China Food

Why is the low-cost coffee market of four or five yuan rolled up?

low price coffee, but also profit?

The coffee track has rolled to new heights.  

With the maturity of the coffee market, the first and second tier coffee market is gradually saturated. According to the white paper on China’s freshly ground coffee industry released by Deloitte China, the penetration rate of coffee in China’s first and second tier cities has reached 67%. Therefore, the sinking market has become a new battlefield for many coffee players.  

Although the income and expenditure of consumers in the sinking market are relatively lower than those in the first and second tier cities, their consumption capacity, consumption demand and acceptance of new things are not low, and there is still a lot of imagination space for coffee tracks in the sinking market.  

Previously, Ruixing pulled down the unit price of coffee with its own efforts, which turned the whole coffee market upside down and brought coffee into the lives of more consumers. Today, a new force is quietly rising in the coffee market, seizing the market at a lower price of 45 yuan.  

First, Michelle ice city launched the affordable coffee sub brand “lucky coffee”. A cup of freshly ground American coffee costs only 5 yuan, and has opened more than 500 stores across the country. Later, a small number of low-cost coffee brands such as “dry coffee man”, “migrant coffee” and “cubic coffee” appeared. They all have one thing in common – the lowest cup of American coffee costs only 45 yuan.  

There is no doubt that affordable prices are the biggest selling point of these coffee brands. They use low-cost coffee products to drain, supplemented by the sale of non coffee brands to increase the customer unit price, so as to achieve profitability. Taking lucky coffee as an example, general manager Qiu Tengyu said publicly at the beginning of this year that the overall profitability of lucky coffee’s stores across the country was good, and the turnover of dozens of them exceeded one million.  

It is worth noting that the low-cost coffee market is also facing challenges. On the one hand, in the first and second tier cities, coffee is a refreshing need and exists like a social artifact. However, in the sinking cities, consumers have less pressure on work and life, and there are all kinds of affordable fruit drink brands. The repurchase rate of coffee needs to be further verified.  

On the other hand, the current low-cost coffee market is not crowded. Once it goes to the tuyere, it is bound to attract more players to enter and compete for capital. The strong enemies ahead are still unknown.  

However, it can be predicted that in the sinking coffee market in the future, a complex and fierce competition among brands is inevitable. So, four or five dollars of low-cost coffee can become a new “troublemaker”?  

