumption recovery this year. In the eyes of the industry, coffee shops seem similar and the products are similar, but in fact, the business logic behind them is very different. The first category is considered to be a brand or even a "century-old store" type, such as Starbucks, CODA and other giants. Starbucks has more than 6,200 stores in the Chinese market, covering 244 cities. This type of coffee company pays attention to brand effect and market share, and generally looks at the long-term market. "Maybe you can't think that Luckin Coffee, which used to be a capital investment type, after changing the management, is now also considered a brand enterprise in the industry, they are now an operation-centered coffee company, no longer simply engaged in capital, their product research and development, price system and long-term plan are very good." Fang Yuqing has been engaged in the coffee industry for more than 10 years and has done many enterprises, which he described to the first financial reporter.
The second type is capital, such as M Stand, Manner, Seesaw, etc., which are rising stars, relying on the capital behind it, so expansion and brand marketing will be more frequent, Luckin was originally of this type, but now it is transforming.
The third category is Kudi Coffee, etc., capital does not pay too much attention to it, but the opening of such coffee companies may have a background behind it, such as the senior management team of Kudi Coffee originated from Luckin Coffee, which flashed the figure of Lu Zhengyao, the former chairman of Luckin Coffee.
The fourth category is add-on or cross-border coffee, such as BTG Homeinn's coffee business such as coffee, KFC and McDonald's, etc., the main business of such enterprises is not coffee, but coffee-related formats, such as hotels, catering, etc., which open coffee shops to create interactive consumption scenarios to assist the main business.
The fifth category is coffee brands that rely on the background of huge chain enterprises and are outsourced or independently operated, such as Paike Coffee at Family Mart and Pacific Coffee from China Resources. The advantage of this type of coffee shop is that it already has a market foundation based on the chain scale, depending on how to operate and maintain it in the future. The risk is that if there is a problem with the chain on which it is based, the coffee of that brand will also be affected.
There may be some subcategories, but the first financial reporter summarized in multiple interviews that the main types of coffee companies are the above.
Hengli International Building is an office building located in Shanghai's business district, one of the floors of which is the headquarters of the chain coffee brand Manner Coffee. A few days ago, the first financial reporter visited and saw that there is a Manner coffee shop on the ground floor of the building, but on the same floor, in the originally small space, there are Starbucks and Luckin Coffee, which seems to be close to Manner.
"Originally, the expansion of some big brand coffee shops has distance range requirements, such as how much radiation can not open two own stores of the same brand to avoid internal competition. But now it's different, as long as they can occupy more market share, even those international giant brands have begun to open stores close to each other and seize the sinking market that was not seen in the past. Fang Yuqing analyzed to the first financial reporter.
Just recently, Starbucks Global CEO Nashan said in an interview with the first financial reporter that Starbucks plans to operate 9,000 stores in the Chinese market by 2025, and the number of employees will increase from the current 60,000 to more than 90,000. The sinking market is the key scope that Starbucks will consider.
As of the end of 2022, Luckin Coffee had 8,214 stores, of which 5,652 were self-operated and 2,562 were associated. By June 2023, the number of Luckin stores that have released their second franchise has exceeded 10,000. According to the official website of Kudi Coffee, from the opening of its first store on October 22, 2022, to the recent official public of Kudi Coffee claiming to have opened 4,000 stores, mainly from franchises. According to the requirements of the official website to join, Kudi coffee stores are divided into four standards: shop-in-shop, quick pick-up store, standard store, and brand store, and the investment of a single store is 138,000, 235,000, 302,000 and 530,000 respectively, mainly for the purchase of equipment, cabinet advertising, decoration, etc.; In addition, there is a deposit of 50,000 yuan (including the order price), and a design fee ranging from 2,000 yuan to 8,000 yuan.
In a Kudi coffee in Wangjing, Beijing, the manager of a Kudi coffee shop that has not yet opened is interviewing employees, he told the first financial reporter that at present, Kudi coffee is divided into self-management and escrow mode, self-management for investors themselves responsible for store operations, and cudi provides the store manager. He was previously the store manager of a Luckin store, and escrow can reduce the difficulty of opening a store for investors. According to him, the investment cost of opening a store in Beijing is high, generally around 500,000 to 700,000.
The reporter noticed that in the choice of the location of the store, the location of many Cudi coffee was-for-tat with Luckin, and there was even a door-to-door and door-to-door situation. According to the data of narrow door restaurant, the number of coffee stores in the country totals 148,000, which is equivalent to 10.5 stores per 100,000 people. In the past year, 53,000 new stores were opened, a net increase of 19,500.
