#coffee #sell #mala #Tang #Ruixings #sinking #false #proposition丨Krypton
Text | Xie Yunzi Pan Xinyi
Editor | Pan Xinyi
The spring of coffee is back, and capital and giants are excitedly betting chips. Manner’s single store is valued at as high as 12 million U.S. dollars. Even Ruixing was pulled back from the brink of bankruptcy by a $250 million financing from “old shareholders”.
The imagination of the Chinese coffee market has not been dissipated due to the enthusiasm of the epidemic. The big players have enough confidence to overdraw, but the independent coffee shops scattered in every corner of the city are still trapped in the aftermath of “self-help by the epidemic.”
In terms of quantity, these branches and leaves are the real protagonists of the Chinese coffee market. The “White Paper on China’s Fresh Coffee Industry” recently released by Deloitte shows that there are 108,000 cafes in China, and chain brands account for only 13% of all cafes.
The cruel thing is that despite the market vision of 100 billion yuan, the early data obtained by Kamen and Meituan-Dianping showed that the failure rate of stores that only depend on coffee in the first year is 60%-70%. As far as the status quo of the Chinese coffee market is concerned, most people are still struggling with food and clothing.
01 Seize the high ground for consumption recovery
The embarrassing era of domestic idol drama heroines drinking coffee with a spoon is over. At the moment when the beauty economy dominates the aesthetics of life, “net celebrities” lining a cup of coffee with their exquisite faces are the weapon to occupy the major social platforms.
Another identity of Zhang Yan, the principal of “One quarter”, a boutique coffee shop in Beijing, is a V8 expert on a review website. She is keen to check in and clearly feel that “there are more and more new coffee shops opened this year.” , The card can’t be beaten.”
In the post-epidemic era when exposure is precious, it is extremely important to seize the exposure highlands. Behind this is the restart and acceleration of competition on the coffee track.
According to Zhang Yan’s recollection, from April to May 2020, the coffee market began to recover and new stores began to appear. Although the business of Beijing coffee shop owners fell again in July and August because of the second epidemic, in September last year, business began to gradually recover. Also because of the “not returning home” of more young people during the Spring Festival, there was a wave of outbreaks. flow. At present, “consumers are more enthusiastic about coffee than in the past.”
Highly dependent on offline consumption scenarios, bowing to the epidemic or even choosing to close stores is a fate that some small and medium coffee shops cannot escape. According to Zhang Yan’s observation, during the epidemic prevention and control period, many colleagues in Beijing were trapped in a vicious circle of “the flow of the epidemic could not keep up, and the landlord was driven away due to poor management and rent arrears”.
In the national coffee industry map, there are countless coffee shops that have closed down due to the epidemic in second- and third-tier cities. Guangyi opened one of them next to a university in Jinan, Shandong.
In order to create more revenue, Guangyi’s coffee shop not only sells cocktails, steaks and other categories, but also rents venues for blind dates, mobile phone conferences and other activities. The daily turnover has reached several thousand yuan, but this is still not enough to pay two hundred. The rent of a multi-square shop and the cost of five or six employees.
Drawing: 36 Krypton
During the epidemic, Guangyi had to rely on other businesses to “transfusion” this coffee shop. Faced with this failed investment, he finally chose to close the shop.
For the surviving small and medium coffee shop owners, the epidemic is more like a double-edged sword. Although vitality is severely damaged, it has also shortened the time required for market inspections.
Jiudian Coffee, a specialty coffee shop, has four branches in Beijing. Although the operation of university stores and Hutong stores were affected by the suspension of classes and strict management of scenic spots due to the restrictions of home isolation, only the street store was closed.
As one of the founders of the coffee shop, Chenxi came to the conclusion that “there was a problem with the location of this street shop. The epidemic is only a catalyst. From the perspective of efficiency and repurchase rate, the turnover cannot be paid for. The rent after the price, after all, our turnover is less than a fraction of Starbucks.”
