China Food

Target a trillion and bring down Starbucks

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Ruixing dare not slow down, and other challengers of Starbucks are eyeing it.
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In 2021, out of the coffee industry affected by Ruixing’s fraud, there was another financing frenzy. Manner and M stand have become the two most popular brands of capital and the main force of “encircling” Starbucks with domestic coffee.
In Shanghai, the city that knows coffee best, a new round of prosperity and competition in the coffee industry is spreading from here to the whole country.
The coffee boom is making a comeback
In 2012, Han Yulong opened a photography themed coffee shop in his hometown of Nantong, Jiangsu Province. He opened a one-to-one coffee training class and sold his roasted coffee beans, but the effect was not ideal. In 2015, he came to Shanghai and opened a “manner coffee” with an area of only 2 square meters on Nanyang Road, Jing’an District, Shanghai.
In 2017, after visiting 50 countries, Ge Dong opened a coffee shop called M stand beside Huashan Road in Shanghai. He used to be the person in charge of Tencent’s Internet advertising and marketing, and worked in men’s wear for three years.
Two seemingly calm entrepreneurial stories usher in a highlight moment in 2021.
Looking back at the coffee market in 2021, it is bustling. Capital is crazy again, new and cutting-edge brands are rising rapidly, and domestic brands are enclosure, constantly challenging Starbucks’ hegemony. Starbucks has stepped down from the altar because of food safety problems.
How crazy is capital? According to the investment and financing data report of the five “new catering” tracks in 2021, the total amount of relevant financing disclosure of the domestic coffee industry was close to 6 billion yuan in the first October of 2021.
This includes three and a half meals, boutique coffee represented by secre, chain coffee represented by manner and M stand, and takeout coffee represented by nowwa.
A series of financing events have caused the valuation of many coffee brands to soar. Manner’s valuation exceeds $3 billion, and the valuation of a single store exceeds $15 million; M stand is valued at 4 billion yuan, about 600 million US dollars. If the goal of opening 150 stores in 2021 is achieved, the single store is valued at about 4 million US dollars.
Under the capital blessing, cutting-edge coffee brands began to run horses and enclosure. Seesaw plans to settle in 13 cities by the end of 2021 and rush to 100 stores, but there are only 28 stores at present; M stand plans to continue to expand its first stores in Beijing, Suzhou, Nanjing, Wuhan, Chengdu and other places; With the help of capital, manner has opened nearly 200 stores, 165 of which are located in Shanghai.
However, is capital and coffee good medicine for each other? The answer is hard to come to a conclusion.
On May 26, 2020, the capital controlled by venture capital queen Xu Xin withdrew from manner at a high level. For a time, there were different opinions from the outside world. Some people said that Xu Xin chose to drop his bag for high-level cash out, while others said that there was an irreconcilable contradiction between today’s capital and manner’s founding team.
Some media reported that Han Yulong once said to Xu Xin, “if you don’t quit, I’ll go out and make a brand with the same positioning.”
With capital boosting and rapid growth of the brand, valuations are rising. In this process, bubbles are extremely hard to avoid. When capital enters the market, the brand may need to be calm.
Another manifestation of the coffee boom is the cross-border crowd.
Sinopec joined hands with Lianhe coffee to launch Yijie coffee, which will be launched on a large scale in the short term; Naixue’s tea, Xi tea and other current tea brands also began to add coffee; Convenience bee, family and other convenience store brands also cut into the coffee track.
In fact, under the influence of Ruixing’s performance fraud in 2020, the domestic coffee industry once experienced a period of capital calm. Now the comeback has something to do with the huge development space of the domestic coffee market.
It is widely circulated that the international coffee organization headquartered in London predicts that the market scale of China’s coffee industry will reach 1 trillion yuan in 2025.
Another factor is that after three rounds of category export of Nestle, Starbucks and Ruixing coffee, the consumer education of domestic coffee category has obviously been preliminarily mature.
Ruixing coffee has also gradually stepped out of the haze of performance fraud, with a revenue of 2.35 billion yuan in the first three quarters of 2021, a year-on-year increase of 105.6%; The net loss was 23.5 million yuan, narrowing by 98.6%.
Ruixing not only paid a fine of 1.2 billion yuan to the securities and Exchange Commission (SEC), but also regained its life in the struggle to save itself. By the end of the third quarter of 2021, the number of Ruixing coffee stores had reached 5671, including 6.4% to 4206 self operated stores and 66.7% to 1465 affiliated stores.
