China Food

The capital war behind a cup of coffee: who can become “China Starbucks” with an inflow of 6 billion yuan in 10 months?


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9 out of 10 coffee brands in China want to become Starbucks. Is this a story imagined by capital or an opportunity given by the times? Where does the logic of building “China Starbucks” come from?
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On New Year’s day in 2021, Zhou Hua, managing partner of Challenger venture capital, sent the letter of intent to ge Dong, founder of M stand coffee. They met for the first time three days ago.
When he first met Ge Dong, Zhou Hua just wanted to talk and had no intention of investing, because his colleagues told him that “the price is too expensive”. Moreover, in the past year, his team has almost seen most companies in the coffee industry and talked to some brands in the market. For various reasons, he has not found a suitable target for investment and has gradually lost his expectation for the track.
But after talking with Ge Dong for only 15 minutes, Zhou decided to invest in M stand.
The reason given is very simple. M stand’s operating data and past performance are very good. Zhou Hua revealed to Chinese entrepreneurs that there were 10 stores under m stand at that time. These 10 stores were fully opened within 18 months only by operating income without financing at all. “The single store human efficiency, floor efficiency, repurchase rate and return cycle of all stores are even better than Starbucks.”
What was more difficult was that M stand had decided on other investment institutions at that time. Zhou Hua made some efforts on how to make GE Dong accept the investment of the challenger’s venture capital. On the eve of the new year’s Eve in 2021, Zhou Hua made another appointment with Ge Dong and “lobbied” for nearly 5 hours. The two talked from 9 p.m. on December 31, 2020 to 2 a.m. on January 1, 2021. Afterwards, Zhou Hua said with a smile that the two “are equal to crossing the year together”.
Ge Dong was finally moved by Zhou Hua’s sincerity, consensus on industry understanding, and the background that Tang Binsen, founder of Challenger venture capital, is both an entrepreneur and an investor.
On January 15, 2021, m stand announced the completion of the first round of over RMB 100 million a financing, led by CMC capital and followed by Challenger venture capital. On July 23, m stand completed another round B financing of RMB 500 million, which was jointly led by Qicheng capital and black ant capital, followed by Gaorong capital, CMC capital and Challenger venture capital, with a post investment valuation of RMB 4 billion.
Not only m stand, since 2021, hot money from capital has been flowing into the coffee track, and several coffee brands have obtained multiple rounds of financing. Enterprise survey data show that in the first October of this year, the total amount of financing disclosure related to the domestic coffee industry was close to 6 billion yuan.
Among them, manner has raised four consecutive rounds of financing within six months, with a post investment valuation of US $2.8 billion (more than 10 billion yuan); seesaw has obtained a + round of financing of more than 100 million yuan; three and a half have obtained hundreds of millions of yuan of financing, with a post investment valuation of 4.5 billion yuan. In addition, several coffee brands such as yongpu coffee, yutianchuan, Novartis coffee and Shicui secre have obtained financing.
From the outside world, the coffee track is hot. Investors are either talking about coffee or on the way to throw coffee. “Because capital believes that on the trillion scale track of coffee, a company with a market value of 10 billion or even 100 billion will run in the future.” Tin PI, founder of yongpu coffee, revealed in an exclusive interview with Chinese entrepreneurs that from last year to this year, the valuation of yongpu coffee has increased more than ten times due to the improvement of business and brand strength.
Zhou Hua firmly believes that coffee chain brands like Starbucks will appear in China. “We are looking for such enterprises in the industry with such a purpose.”
But others believe that the coffee competition is far from as crazy as the outside world thinks. “This year, only manner and M stand will really get large amount of financing. Is there a third one?” An investor who pays attention to the coffee track told China entrepreneur that many investors do pay attention to the coffee track, but they can’t find a suitable investment target. Zhou Hua agrees with this, saying that the coffee track lacks “good investment targets”.