In addition to expanding stores, quickly releasing new products is also a battlefield for various merchants. Durian latte, avocado coffee, orange C American style, Biluo spring latte and other fruit cafes, tea cafes continue to create topics. Even Starbucks, which originally disdained to compete with emerging brands, now has a sense of anxiety, and its recent acceleration of new product launches, and new products continue to be launched within one month, which is Starbucks' unprecedented speed of updating.
According to industry veterans, many coffee companies do not have their own direct R & D team, but rely on suppliers and operation service providers to develop new products, suppliers in order to better sell their own raw material products, will work hard to design new products, but such new products may not taste good, or there will be similarities. Nowadays, in order to attract attention and "roll" competitors, coffee merchants will constantly ask suppliers to accelerate the production of new products.
In addition, price wars are an indispensable means. Wuyi County is located in Jinhua, Zhejiang, and there are many small and medium-sized factories around the county seat. At noon on a Sunday, the first financial reporter saw in the local shopping center that Luckin Coffee was very lively. The store has a steady stream of orders, and basically a consumer will place an order in a minute. There are also many counties like Wuyi in China, where coffee consumption is brewing and exploding. Luo Xianliang, vice president of Rees Consulting China, told the first financial reporter that the reason for this phenomenon is because Luckin's core strategy is price, "Luckin takes the low-price route, goes to the sinking market, and expands more stores."
In many emerging coffee brands, the price ranges from 9.9 yuan, 8.8 yuan to 5 yuan a cup. For example, Kudi Coffee almost copied the way Luckin started and carried out large-scale low-price promotions, and since February 2023, Kudi has launched multiple promotions of 9.9 yuan for all products, and the intensity has been increasing. In May, Cudi Coffee's coffee promotion coupon was reduced from 9.9 yuan to 8.8 yuan, and in June it even launched a discount such as 1 yuan for new users to drink coffee. Luckin Coffee also followed up with a wave of counterattacks, but the overall strength was not large. In early April, Luckin Coffee also launched a 9.9 yuan coupon, and at the beginning of June, the "10,000 stores celebrate together" promotion campaign, each user can receive one 9.9 yuan coffee coupon per week.
Wen Zhihong, general manager of Hehong Consulting, told the first financial reporter that in the period of rapid development of the domestic coffee track, scale and speed have become the key competitiveness of the brand, and rapid expansion of stores means better market size and share. As a result, price reduction and store expansion have also become an important strategy for coffee brand competition.
As far as the price war is concerned, Luo Xianliang believes that Starbucks is now in an awkward position, such as opening up the sinking market, and its price is difficult to adapt to the local consumption level. "It's harder to get Starbucks to cut prices and follow the small store model. Because this will create a seesaw effect on its brand in first-tier cities. For example, in order to capture more people, a high-end brand began to launch low-end product lines, which not only cannot sell more quantities, but will damage the brand's high-end positioning. Luo Xianliang analyzed.
Nowadays, coffee merchants who have "rolled" to smoke in order to highlight their own uniqueness and play crossover. Recently, Manner just concluded its campaign to open a limited-time bookstore with LV. Previously, manner also launched joint products with high-end skin care brand HR Helena, and not long ago, Yongpu joined forces with Wuliangye to launch a coffee special with Wuliangye. Yongpu Coffee founder Tie Pi previously told the first financial reporter that co-branding will bring brand exposure and product exposure, but in fact, it is difficult to bring a large sales increase in a short period of time, and everyone values brand value.
Since 2020, the domestic coffee industry has ushered in a new round of investment fever, and a large amount of capital has poured into various new coffee consumer brands and chain coffee enterprises. According to incomplete statistics from the first financial reporter, among the top 10 brands in the number of domestic coffee stores, 7 have obtained a number of financings, and capital has boosted the expansion of coffee brands and shaped the form of the brand.
According to enterprise investigation data, there were 31 financings in the coffee track in 2022. In the first four months of 2023, there have also been 23 financings.
According to the reporter's statistics, Luckin Coffee's total fundraising (including listing) reached 10 billion yuan, and most of the funds came from professional investment institutions such as Centurium Capital, BlackRock, and IDG. After Luckin Coffee's financial explosion, Centurium Capital ensured its control of the company through private placement and strategic financing. Nova Coffee has also undergone several rounds of financing and has won the favor of capital such as Haina Asia and Belle Consumer Fund.
Zhang Lin, an investor in CMC Capital who invested in M stand in 2021, told the first financial reporter that in fact, before CMC invested in M stand, it continued to pay attention to the coffee industry for one or two years, and found that freshly ground coffee is a track with relatively strong growth certainty, and felt that it would run out of some good enterprises.