However, Starbucks still dominates the domestic coffee market. As of January 2, 2022, Starbucks has opened 197 new stores in China, with a total of 5557. It is expected to rise to 6000 by 2022.
However, since the emergence of Ruixing coffee in 2018, more and more brands have launched an impact on Starbucks.
Shake Starbucks
When it comes to China’s coffee market, Starbucks is an inseparable topic.
In 1999, Starbucks entered the Chinese market. More than 20 years later, Starbucks has opened more than 5500 stores in more than 200 cities in China, becoming a real industry giant. The Chinese market has also become Starbucks’ largest overseas market.
Although it experienced “acclimatization” in the early stage and lost money for nearly 9 years, Starbucks rarely met rivals in the first 20 years of the Chinese market.
However, this situation has changed since the emergence of Ruixing coffee in 2018. At that time, Ruixing quickly opened the market by means of money burning subsidies, crazy store opening, advertising bombing, takeout entry and so on. Since its establishment, this coffee shop has publicized to target Starbucks. In 2018, Starbucks was sued for alleged monopoly.
This also made Starbucks feel the threat for the first time and began to “fight”. In 2018, Starbucks and Alibaba reached a comprehensive strategic cooperation and integrated into Alibaba’s ecology. Starbucks, which has been reluctant to open takeout, has finally made a change.
In 2019, Starbucks launched the “coffee express” concept store, and launched Alibaba’s hungry, box horse and other platforms the next year.
In 2020, Ruixing coffee fell into a financial fraud crisis, and then it adjusted its development strategy and gradually slowed down. But for Starbucks, the Challenger didn’t stop.
After the capital entered today, manner began to open stores quickly. Whether there is the original intention to compete for Starbucks users is not known, but in terms of the results, manner did it. Jiuqian survey found that manner captured a considerable number of Starbucks users at a low price, and overlapping users accounted for 65% of manner’s surveyed users.
In fact, the early manner model was different from Starbucks. In the early stage of entrepreneurship, Han Yulong insisted on reducing all unnecessary costs. Most of them are small stores with an area of 2-3 square meters, focusing on cost performance. The price of coffee is 15 yuan for small cups, 20 yuan for large cups, and 5 yuan for self-contained cups.
However, in the process of expansion, manner also began to try stores of 30 square meters and 50 square meters, and opened a store of 200 square meters in Xuhui, Shanghai. This store has lawn, terrace and pets. At the same time, manner also began to do joint branding, marketing and digitization.
However, what remains unchanged is “reduce 5 yuan for your own cup”.
Compared with manner, m stand is more like Starbucks. Its positioning is “Starbucks for the new generation of young people in China”. On the expansion Road, m stand maintains one store and one scene, and the space design of each store creates different design styles. In the view of the outside world, this coincides with Starbucks’s “third space”.
Also shouting “China Starbucks” is seesaw, a coffee brand founded in 2012, which focuses on “creative coffee”, plays a “flower” in its products, and has made it clear that it “should strive to be a boutique Starbucks in China”.
Seesaw’s creative coffee combines litchi, citrus, nuts and other flavors with coffee to form various “mix and match” products, and has a wide variety of brand names.
In the face of all kinds of challengers, Starbucks is hard to relax. According to the third quarter report of 2021, as the second largest market of Starbucks in the world, the same store sales in China increased by only 19% to US $910 million, compared with 91% in the previous quarter.
In the first fiscal quarter of 2022, Starbucks’ sales fell by 14% year-on-year, and the average customer unit price and transaction volume both fell.
At the end of 2021, Starbucks was attacked by public opinion for food safety. However, Starbucks, which has been deeply involved in the Chinese market for more than 20 years, still has the leading position and voice in the industry in terms of brand strength, product innovation, profitability, store size and so on.
While “encircling and suppressing” Starbucks, the challengers are not in group cooperation, they are also in competition.
The Chinese local coffee giant that can shake Starbucks has not yet emerged.
New battle in coffee market
“China is expected to have its own 100 billion coffee giant.” This is the industry’s good wish for local coffee brands.
The birth of giants has always been a “hail of bullets”. At present, the domestic coffee market is still in the scuffle stage, with three pillars of freshly ground coffee, ready to drink coffee and prepackaged coffee.
According to Ping An Securities Research Report, as of 2020, the market share of freshly ground coffee is 36.5%, that of ready to drink coffee is 11.1%, that of instant coffee is 52.4%, and the remaining market share is capsule coffee and coffee machine.