On the other hand, entrepreneurs also feel this “tangle” of investors. The founder of a coffee brand in Shanghai said that he talked with dozens of investment institutions this year. Everyone has a consensus: they are optimistic about the coffee track, but they all want to see it again, so there are not many institutions that really sell, “they think the coffee track needs a little more time”.
Photographer: Zeng Jing
Capital battle Shanghai beach
In 2015, Han Yulong and his wife opened their first manner store at a 2-square-meter booth in Shanghai beach. Three years later, today’s capital Xu Xin invested in manner with an angel round of 80 million yuan. Six years later, manner has more than 100 offline stores with a valuation of US $2.8 billion, with an average single store valuation of more than 100 million yuan.
It is rumored that Xu Xin, the “Queen of venture capital”, has fallen $1 billion in manner’s fourth round of financing, and obtained 80 times the income in less than three years. As soon as the news came out, the capital circle and public opinion were crazy.
With the entry of well-known institutions such as Temasek, war investment department and meituan Longzhu, manner is firmly in the first echelon of the new coffee brand.
But before 2018, manner only opened three stores when he was founded for three years. The turning point was in 2018, when Ruixing was established. By frantically burning money to seize the market, it instantly ignited the whole coffee track and provided a new idea to the outside world: Internet play and crazy store opening.
At the beginning of 2018, Xu Xin mentioned in a public speech, “is Starbucks the best coffee in the world? Then why do you think of Starbucks as soon as you drink coffee? Because you can see it everywhere, opening a store is a solution.”
Therefore, after obtaining the angel round financing of 80 million capital today, manner rapidly expanded from three stores to 133 stores in only three and a half years.
With the continuous expansion of manner’s scale, the valuation continues to rise, and the price also discourages many investors. “When we contacted manner, there were already one or two hundred stores, which was late for our organization. It didn’t make much sense for us to go in again.” Zhou Hua said.
Investors who continue to be optimistic about the coffee track began to look for new targets. M stand, a boutique coffee brand also born in Shanghai, entered the investor’s vision as a dark horse.
In 2017, M Stand was founded on the roadside surrounded by Huashan Wutong. After that, it has launched a number of popular products for brushing the screen circle of friends. The industrial style personalized store design of “one store, one design” is closer to the third space form of Starbucks, which also makes investors more excited.
“If you compare Starbucks, you will find that Starbucks has a high customer unit price and sufficient profit margin. At the same time, it has a strong brand power, including its brand culture and space.” According to Zhou Hua, m stand is similar to Starbucks in terms of customer unit price, sense of space and brand strength. “Manner prefers cost performance.”
In addition, Ge Dong, the founder of M stand, once served as the person in charge of Internet advertising and marketing of Tencent and worked in the marketing magazine men’s wear for three years. Its internet background, good at brand positioning, strategic planning and marketing, is also one of the reasons why investors like it.
“The founder of M stand, in terms of pattern, experience and what he has done, is very matched with coffee entrepreneurship.” Zhou Hua said.
The story of “China Starbucks”
When looking at the project in the early stage, a large number of offline coffee brands really posed a problem to Zhou Hua. “There are more than 8000 stores in Shanghai alone. There are many small chain brands with only a few stores. In the face of this situation, you will be more tangled. You don’t know which brands can run out.” Zhou Hua said.
But he is determined to invest in “China’s Starbucks” in his heart. “Whether it’s brand positioning, consumption scenes or products, it’s meaningful to surpass Starbucks, and there’s no point in doing anything else”.
Challenger venture capital management partner Zhou Hua. Source: respondent
Nine of China’s 10 coffee brands want to become Starbucks. Is this a story imagined by capital or an opportunity given by the times? Where does the logic of building “China Starbucks” come from?
Zhou Hua judged that at least three of the top ten consumer industries in each category in the world in the future are Chinese brands. For a long time, this track was dominated by foreign brands, such as Unilever, P & G, Coca Cola, etc. “The coffee track is large enough. In the future, there is great potential for Chinese local coffee chain brands similar to Starbucks.”