Chenxi revealed that opening a coffee shop is a business that requires a lot of early investment to “keep a shop”. It usually takes two years to test whether a boutique coffee shop is “good” in Beijing. “After closing the street store, the addition of professional managers, coupled with the impact of retaliatory consumption, although the revenue level has not returned to before the epidemic, it is already moving in a good direction.”
Chain brands have a more profound perception of consumption recovery. Crossing the freezing point of the epidemic, capital, which has always been at the forefront of the market, is the first to use real money to prove that competition has once again entered a fierce stage.
Drawing: 36 Krypton
After experiencing a series of disturbances of “fake, delisting, infighting, and bankruptcy”, Ruixing Coffee, which has been silent for a long time, once again rushed to the hot search of Weibo with a financing of US$250 million. M Stand and Tims Coffee also completed a new round of financing in the first half of this year, and Manner’s post-investment valuation reached US$1.3 billion.
The financial report of the industry leader Starbucks also shows to the outside world that the Chinese coffee market has performed well in the global downturn. In the second fiscal quarter just past, Starbucks China’s revenue was US$860.6 million, same-store sales increased by 91%, and a net addition of 110 new stores.
Cut the lens to the entire coffee industry, optimistically predicting the popularity of the market. According to the “Analysis Report on China’s Coffee Industry Market Demand and Investment Planning for 2020-2025” issued by the Prospective Industry Research Institute, China’s coffee consumption has an average annual growth rate of 15%, which is much higher than the world’s 2% growth rate. It is expected to be 2025 China’s coffee market will reach 217.1 billion yuan in 2015.
Under the rising market expectations, the enthusiasm for opening a store is also increasing day by day.
The relevant person in charge of Tims told 36Kr that in May 2021, the number of Tims stores in the Chinese mainland market is expected to reach nearly 200 stores. It has now entered the Ningbo market and plans to deploy in Shenzhen this year. The vision of opening 1,500 stores in China in the future constant. On the other side, Manner, after the capital entered today, quickly opened from 3 stores to 108 stores, 94 of which were opened in Shanghai.
According to the expansion plan of the top brand, as well as the impact of comprehensive factors such as the epidemic situation and other changes in the competitive landscape, the Deloitte report also predicts that the next three years will grow at a compound annual growth rate of about 5%. By 2023, China’s overall coffee The number of stores will reach 123,000, and the growth rate of all tier cities will be relatively even.
Drawing: 36 Krypton
It seems to be thriving, has the coffee industry as an exotic product really reached a breaking point?
02 How to make a profit is a problem
The “Internet Coffee” brand represented by Luckin has been hoping to break the rising rent dilemma through the form of “small stores + takeaway and self-pickup”.
If it is said that the coffee industry still disdains Luckin’s traffic strategy before, but the arrival of the black swan of the epidemic has made store rents more and more unaffordable, and more street “small stores” have risen, which will affect the traffic. The attention has also reached an unprecedented height.
Luckin is not a perfect industry benchmark, but its delisting has become the starting point for a new round of coffee market outbreak.
Tim Hortons, a coffee brand from Canada, started a strong offensive. In May 2020, Tims, a Canadian national coffee brand that has recently entered China, also launched a small store type “Tims Go” to meet the “fast and convenient” needs of more people.
Manner, known as the “king of Shanghai’s price-performance ratio”, has compressed the store area to the extreme, and the price of a cup of specialty coffee is also controlled in the range of 15-30 yuan. Although it is the same as Luckin’s pricing, it uses high-end milk sources. The taste is impressive.
In fact, whether it’s Manner or Tims Go, what you learn is Luckin’s “Pick up” store. Luckin’s “Pick up” store is more of a small store on the street or between office buildings, which can only accommodate operation desks and a To two small tables and chairs. Consumers place orders online and then pick them up in stores.
As Ruixing said, this kind of store model better breaks the cost structure of brands such as Starbucks, which is mainly based on the rental of large-scale stores. And unlike Lian Coffee, which is purely for take-out delivery, the signs of small stores that can be seen everywhere are the key to building brand power.