Who’s selling cheap coffee?  
Coffee sinking cake, honey snow ice city is the first bite.  
As early as 2017, Michelle ice city launched its sub brand “lucky coffee”, focusing on affordable coffee and seizing the third and fourth tier sinking market where few coffee takes root, but there has been no significant improvement. Until 2019, Zhang Hongfu, general manager of Michelle ice city, led the team to officially put into the project and upgraded the brand of lucky coffee, lucky coffee was able to develop rapidly.  
From the menu of lucky coffee, the price is really low. The product price is mainly concentrated in the range of 5-12 yuan, of which the lowest price is only 5 yuan for freshly ground American coffee and light milk latte.  
Michelle ice city’s ambition to occupy the low-cost coffee market has long been demonstrated. Zhang Hongfu once said that “lucky coffee should be the affordable coffee in the county and even the town, and a coffee version of honey snow ice city will be copied within five years”. According to the interface news report, as of January this year, the number of lucky coffee stores has exceeded 500. The number of 500 stores has doubled from more than 200 six months ago.  
Lucky coffee, picture / lucky coffee official website
From the perspective of urban distribution, except for Henan, the headquarters of lucky coffee, lucky coffee has stores in Jiangsu, Suzhou, Nanjing, Wuxi and other places. According to Jihai brand monitoring report, lucky coffee’s stores deliberately avoided the economically developed areas of Guangdong, Hong Kong, Macao and the Yangtze River Delta to a certain extent, while 41% of the stores were opened in Henan Province, sinking to the third and fourth tier cities, accounting for 60.8%, reaching 357 stores.  
Not only honey Snow Ice City, but also low-cost coffee brands have emerged in many cities in China. One store is even more “roll” and cheaper than lucky coffee.  
For example, a coffee brand called “migrant coffee” costs only 4 yuan for a cup of American style and 8 yuan for a latte.  
Migrant coffee was founded at the end of 2020. At the beginning, it was not a coffee shop, but a shop mainly engaged in baking. However, in less than a month since its opening, this baking shop has welcomed an explosion with the product of “4 yuan American style”, allowing the boss to see the business opportunities, and then decided to focus on the coffee business and assist in the sale of baking products.  
There is also a coffee shop similar to “lucky coffee” in Shenyang, called “dry coffee man”, in which a cup of American coffee is 5 yuan and a latte is also 8 yuan.  
Tong Weilong, the founder of the store, said in an interview that he had been observing since Ruixing became popular and believed that there was a market for low-cost coffee. Until last year, the birth of lucky coffee gave him a boost. This is the model he thinks can be achieved. In the second half of last year, he opened his first low-cost coffee shop in Shenyang.  
In addition, in Shanghai, where coffee shops are everywhere, there is also a low-cost coffee brand “cubic coffee three cubic coffee”. When customers bring their own cups, American style 5 yuan and latte 10 yuan are not only low in price, but also attract consumers to buy again by sending cups during the opening of the store.  
These low-cost coffee brands have some similarities.  
First of all, compared with lucky coffee’s 500 stores nationwide, the above three brands have opened for a short time and are still in a small and beautiful state. They are only popular with popular low-priced coffee within the local business scope. Among them, dry coffee people have opened more than 20 stores in and around Wuxi; According to Baidu map, at present, there is only one store of sancubic coffee in Shanghai; There is only one shop for migrant coffee in Shenyang, and we haven’t seen the news of the opening of a new shop yet.  
Secondly, the above brands have attracted a large number of users to punch in by virtue of the popularity of low-cost coffee, but in fact, their business scope is far more than this, and there are many non coffee drinks.  
In addition to coffee, lucky coffee’s products also include ice cream, pearl milk tea, sundae, etc. among them, freshly ground American style and light milk latte, hand pounded ice lime coffee are as low as 5 yuan a cup, and the price of other products will not exceed 13 yuan; The menu of coffee for migrant workers also includes drinks such as milk, lemon tea, fresh milk tea and probiotics. The price of American style is the lowest, only 4 yuan a cup, 6 yuan a cup of lemon tea, and most other products are about 10 yuan.  
Other products of lucky coffee, figure / official website of lucky coffee
The same is true for dry coffee people. In addition to coffee, there are ice cream, fruit coffee, raw coconut, pure tea and other drinks, which sell for between 5-15 yuan. The menu shows that the most popular is the signboard Ice Latte with a price of 8 yuan, the second is freshly ground American coffee, which costs 5 yuan a cup, and the third is freshly ground latte with a price of 9 yuan a cup.  
Interestingly, at present, in addition to the three cubic coffee native to Shanghai, lucky coffee and migrant coffee have extended their tentacles to Shanghai and opened stores in Shanghai, a city with a high density of cafes.  
However, there are still some differences in the operation mode of low-cost coffee. After several years of struggling and upgrading, lucky coffee not only has a rest space, but also sells biscuits, bread and surrounding co branded products. At present, the store space is closer to the tone of a cafe.  
Other low-cost coffee brands focus on cost saving and have relatively small spatial layout. Take dry coffee as an example. The store is located on the pedestrian street of Taiyuan South Street in Shenyang. At present, consumers can only take it out.  
Compared with dozens of yuan a cup of coffee, the low-cost coffee of four or five yuan can be said to completely break the price bottom line of the coffee industry. However, some people also question whether this price involution model is healthy?   
Why is the low-cost coffee market inside?  
Does the low-cost coffee market of four or five yuan really have profit space? Why did one brand after another come into the market?
In recent years, the domestic coffee market has been in a period of rapid growth. According to AI media consulting, the scale of China’s coffee market will be about 381.7 billion yuan in 2021, and the coffee industry is expected to maintain a growth rate of 27.2%. By 2025, the scale of China’s coffee market will reach 100 billion yuan.  
Market scale of China’s coffee industry in 2021, figure / AI media consulting
Capital also swarmed in. From 2013 to 2021, enterprise survey data showed that coffee related projects were financed 114 times, with a disclosed amount of more than 11.5 billion yuan.  
Nevertheless, China’s coffee market is still in a relatively early stage and still has broad development space. From the perspective of many coffee brands, whether it is Ruixing and man with cost performance, or Starbucks with relatively high price and focusing on the concept of third space, it has completely covered the price range of more than ten yuan to more than fifty yuan in the coffee industry. If you want to highlight the heavy encirclement within this product range, you can imagine the difficulty of competition.  