In addition, China’s coffee market is large enough and still a blue ocean. According to AI media consulting data, the scale of coffee market has been expanding in recent years. The scale of China’s coffee market will reach 300 billion yuan in 2020 and 100 billion yuan in 2025.
However, looking back at Ruixing coffee, who shouted to become “China Starbucks”, we know how difficult it is to become Starbucks. In order to achieve the scale effect of Starbucks, Ruixing’s initial play was to burn money and open stores crazily, but the result was huge losses and financial fraud scandals.
Starbucks’ business model is a heavy asset model, which requires a lot of cost investment in the early stage. How to balance the expansion speed and steady operation is a severe practical problem that entrepreneurs need to face.
In this regard, m stand and manner took different paths.
Manner has been expanding in a small store mode since the initial 2 square meter store. The small ones are less than 10 square meters, and the large ones are only dozens of square meters. As manner has reduced the initial cost investment such as rent and decoration to the extreme, many investors said that its “single store profitability is very strong” and the net profit margin is over 10%. Relying on the model of “small shop + affordable coffee”, manner expands very fast.
M stand pays more attention to the sense of space and will carry out independent design and innovation according to the pavement conditions. At present, its stores are mainly image stores with an average of 100 square meters and boutiques with an average of less than 50 square meters. Therefore, the initial rent and decoration cost of M stand will be higher. Its expansion speed is far less than that of manner. At present, there are less than 100 offline stores.
However, compared with the number of Starbucks’ 5000 stores in China, both are far from it.
Secondly, since Starbucks entered China in 1999, what it sells in China is not only a cup of coffee, but a consumption experience of American life.
As Jesper Kunde wrote in corporate religion, “Starbucks’ success lies in: in the era when the focus of consumer demand changes from products to services and from services to experience, Starbucks has successfully created a ‘coffee religion’ characterized by creating ‘Starbucks experience’.”
Whether it is the number and scale of stores or the shaping of brand culture, domestic coffee brands have a long way to go to become Starbucks.
The heat dissipates and the capital returns to the cooling off period
“Now the capital is in a calm period, and next year may not be as fanatical as this year.” According to the founder of a coffee brand, colleagues in the coffee circle often get together to exchange coffee experience. In addition to exchanging coffee experience, they also take precautions, such as discussing how to “survive the winter” after the capital cools down. “No one can say how next year will be.”
“Whether the capital market is hot or cold, we all develop at our own pace.” Tin scale.
Founded in 2014, yongpu coffee is the first enterprise in China to launch a series of portable cold extract coffee liquid and room temperature flash extract concentrate products. Before founding yongpu, Tiepi worked and studied in Shanghai Mingqian coffee for four years and worked in the coffee industry for nearly ten years. During this period, he deeply felt the change of capital’s attitude towards this track.
Yongpu coffee founder tin. Source: respondent
Before 2018, the most frequently asked question by investors was “is the coffee track really good? What’s the good?”
Now, most of the capital agree that coffee is a good track. “It’s just to find brands that can really run out and have vitality, companies with differentiated brands, competitive products and team characteristics.” Tin scale.
The turning point of this attitude change was in 2018. The emergence of Ruixing cultivated the market and made many people who don’t drink coffee start drinking coffee. “You’ll find that the number of people drinking coffee begins to increase significantly,” tin said
“Ruixing and we educate the same market. After we educate the market better, the market will be subdivided. It’s not sure what users will drink in the end.” Chen Hui, director of Yika coffee products and supply chain, told Chinese entrepreneurs that when users’ habits are formed, they may choose different brands to try.
Since 2018, brands in coffee track segments have also begun to receive capital attention. For example, instant coffee brand three and a half meals, self-service coffee machine brand easy coffee, etc.
In 2018, E-Coffee raised funds for two consecutive rounds, with a maximum amount of 80 million yuan. Three and a half consecutive rounds of financing in 2019, with a valuation of 4.5 billion yuan. Coffee brands with different consumption scenarios began to rise in large numbers.