In the face of the “after-effects” left by the epidemic, independent coffee shop owners have also taken inspiration from Ruixing. In addition to maintaining the traffic of existing stores, the key to leveraging the market at the lowest cost is the key.
Li Xiang, the owner of Xiong’s coffee shop under the White Pagoda Temple in Beijing, was deeply moved by this. “During the epidemic prevention and control period, we have completely changed from offline to online. We made our own small program and invested money for promotion in WeChat stores. Coffee beans and coffee equipment will be sold online. We have also begun to pay attention to private domain traffic. If there is an order in Financial Street, we will ride to deliver it by ourselves.”
In September 2020, the second store of Xiong Brewing Coffee opened in Qianmen, which is also a street store model of “point-and-take”. While fighting for the flow of people, such a small store greatly reduces the cost of rent.
In fact, whether it is miniaturization or chaining, the boundaries between “fast coffee” and “slow coffee” are becoming blurred, and the atmosphere of everything looking at “money” is getting stronger and stronger.
The capital and giants in the front are enthusiastically discussing keywords such as the number of stores, online, and sinking. In the face of solutions such as refined operation and new small stores, independent coffee shops lacking a strong capital chain Had to fall into a dilemma.
In the sinking market, the problems that independent coffee shops have to face are more primitive and rude-coffee consumption habits have not really spread. In the face of this ultimate test, reducing the size of stores and focusing on traffic are all medicines that are not right.
Guangyi, who closed more than 200 flat coffee shops, said that in Jinan where he is located, many coffee shops have been converted into tea rooms, and this change may not have a direct relationship with the epidemic. In his view, the sinking of coffee is a false proposition, and the main reason is that there are too few coffee drinkers.
Based on this judgment, Guangyi’s thinking is, “Out of feelings, you can find a very small venue to play very delicately, but if you really want to make money on this track, it’s a big deal for many entrepreneurs. Dead end.”
“It’s better to make coffee than to sell mala Tang. The coffee market in the northeast is really not very good.” Liang Han, a coffee shop owner from Hegang, a small city in the northeast, complained even more “fatal”.
In May 2020, Liang Han returned to his hometown from Harbin to start a business, but he was surprised to find that in Hegang, which can afford a house for 100,000 yuan, the rent for a 120-square-meter store reached 80,000 a year. The cost of renting water and electricity accounts for about 60%-70% of the total annual cost, and the initial investment of self-employment also spent 300 to 400 thousand yuan.
Judging from Liang Han’s current business conditions, in peak seasons such as winter and summer vacations, the store’s daily turnover is about 2000-3000 yuan, but in the off-season, the average daily turnover can only reach 600-700 yuan, and only 300-400 when it is lower. yuan.
“I only need to recover the cost within two or three years.” Menting coldly poured Liang Han a pot of cold water. What made her even more disappointed was that it is difficult to feel the enthusiasm for coffee culture in the small city of Hegang. “Consumers play cards, order takeaways and even eat stinky tofu in stores.”
It is foreseeable that the value of coffee shops has not been and will not only depend on the craftsmanship of a barista in the future. With the eager anticipation of a recovery in consumption, a group of independent coffee shops can only be forced to invest more.
Today’s Beijing, Shanghai, Guangzhou and Shenzhen, if you want to become a sufficiently qualified boutique coffee shop, the “Rolls Royce” La Marzocco of the coffee machine industry is indispensable. In addition, lively site selection, expensive decoration, and market-breaking marketing are even more indispensable.
In the downward market, independent coffee shops have stronger social attributes, decoration and area cannot be sacrificed, and lack of a corresponding consumer group, wanting to make quick profits is almost a metaphysics.
Drawing: 36 Krypton
An accepted fact is that coffee as a single product has a high gross profit margin, but opening a coffee shop can easily lose money.
Li Jiamin, the founder of Haoka.com, told 36Kr that a cup of American coffee beans generally costs 1-2 yuan. According to Ruixing’s American price of 13 yuan, the gross profit is considerable.
Among all cost structures, store rent is the highest, followed by manpower, and then milk costs. According to Li Jiamin, the milk cost of a coffee is often two to three times the cost of coffee beans.