Talking about the market competition pattern before investing in M stand, Zhang Lin said: "At that time, Starbucks was the only one, and then there were some brands that were relatively large but were declining at that time, so the market structure at that time was that Starbucks' 'boss' position was very clear and occupied the most favorable price band. In addition, there are also some brands in the new consumer brands that try to reach the Starbucks price band on the brand side, but the business model is not clear. ”
Zhang Lin believes that there were not many new consumer coffee brands at that time, but they also had some pain points, especially the lack of clarity of brand sense. "Everyone wants to do brand sense, just like people who do content want to do IP, we saw that M stand was relatively able to do this in different stores and scenes. And we feel that M stand has relatively good data to back it up. Perhaps some other brands, in different locations, at different times, the revenue performance of different stores will vary greatly. But M stand's oldest store at that time has been fully operating for more than 3 years, both some people use coffee in the store and some people take it out, so consumers recognize his product power, so from a single store, its entire life cycle is not a fleeting Internet celebrity brand, so we are sure that it may be a brand that can run out. Zhang Lin believes that M stand has excellent products, and the brand power has been confirmed by repeated purchase votes of C-end consumers, so she chose to invest in M stand.
It is worth noting that in the past two years of coffee financing events, not only many professional investment institutions have been included, but also Internet companies such as Tencent, Meituan, and ByteDance have frequently appeared.
According to enterprise investigation data, in 2020, Tencent Investment made strategic financing for Tims Tianhao Coffee. In 2021, Meituan Dragon Ball invested hundreds of millions of dollars in manner. And a month later, Manner received hundreds of millions of dollars in Series B+ funding from ByteDance.
In 2021, Lucky Coffee's parent company Michelle Ice City received 2 billion yuan of strategic financing from three institutions including Meituan Dragon Ball. It is understood that Meituan Dragon Ball was established in 2017 and focuses on the investment of previous C projects in the field of large consumption, including catering, retail, hotel tourism, leisure and entertainment and other local life services.
Public information shows that M Stand has previously obtained exclusive strategic investment from Xiaohongshu, amounting to hundreds of millions of yuan. As an investment institution, Xiaohongshu has successively laid out consumption tracks such as food and trendy clothing in the past two years. According to the data of Qichai, the company has invested in a total of 13 projects, 4 of which have entered the next round of financing, and there are no IPO projects.
Not only to provide capital for the coffee industry, but also some of the Internet giants' personnel have also flowed to the coffee industry. Before founding the Nova Coffee brand in 2019, Guo Xingjun had been working at Ele.me for about 5 years. Guo Xingjun has publicly stated that half of the personnel of Nova team are from large-scale retail companies, and half of the personnel are from Internet companies, so they will pay more attention to the digitalization of Nova Coffee and online channel construction.
Luo Xianliang believes that the entry of many capital will accelerate the development of the coffee market and strengthen the survival of the fittest. Some brands that are not competitive at all may be out, and some competitive brands will develop better with the help of capital. "The window period of rapid growth of coffee may last for about 3~5 years, after which the growth rate will slow down." However, there will also be some innovative categories in the slowdown phase, which will bring a new wave of growth. ”
Although it has been exposed to fraudulent performance, Luckin Coffee is also the biggest beneficiary of the last round of coffee fever.
Driven by capital, Luckin Coffee completed its rapid expansion in just 2 years with a low-price strategy, opened 4,500 stores, and logged on NASDAQ 18 months after its establishment, creating a record for the fastest listing of domestic Internet companies. At the same time, it has also promoted the development of the domestic freshly ground coffee market and accelerated the growth and development of a number of new coffee chain brands.
In the industry's view, aside from the performance fraud incident, Luckin Coffee's crazy expansion for 2 years, capital promoted Luckin to complete the supply chain and store layout. Therefore, after completing the debt restructuring and overseas investor settlement in the fourth quarter of 2022, Luckin began to reinvest in opening stores and marketing, and its performance also grew rapidly.
But in the new round of coffee wars, the industry's concerns are also growing.
The coffee wars have brought anxiety to the entire market, and Cudi coffee is one of the spotlights. Since Kudi Coffee itself has no clear capital support, its continuous large-scale promotion has also aroused the attention of the outside world to its operation. The joint operation model adopted by Kudi Coffee does not charge franchise fees or brand royalties, but shares profits with associates, ranging from 0%, 10%, 15%, 25% and 30% according to gross profits of 20,000 to 80,000. Previously, Li Yingbo, chief strategy officer of Kudi Coffee, told the media that the cost of a cup of coffee mainly includes raw materials, rent, labor, utilities, and the cost of a single cup of Kudi does not exceed 9 yuan. However, under the large-scale 9.9 yuan and 8.8 yuan promotions, the income that associates can share is doubtful.
Wen Zhihong believes that the purpose of the low-price drainage strategy is to form enough customer stickiness and repeat customers, but if the long-term business depends on low prices to attract traffic, then the continued profitability of the store will be challenged.