What is more intuitive is the multiple growth of product sales. It is reported that in three and a half years, the revenue soared from 10 million yuan to 200 million yuan. Yongpu coffee had a revenue of only a few million yuan in 2018, but by 2019, its revenue had been close to 20 million yuan, and the revenue in 2020 was 100 million yuan. It is estimated that yongpu’s coffee liquid sales this year will be close to 300 million yuan.
Behind the myth of sales figures is the crazy pursuit of capital. In 2020, Santon and a half won 800 million yuan of round B financing, Sequoia China led the investment, and Fengrui capital followed the investment. This year, yongpu coffee also obtained two financing successively.
In January 2021, yongpu coffee obtained 50 million yuan of a + round financing. In the financing process, yongpu coffee has been focusing on building brand strength, expanding team, building supply chain, etc.
Nowadays, for tin, the most challenging thing is brand building. He is trying to build yongpu coffee into a coffee brand with the most Chinese cultural characteristics. How to combine the imported coffee with Chinese culture is what he will continue to do in the future. “Our time setting for this matter is not two or three years, but the next 20 or 30 years.”
At present, yongpu coffee is constantly trying in this regard. In terms of brand building, yongpu launched the IP “shiduanzheng” based on the stone lion in Chinese traditional culture; In terms of product innovation, yongpu combines the unique osmanthus oolong tea and coffee in China and launched the first oolong tea coffee freeze-dried in China; At the same time, make illustrations with the theme of China’s 24 solar terms and give them to users.
The red sea of competition has not yet arrived
Previously, the news that yongpu coffee will launch its first offline store once became a hot topic in the industry. This is another coffee brand switching from online to offline after the first offline concept store opened by the online coffee brand for three and a half meals.
For the rumors of entering the offline market, the iron sheet will be clarified. He said that opening offline stores is more to give users a space for offline communication. He does not intend to open many stores in a short time in the future, and the focus will still be on online and offline channels.
However, with the accelerating pace of offline stores of domestic coffee brands such as Ruixing, manner, m stand and seesaw, foreign brands such as tims claim to open 1500 stores in China in 10 years or even less, the competition for offline coffee seems to have reached a white hot stage.
Some practitioners also feel some changes brought by offline market competition. “Especially in Shanghai, the most obvious feeling is that the rent of the house has become very high.” A coffee entrepreneur revealed to Chinese entrepreneur that the rent of offline stores has doubled compared with 2019. The most intense competition is some core commercial streets, followed by street shops, followed by shopping malls.
“It is far from the point of vicious competition. Although the coffee market is lively, it is still in the stage of benign development. The only problem may be that the supply of baristas is in short supply and it is difficult to find. Moreover, training a baristas also needs the running in cost in the later stage.” The above entrepreneurs said.
For the current market competition, as an insider, tin observed that “the sales of coffee brands I know are growing in the past two years.”
In early October, seesaw founder Wu Xiaomei also responded to the current market competition in her circle of friends. She said, “the free coffee promotion of friends has not affected our business, and our order quantity has remained stable or even increased in each period. The first store of friends in Chengdu is 100 meters away from our store, and the order situation of our stores is very similar.”
Wu Xiaomei’s implication is that the current competition in the coffee track is not as fierce as the outside world thinks. “Each brand has its own positioning and makes its own customer base. The Chinese market is large, there are many people, and the demand is hierarchical.”
According to tin judgment, in the next three to five years, we will be in the stage of simultaneous growth. “At present, what we are doing is still an incremental market. How to make more people drink coffee is actually what all brands are doing.”
Many people in the industry have a general consensus: Nowadays, offline cafes are growing explosively. When the number of people drinking coffee increases significantly, it will also bring explosive growth and understanding to other categories of coffee products.
“Which brands can really go further in this period? I think it must be those that pay more attention to brand building, those that pay more attention to communicating with users, and those that have strong control over the supply chain.” Tin scale.
Author: Liu Weiqi; Source: China Entrepreneur Magazine (ID: ICEO com cn), reprint authorized. Reprint authorization and media business cooperation: Amy (wechat: 13701559246);
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