Joyce, a coffee blogger with 6 years of experience, also revealed that coffee beans are not as profitable as milk in the entire coffee supply chain. And the net profit of coffee shops is much lower than that of bars and milk tea shops. “Even in Beijing, setting aside high rent costs and labor costs, we must ensure particularly good products and a high turnover rate. It also requires certain expansion and chain operations to make it easier to achieve profitability.”
And Joyce believes that if independent coffee shops want to be more profitable, chain operation of 3-5 stores is the key. “Basically every barista wants to have his own store. If the barista is very good, you may lose him soon. This is also the biggest pain point for an independent coffee shop owner when the store expands.”
In the latest questionnaire survey of the vertical coffee media “Coffee Salon”, only 38.93% of the more than 1,000 coffee shops that participated in the survey have achieved profitability in 2020, 21.41% of coffee shops are losing money, and the rest have just reached breakeven. status.
According to the 2016 survey data of Kamen and Meituan-Dianping, stores that rely solely on selling coffee have a failure rate of 60%-70% in the first year.
03 Cheap coffee = false proposition
Competition in the first-tier market has intensified, and the low-tier market has basically not established. Starbucks is still the unshakable king of coffee. This is the status quo of the Chinese coffee market.
Zhang Tianbing, head of Deloitte’s new retail, said to 36 krypton that from an estimation perspective, the relative per capita consumption of coffee in China is relatively early, but in fact, in China’s first- and second-tier cities, coffee has long become a necessity.
“The average number of cups of coffee consumed per capita in mainland China is 9 cups a year, which is much lower than that of the United States, South Korea, and Japan. However, it is different in first- and second-tier cities. The average number of cups per capita in first- and second-tier cities is 326 cups a year, and that in second-tier cities is 261. In first- and second-tier cities, it is about the same as Japan, the United States, and South Korea.”
According to Zhang Yan, a coffee manager who is keen to check in, the supply side of most high-tier cities is still in an unsaturated state. “Especially in Beijing, there are currently less than 1,000 specialty coffee shops, and among them there are only 30 or 40 well-known brands.”
In the face of market gaps, entrepreneurs and capital together used stories and money to create a long list of “Starbucks challengers”. But first we need to answer a question, is Starbucks’ coffee business really so profitable?
Compared with other brands, Starbucks’ excess revenue partly comes from rental premiums.
Du Bin, vice president of Hanbo Commercial Group, told 36Kr that under normal circumstances, Starbucks has two ways to obtain storefronts. The first is that when real estate companies construct commercial buildings, they will actively consider introducing Starbucks, and give Starbucks a longer rent-free period and lower rental prices. The other is the more common “point rent + share model” at this stage, and the rent is generally 6-10% of the total income.
Take Tims, which is in the limelight again, as an example. For more powerful developers, Tims adopts the model of “both deduction and guaranteed rent, whichever is higher”, but for weaker developers, Tims also adopts the “deduction” model. “Point rent” form, and the percentage of point rent deduction is also 6%-10% of total income.
For more brands such as Manner, Luckin, Pacific, etc., the rent model is more of “the higher the deduction and the guaranteed rent.” According to Du Bin’s observation, the same store, Starbucks’ relatively small brand, can reduce rent costs by 15%-30%.
For chain coffee, even the mode of online ordering and offline pickup requires a large number of outlets. It is also a heavy asset mode of “small stores + large quantities”, which is still a big test for the current coffee market.
Taking a step back, even if the store rent barrier is broken, the price factor is still insurmountable. In first-tier cities, low-priced coffee of 10 yuan is often affiliated with convenience stores and fast-food chains. In lower-tier cities, even in Hegang, the price of a cup of coffee of comparable quality will not be cheap.
In Liang Han’s coffee shop, the prices of American, latte and other products are around 20 yuan, while dirty coffee and hand-made specialty coffee are more expensive, and the price range is around 25-35 yuan. “We are a small store, we can’t roast the coffee beans ourselves, and the cost of getting the beans from the factory is not cheap.”