On Xiaohongshu and Douyin, since the beginning of this year, there are not a few associates who complain about the loss of joining Kudi Coffee. Some associates revealed that when doing 8.8 yuan Douyin group buying activities, Kudi's settlement price was 7 yuan / order, basically selling a cup and losing a cup. After April 1, Kudi had to adjust the policy and change to that online group purchase orders of less than 9.5 yuan were settled according to 9.5 yuan, so that the associates had some gross profits.
However, it is worth noting that the source of income of Kudi Coffee is limited, mainly from the difference in the price of sold materials and the share of associates, and it is unknown how long Kudi Coffee's funds can last under the condition of large-scale promotion and continuous brand marketing.
And Kudi Coffee, which is "close to the face" hand-to-hand combat from the design to the store layout, is aggressive. In terms of performance, Luckin Coffee's operating data is improving, with Luckin Coffee's revenue reaching RMB13.29 billion in 2022, a year-on-year increase of 66.9%, and an operating profit of RMB1.16 billion and an operating margin of 8.7% under US Accounting Standards (GAAP). In the first quarter of 2023, Luckin's total net operating income reached RMB4.44 billion, a year-on-year increase of 84.5%. In addition to the increase brought by the continuous opening of stores, the increase in performance is also related to Luckin's gradual reduction of discounts and increase of product prices. In 2022, Luckin's same-store sales growth rate reached 20.6%, and the profit margin of self-operated stores also rose to 26.4% year-on-year.
Couddy's hand-to-hand combat will undoubtedly put Luckin's management under some new pressure. However, it is not clear whether Luckin's management has a headache, but the two big households are fighting a price war, and the small and medium-sized coffee shops around the business district are very difficult.
Wen Honggang, an industry veteran and founder of Wen Teacher Cafe, recently visited the market and found that the coffee war is affecting the pond fish, and some small and medium-sized coffee brands have been "indiscriminately suppressed" in the new round of coffee war. "Pure community stores have not been greatly affected, but coffee shops next to office areas or parks have been seriously affected." Wen Honggang told the first financial reporter, especially office coffee, the number of cups sold daily in basic stores has declined by 50%~60%.
The industry is also worried that in the current large-scale franchise and opening of stores in the coffee industry, there may be a phased oversupply. Wang Zhendong, chairman of Shanghai Anyue Investment Management Co., Ltd., told the first financial reporter that the original capital investment in the coffee track is equivalent to institutional entry, but now the situation of joining and opening stores is like retail investors entering the market. On the whole, coffee actually has considerable flexibility in market demand and supply, and it is not easy to say whether the coffee consumption demand caused by the current price war is pseudo-demand. "Some consumers are originally non-rigid coffee consumers, such as instant coffee, RTD coffee (bottled beverages) or extracts, etc., recently attracted by low prices and turned into freshly ground coffee consumers. But once the coffee brand intends to end the price war and re-want to make the price of the product, will these consumers lose? ”
In fact, there are already some companies that are having problems. For example, Pacific Coffee has closed more than 100 stores in 3 years. Chinese food industry analyst Zhu Danpeng told the first financial reporter: "One of the biggest problems of Pacific Coffee is that the brand tonality cannot support the positioning of the price band. The scenes also lack differentiation. The coffee track has gone involvement, and Pacific Coffee is sticking to the so-called 'hit business people' strategy. If Pacific Coffee wants to change, it will be too difficult to rectify and upgrade more than 300 stores at the same time, so the only thing it can do now is to reduce prices. ”
For some coffee brands that have gone downhill, Zhang Lin believes that perhaps they have shortcomings in two dimensions. "One is the product itself. The consumption track is now getting more and more rolled, if consumers are to continue to buy, taste has become a must, everyone now wants excellent products. The second is the design of the store, the experience of the space, including the tonality of the entire brand. Consumers are also increasingly demanding coffee brands. Everyone needs some personality and a different experience. ”
In the eyes of the industry, in this round of war, the upstream suppliers and consumers of coffee are benefited.
Fu Lin, founder of Fangye Coffee, told the first financial reporter that most of the fast coffee with serious involution revolves around the business district, and the impact on the community and independent coffee shops is not great, and the two consumer groups do not completely coincide, but the price of coffee close to the people and the increase in places that are more convenient to drink coffee will accelerate the popularity of coffee consumption.
"The coffee war continues, depending on how long the capital-based money can burn, and how to maintain the market in the future of brand operation and maintenance, in my opinion, it is an additional type such as KFC coffee, such as coffee, etc. will have unexpected prospects because of low cost, and the upstream suppliers related to it are very big beneficiaries." Fang Yuqing said.
(Fang Yuqing is a pseudonym in the text)
(CBN)