Lu Zhengyao, who is riddled with huge debts, can he still rely on Cudi to "turn over the salted fish"? In the past 2023, the chain coffee industry has begun to enter a stage of rapid development.
From the perspective of the expansion of single-brand stores, "One View Business" data shows that in 2023, 13 chain coffee brands will complete a positive net increase in store volume, and 10 brands will show double-digit growth in growth, the most exaggerated is Cudi Coffee, which has achieved explosive growth from 87 to 7,064 stores in one year.
However, although Cudi has expanded at rocket speed in the past year, Lu Zhengyao, as the founder, has not yet shaken off huge debts.
(Source: Tianyancha) Recently, Lu Zhengyao added another information on the person subject to execution, the execution target is 7.8178 million yuan, the enforcement court is the Beijing Third Intermediate People's Court, and before, Lu Zhengyao has become the person subject to execution many times and has been restricted from consumption, according to [Tianyancha data display], at present, Lu Zhengyao is associated with a total of 3 pieces of information on the person subject to execution, and the total amount of execution exceeds 1.09 billion yuan. So, can Lu Zhengyao, who is riddled with huge debts, still rely on Cudi to "turn over"?
Lu Zhengyao's "turnaround battle" is not easy to fight, and 7,000 stores can be opened in just one year, and Cudi Coffee's "full association" model accounts for most of the reasons.
Under this model, no fixed fees such as franchise fees and brand management fees are charged, and service fees are only charged according to the gross profit of store operations, which can naturally attract many associates to enter the market in the early stage.
So Cudi, who has always advertised that he does not charge "franchise fees", is he really making profits for associates? According to the company's cooperation agreement, Cudi headquarters will charge a service fee according to the gross profit of the store, with a 10% service fee for the part of the gross profit of 2-30,000 yuan, a 15% service fee for the part of the gross profit of 3-40,000 yuan, a 25% service fee for the part of the gross profit of 4-80,000 yuan, and a 30% service fee for the part of the gross profit of more than 80,000 yuan.
In addition to the commission of existing stores, Cudi's revenue sources include cash flow from new stores, profits from the raw material supply chain, and external investment.
However, on the one hand, many Cudi associates are still mired in the profit "whirlpool", although there are subsidies, but due to the relatively high cost of raw materials for Cudi, the gross profit of a single cup of coffee is roughly 45%-50%, not to mention that in addition to the cost of materials, a cup of coffee also has expenses such as shop rent, labor, and promotion, resulting in many Cudi associates almost selling a cup and losing a cup.
On the other hand, Lu Zhengyao was the person responsible for the financial fraud incident of Luckin that year, and it was difficult to obtain financing after his reputation was damaged, and under the A-share full registration system, the franchise model enterprises were easy to evolve to a "quasi-financial model", and the hidden dangers of listing restrictions increased, and the more cautious investment institutions were obviously not willing to take risks at this stage and invest money in Cudi, which had not yet run through the profit model.
Profitability is difficult and financing is blocked, so at this stage, Cudi's main source of income still depends on the cash flow of new stores and the profit of the raw material supply chain.
(Source: China Merchants Securities "Coffee Industry In-depth Report: Cudi VS Luckin, 9.9 Yuan Price War "Who Kills the Deer") According to the calculation of China Merchants Securities, counting the margin, brand licensing fee, design fee and equipment price difference, Cudi's new store cash flow is between 10-150,000 yuan, and Cudi's price increase on raw materials is generally in the range of 15%-20%, so the profit of the raw material supply chain is about 0.7-08,000 yuan/month/store.
With a limited source of income, it is difficult to afford Cudi, who has normalized low-price subsidies. According to the survey data of China Merchants Securities, Cudi's subsidy to associates is about 0.8-10,000 yuan/month/store, which can barely be covered by the profits of the raw material supply chain.
However, in addition to the subsidy for associates, there are also 1-150 million yuan per quarter marketing expenses, as well as Douyin distribution expenses, management salaries, supply chain expenses and R&D expenses, etc.
Calculated in this way, the cash flow brought by more than 7,000 stores is only about 1 billion at best, excluding the marketing expenses of each quarter, as well as other expenses, there is almost nothing left, and it would be good if Boss Lu did not post money into it, let alone borrow Cudi to pay off the debt.
Cudi Coffee into a "dead end"?
2023 is already quite difficult, but in 2024, the involution of the industry will intensify again, and Cudi Coffee will be even more "tired".