As a drink, with the increase of coffee brands available to users, it is unlikely that the coffee price will break through the ceiling of 40-50 yuan and then go up, which will shut out most consumers. However, at present, there are few low-cost coffee brands with the price of 4-5 yuan in the market.  
Then, in the current market competition environment, it is a curve strategy to continuously explore the unit price of coffee at the price of four or five yuan, make brand influence and occupy a subdivided price space in advance.  
On the other hand, Ruixing opened up the market by means of large-scale “money burning subsidies” in 2019, which has played a certain educational role in the domestic coffee market. According to the 2021 white paper on China’s freshly ground coffee industry released by Deloitte and Mu Mian capital, the consumption proportion of “fast coffee” has increased year by year, and the consumption proportion of “fast coffee” is 70%. One of the reasons is that through the coffee subsidy in 2018, Ruixing company has cultivated the habit of consumers drinking coffee through the subsidy
In recent years, coffee culture has swept the first and second tier cities. The white paper on China’s freshly ground coffee industry also shows that the penetration rate of coffee in China’s first and second tier cities has reached 67%, but the penetration rate in the sinking market is not high.  
Zhang Yi, CEO of AI media consulting, once said that through years of analysis and detection of user behavior and combined with market capacity, brand sinking is an inevitable trend. First, the overall consumption capacity of consumers in the sinking market is not weak. Although the income is not as good as that in the first tier cities, the expenditure cost is relatively low and the living burden is light. Secondly, the sinking market has a good consumption atmosphere and strong consumption demand. Especially young people still have certain expectations for some tea and coffee brands.
Ruixing has opened a younger and more sinking coffee market with heavily subsidized coffee prices and endless burst of new products, and accumulated a number of sinking users. However, consumers in the sinking market still need coffee brands and models tailored to their needs and income.  
Now entering the coffee market at a lower price of four or five yuan and bringing high consumption frequency with low price may cultivate a new wave of sinking users and occupy a more sinking market.  
Can low-cost business continue?  
The coffee market in the sinking market is quite different from that in the first and second tier cities.  
The acceptance of coffee in the sinking market is relatively low, coupled with high pricing, which hinders the purchase desire of some consumers.   
As early as last September, the relevant person in charge of Ruixing coffee told the times, “we have seen some pain points in the current coffee industry. High pricing hinders the high-frequency consumption of coffee; it is inconvenient to curb customers’ consumption desire. These two pain points are also the main reasons that restrict the popularity of coffee in China.”  
Nowadays, the low price of four or five pieces of coffee breaks the high pricing, which may meet the high-frequency consumption demand of sinking consumers and greatly promote the popularity of coffee, but can the brand really make a profit at the price of four or five pieces?  
Cost and sales volume are the key to a brand’s profitability. Let’s first look at the three cubes that have the courage to open low-cost coffee brands in Shanghai. Although the unit price is low, a cup of American style with its own cup only costs 5 yuan, the gross profit of its products is not low.  
According to Liu Siqiang, founder of sancube, in an interview with Carmen, even the American style with its own cup of 5 yuan / cup can still have a gross profit of 60%. In terms of breakdown, a cup of beans for American style is 20 + G, and the cost is about 1.5 yuan. There is no package straw for the self-contained cup. Only the raw materials are included, and the gross profit of the product reaches about 70%. The latte uses fresh milk. It costs about 3.5 yuan to add 280ml to a cup. Plus the cost of beans, it costs 10 yuan to bring its own cup, which also has a gross profit of about 50%.  
In addition, the gross profit of several low-cost coffee brands is also not low. Yang Xiaokang, the founder of “migrant coffee”, said in an interview with Gamen that the cost of a cup of American beans is about 1 yuan, and the gross profit can be 65% when the packaging materials are included. The default is normal temperature milk. If fresh milk is used, an additional 2 yuan will be added. The store is also equipped with a fully automatic coffee machine to improve the cup delivery speed, so as to save labor costs.  
Tong Weilong, the boss of “dry coffee people”, also said that the current American style ice grinding price is 5 yuan per cup, with a gross profit of 60% per cup, and the gross profit of other products is almost 55% – 60%.  
Secondly, from the perspective of overall profitability, Qiu Tengyu, general manager of lucky coffee, publicly said at the beginning of this year that among the national stores of lucky coffee, the overall profitability of the stores was good, and the turnover of dozens of them exceeded one million. According to the report of kaipineapple finance, the average gross profit margin of lucky coffee stores is about 55%. According to this calculation, as long as the stores can reach an average daily revenue of about 1500 yuan, they can make a profit.  
At the same time, Liu Siqiang, founder of sancube, also disclosed business details in an interview. Taking into account the overall cost of the store, such as decoration, equipment depreciation, employee wages, rent, etc., sancube can reach the breakeven point as long as it can sell more than 200 cups a day.  
Since the price of low-priced coffee is cheap enough, there are no restrictions on the consumer base. Under the current consumption level, the decision-making cost of four or five yuan a cup of drinks is not high for most people, and the public acceptance will be higher.  
Many coffee brands want to tell the story of opening up the sinking market, among which Ruixing’s signal is the most obvious. In 2021, Ruixing released the “new retail partner plan” and reopened its franchise, which is not good news for all coffee players who pay attention to the sinking market.  
When users’ habit of drinking coffee is gradually cultivated, the brand focusing on cheaper coffee may be the ultimate beneficiary. Low priced coffee can create popular models in the short term by virtue of price advantages, but the hot coffee track is not enough to fight for short-range explosive power alone. There are countless short-lived popular models.  
When low price is no longer the core advantage, how to achieve the ultimate in the subdivided circuit and have been recognized by consumers is the key to determine how long a brand will survive.



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