No matter which track you are in, the competition in the coffee industry is all category and all channel competition that needs capital support.
In the instant coffee track, as a “dark horse” in recent years, three and a half meals have won many “sales first” online. However, with the increasing competitive pressure of instant coffee, three and a half meals also began to set foot offline. With the same action, there are Shicui, yongpu and other brands.
Also offline coffee shops began to touch the Internet and force online. Taking seesaw as an example, its sales data of tmall reached 8.9 million yuan in July 2020.
Undoubtedly, the multi category omni-channel layout forms a combined fist, and consumers can buy as soon as they need, which plays a great role in enhancing brand loyalty.
However, the difference is that online channels are borderless competition, while offline layout should consider close combat with competitors.
According to the data of Jiuqian consulting Zhongtai, if there are competitive coffee shops within 100-200 meters near seesaw’s new store, such as manner or Arabica, the single quantity of seesaw will decrease.
If a new manner is opened around seesaw’s new store, one month later, manner will seize about 15% – 20% of seesaw’s turnover, and the subsequent seesaw’s turnover will tend to be stable.
In Shanghai, such wars have been happening all the time. According to the statistics of Shanghai coffee consumption index by the new first tier cities Research Institute, there are 6913 cafes in Shanghai, which is the city with the largest number of cafes in the world, far exceeding New York, London and Tokyo. Huaihai middle road alone is home to 49 cafes.
According to the real-time data of public comments, there are more than 11000 cafes in Shanghai.
From Shanghai, manner, m stand, seesaw and other brands came out. At present, the coffee hurricane in Shanghai has blown to the whole country and expanded at the fastest speed to north, Shanghai, Guangzhou and Shenzhen, a number of second tier cities and even more sinking markets.
However, when it expands to a certain extent, its own hematopoietic capacity will eventually be magnified. In the coffee industry, there is a common saying that “6 losses, 3 flat and 1 profit”. Only 10% of coffee shops can become the winner of profit, which reveals the difficulty of opening a coffee shop to make money to a certain extent.
After experiencing financial fraud, Ruixing coffee had to slow down and think about reducing losses.
Coffee is different from sharing bicycles and community group buying. Its positioning as a boutique may determine that it can not really face all the public. As strong as Starbucks, after the emergence of food safety problems, it also faces various doubts and condemnation.
For old coffee brands, such as Starbucks, market advantages and profit advantages still exist. So it seems that local coffee brands still have a lot to do if they want to establish a real moat.
200 year international meeting
Reviewing the development history of coffee in China reflects half of China’s modern history to a certain extent.
In 1836, Danish businessmen opened China’s first coffee shop in Guangzhou. Locals called it “black shop”, and coffee was also known as “black wine”.
From these words, we can see that people have a trace of xenophobia and resistance to this imported product. Therefore, it was not until 1904 that coffee was planted on a large scale in China.
In the period of the Republic of China, celebrities, enlightened gentlemen and Westerners in the late Qing Dynasty gradually led the Chinese people to drink coffee, especially in the earliest trading ports, such as Shanghai.
Entering the modern era, after the founding of new China, Shanghai coffee factory became the only famous coffee brand in China from 1960 to 1980. But the price of 3.50 yuan per can was a noble luxury in the eyes of Shanghai white-collar workers with an average salary of dozens of yuan at that time.
Later, Maxwell coffee and Nestle coffee brought the trend of instant coffee. Shangdao coffee, Starbucks, Costa and other cafes entered China. Taking advantage of the east wind of reform and opening up, Taiwan funded and foreign-funded brands raced around the Chinese coffee market and carried out market education in turn.
Nowadays, with the continuous improvement of domestic consumption level and the renewal and iteration of consumers, China has become one of the largest coffee markets in the world, and China’s coffee market is generally optimistic. On the other hand, local coffee brands are also sprouting and growing quietly under the towering trees of foreign brands.
Today, with the rise of domestic products, people are looking forward to the arrival of 100 billion local coffee giants, but in the previous coffee track, there may be more brands rising, falling or reborn.
reference material:
[1] Coffee series report on new consumption research: after changes, flowers bloom and watch the surging coffee market. Ping An, China
[2] “The coffee market popular with capital also has another side of inner volume and anxiety” Wu Wenwu NBS new product strategy
[3] “From a small store of 2 square meters to a valuation of 10 billion yuan, manner spent six years” Jin Minger
[4] The development history of coffee in China is equivalent to a modern history of China
Source: Huashang Taolue (ID: hstl8888), reprint has been authorized.
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