According to the data of "Restaurant Boss Internal Reference", the growth rate of Cudi stores has slowed down significantly since September last year, and the number of new stores of Cudi has even dropped to 173 last month.
It is conceivable that the incremental funds brought by more than 100 new stores will naturally be difficult to subsidize the more than 7,000 stores in stock, not to mention that in order to appease the associates recently, Cudi also announced that it will increase subsidies and benchmark the subsidy of Luckin 4 yuan/cup to increase the confidence of associates at 3.5 yuan/cup, which will further increase the cash flow pressure of Cudi.
In order to alleviate the practical predicament and realize the "dream of 10,000 stores of coffee", Lu Zhengyao has also taken some new actions in recent months, but the results seem to be less than ideal.
First of all, at the end of last year, Lu Zhengyao tried to enter the milk tea track through the new face tea cat.
However, on the one hand, it is a milk tea track that is more involuted than chain coffee, and on the other hand, it is the old style of "spending money to expand-preferential subsidy drainage-occupying the market-quickly listing-price increase", coupled with the single-store profit model that has not run through, it is difficult to persuade affiliates to call.
Some industry insiders publicly complained on social platforms, "On the premise of not having a very solid industrial foundation, rashly launching a new brand and entering a new track, anyone with a discerning eye can see that it is another wave of new and old franchisees in another track." ”
(Source: Xiaohongshu) Secondly, at the beginning of the year, Cudi cooperated with the top Wang Yibo and officially announced a new endorsement, but the supply chain with deep shortcomings made Cudi unable to achieve the ideal effect of "1+1>2".
Some consumers reacted that Wang Yibo's peripheral materials were seriously out of stock, and there was even a mix and match of "Chinese Dragon Cup + Zhen Huanchuan Cup Sleeve + Wang Yibo Bag".
(Source: Little Red Book)
In fact, long before Wang Yibo's co-branded activities were launched, some associates had already begun to be "worried" that they could not order related products in the internal group, which shows that the shortage of co-branded peripherals has become the norm.
(Source: Cudi Associates broke the news) In addition, some consumers' complaints are focused on Cudi's "perfunctory" around the co-branded peripherals, after all, many fans who rushed to Wang Yibo to buy Cudi have expectations for the peripherals in their hearts, but the "ultra-thin small card" and "poorly printed packaging bags" undoubtedly poured a wave of cold water on this part of consumers.
(Source: Xiaohongshu) popular products are frequently out of stock, and the quality of some materials is not up to par, and Cudi's immature supply chain is becoming more and more difficult to hide, which also makes even if it pays high endorsement fees, as a result, Cudi has not been able to seize the heat brought by the new spokesperson, but only further aggravates the cash flow pressure.
In the end, seeing that the influence of the tea cat and the new spokesperson is only "thunder and rain", it is reported that the anxious Cudi issued a series of new policies at a recent national association meeting, including revising store ordering rights and requiring stores to sell "Maotan liquor". As soon as this news came out, it immediately aroused a lot of dissatisfaction, and an associate directly pointed out on social media platforms that "the store has lost control of its financial rights", "the loss rate of materials is difficult to estimate", "the threat of termination of the contract to the associate to order wine" and other problems, and finally said that "Cudi Coffee is dead".
(Source: Cudi Associates broke the news) Under the strong resistance of a large number of associates, Cudi finally adjusted the operating rules, and recently responded that the orders of Moutai Bulao Liquor (Hua Zhijiu) and Maotan Liquor (Gu Zhihuan) are consistent with the daily orders of the store, and the first batch of orders will be one box for each of the two wines, and the payment will be settled on April 30, and the unsold part of the company will be collected in a unified manner. The deducted store will complete the refund to the store balance account on January 22.
However, Cudi's change is not so much a realization of the problem, but a last resort under the influence of "public opinion". Ironically, a screenshot circulating on the Internet recently shows that some of the suspected affiliates were also punished by Cudi for complaining.
(Source: Cudi Business Announcement) does not understand the demands of the associates, but blindly gags, instead of helping the associates improve their profitability and bring growth and profits, but through a series of riotous operations, bringing anxiety and pressure, more and more Cudi associates have begun to "retreat".
The new year's rent due tide is coming, and timely stop loss and store closure may become the choice of many Cudi associates, and if they want to win back the hearts of associates, Cudi and Lu Zhengyao may need to show more sincerity.
This article is for knowledge sharing only and does not constitute the provision or reliance upon as investment, accounting, legal or tax advice. Any investment decision made on the basis of this is at your own risk.