Luckin, who was the first to “beat down” the price, greatly expanded the space of the first and second-tier coffee markets in addition to the price war, and was the first to test the flexibility of the coffee market in big cities.
In Chenxi’s impression, colleagues in Beijing always talk about Ruixing’s education in the mass market. “It is helpful to the coffee circle when Ruixing is on fire. When there are more people drinking Ruixing, people who drink specialty coffee will naturally. too much.”
But the cruel thing is that before the entire plate of the Chinese coffee market has really grown bigger, the situation of one declining and one cannibalizing each other more often occurs in the two consumption scenarios of “fast coffee” and “slow coffee”. The Deloitte report also It shows that with the acceleration of work in first- and second-tier cities and the development of consumers’ coffee drinking habits, the proportion of consumption in the “quick coffee” scene has gradually increased. While the consumer takes away a cup of coffee, it also reduces the possibility of him going into a coffee shop to consume it.
When the coffee market in first- and second-tier cities once again entered the stage of accelerating the expansion of even boutique coffee shops, Chenxi also had new concerns. For small independent brands, Manner and Tims, which are cheaper, may threaten more than Starbucks and Swiss. Fortunately, it’s bigger. Small stores have no advantages at all in terms of price, location, resources, equipment, and decoration.
In addition, according to Chenxi, “It usually only takes three months for a chain brand to verify whether a store is feasible.” After mastering key big data, the cost of opening a chain for a chain coffee brand will also be greatly reduced.
To be sure, swapping price for volume is unrealistic for many independent coffee shops, but it has already been practiced here for chain coffee brands. According to Luckin’s experience, due to profitability pressure, the lower price strategy compared to big brands such as Starbucks may bring about faster results than imagined.
Public information shows that compared with the fourth quarter of 2018, the average selling price of Luckin’s fresh drinks has risen from 10.4 yuan to 12 yuan, and the average selling price of other products has risen from 8.7 yuan to 13.8 yuan. The pricing of the “SOE Yunnan Red Honey” series also fell between 17-21 yuan.
In March 2020, the price of Luckin Coffee’s products had been adjusted by 1 yuan across the line, but in fact, Luckin had already begun to “concealed” the price increase through discounts. In November of the same year, Luckin no longer provided free delivery services. After a series of “overtly and secretly” price increases, in July 2020, Luckin, which has been burning money, finally announced that “single store cash flow is positive.”
As for the question of when coffee can become a profitable and good business, referring to the answer given by Ruixing, we can only know how many bubbles will be punctured after the coat of capital fades. In addition to continuing the self-help strategy, independent coffee shops can do nothing but “boil”.
Zhang Tianbing from Deloitte gave his own judgment, “China has been drinking coffee for more than 20 years. From the perspective of accelerating transformation, I think it will take at least 5 years for third- and fourth-tier cities.”
Aside from the slightly abstract analysis data, the growth of the coffee market has been deeply imprinted in daily life, and the consumption scene and track segmentation are more obvious. Zhang Tianbing emphasized that nowadays, fast coffee is more convenient, slow coffee prices are higher but more and more in line with differentiated needs, convenience stores, fast food restaurants are also in the layout, the industry has entered a period of flourishing.
From the perspective of coffee bean consumption, Li Jiamin believes that it is not particularly accurate to estimate the market by measuring the total import and export trade of green coffee beans. As a bulk futures commodity, coffee beans have a certain amount of hoarding and are not really consumed. From the perspective of the number of coffee shops, there has been an increase, but it is also related to shops.
Li Jiamin concluded that the current volume of China’s coffee market is at least two to three hundred billion, but the proportion of instants is much larger than that of ready-to-drink.
To be sure, as the spokesperson of elite culture, what coffee portrays is still a Western-style life context that represents the middle class. Before truly winning the favor of the bottom consumers, China’s 100 billion coffee market is still a beautiful phantom.
(This article Liang Han is a pseudonym, and intern Liu Yichen also contributed to this article.)