Image source: Visual China
Two years ago, new consumption was still a buzzword. However, as consumer investment in the primary market has cooled, more and more "new consumption projects" have been abandoned, but there are exceptions, that is, new tea and coffee chains. These two subdivisions have become the dawn of the new consumer market.
As 2023 draws to a close, the average person, even intuitively, will find more and more coffee and tea chains on the streets. This intuition is correct. In 2023, if there are any industries that are still accelerating their expansion, then coffee and new tea chains are clearly among them. Behind the crazy opening of stores, there are several motivations, the pursuit of 10,000 store chains, and the pursuit of IPOs, all of which are among them.
In the field of coffee, the representative of the king of rolls is Cudi Coffee, which is developing rapidly, and a total of more than 1,000 stores have been opened in one month in April this year. In October this year, Cudi Coffee celebrated its first anniversary and put forward the strategic goal of 20,000 stores worldwide by 2025. This goal is double the company's three-year target of 10,000 stores.
As the reference system of the coffee market is the new tea market, after several years of horse racing, the entire domestic new tea market size has exceeded 290 billion yuan. Among them, some brands have rushed to the scale of 10,000 stores by relying on the franchise model, such as Mixue Bingcheng. The domestic coffee industry seems to be repeating this scene, relying on the franchise model, coffee is the most promising pan-catering industry business to achieve large-scale profitability after the new tea drink.
On the other hand, the low-price strategy has once again been proven to be effective by the coffee track. Coffee brands are becoming more and more like tea brands, and the focus of competition has moved closer to self-built supply chains. During this period, going overseas is also becoming a solution to open up a broader incremental market.
Price war, joining and going to sea, Tea Baidao, Shanghai Auntie, Gu Ming, Bawang Tea Ji have IPO plans, coffee hotspots from fresh fruit coffee to Chinese tea coffee, Hey Tea and other new tea brands have announced "product manuals" and entered the "ingredient list era", and the tea industry cross-border co-branded explosions are frequent, strong out of the circle and more and more luxury...... Coffee and tea in 2023 continue to reach new heights.
Behind the price war
In the 2023 store opening competition, the low-price strategy has also proven to be effective in the coffee industry. Since the beginning of this year, the price war of freshly made coffee brands represented by Luckin and Cudi has been in full swing. Luckin Coffee officially announced that 10,000+ stores across the country will implement a long-term 9.9 yuan discount activity, and Cudi Coffee will drop the price to 8.8 yuan, and launched the "8.8 yuan free purchase" activity on Douyin......
The price war driven by Cudi and Luckin has "pulled many brands down", and coffee brands such as Starbucks have also tried to reduce prices to test the water. The expansion of the coffee industry was once accelerated, and the price of coffee migrated from 15 yuan to 10 yuan.
At the same time, Cudi Coffee is also extending its low prices to the tea world. Cudi Coffee has launched a new tea brand, Tea Cat, which will be officially launched in January 2024. Previously, it was reported that the "Tea Cat" launched by Cudi Coffee is positioned as a benchmark for mid-to-high-end tea brands such as Bawang Tea Ji and Gu Ming, and the product price is between 15 yuan and 20 yuan.
But the price war, after all, we still have to consider the cost performance rather than the low price war, behind the tea brand, coffee brands have also begun to compete in the upstream supply chain. Whether it is store expansion or sales data, it is inseparable from the supply chain strength supported by it.
In October this year, the Starbucks China Coffee Innovation Industrial Park announced that it was officially completed and put into operation in Kunshan, Jiangsu Province, with a total production capacity of 1.5 billion yuan, marking China's first large-scale integration of the "green bean to coffee" vertical industry chain in Starbucks markets around the world. After it is officially put into production, it will roast high-quality Arabica coffee beans from more than 30 countries and regions, including China, and supply more than 6,000 Starbucks standard stores across the country. This means that 100% of the coffee beans in Starbucks stores in China will be roasted domestically.
For small and micro boutique and cross-border coffee enterprises, midstream coffee factories are also actively innovating processing models and proposing targeted solutions. The open source securities report pointed out that taking the No. 6 factory in Shanghai as an example, it has entered the track through the pain points of small-scale brand roasting, and the superposition of design and integrated planning capabilities has further made it possible for coffee to be a carrier of high-quality culture.
Analogous to the tea beverage track with homogenization of products and intensified involution, the focus of competition among tea brands has moved closer to the self-built supply chain. Self-built supply chain is also a problem that coffee brands need to solve at present.
Increase investment in the upstream and midstream supply chain, and become an important force and competition point for coffee brands. This process cannot be achieved overnight, and it requires the accumulation of time, capital, and experience to form a better precipitation and ultimately support the front-end expansion of the brand. The essence of the price war is that the cost performance is not only the low price war, but also the supply chain battle.
Down & Overseas: Solutions for Incremental Markets
Following the opening of Heytea in the new tea beverage track last year, the current coffee chain market, in addition to some specialty coffee, the franchise model is becoming market-dominant. Relying on the franchise model, coffee is also the most promising to achieve large-scale profitability and open up more incremental markets.
The sinking market is the main battlefield for the rapid expansion of stores by leading brands. Among the national chain coffee brands, the top two in terms of the number of existing stores are Luckin Coffee and Starbucks. Among them, in the past two years, Luckin Coffee has accelerated the layout of stores in the sinking market. In the recruitment of franchisees in 2023, Luckin's franchise cities have been added to Qinzhou, Jiamusi, Songyuan, Baotou, Tongliao, Panzhihua, Xishuangbanna, Pu'er, Sanmenxia, etc., and county-level cities are mainly involved.
In June this year, after Luckin Coffee officially announced that it had exceeded 10,000 stores, it announced that it would open a "franchise with stores" model, based on the joint operation cooperation model, for investors who are operating stores during the lease contract period or shops with their own property rights.
In addition to Starbucks and Luckin, Lucky Coffee has copied the franchise model and affordable strategy of Mixue Bingcheng to reach a wide range of sinking users, and Nova Coffee publicly stated in the "2023 China Chain Catering Summit" in the middle of this year that it will open 20,000 stores within five years. Nova Coffee initially chose to join the running method, with the "shop-in-shop" model, to expand Western restaurants, bars and other offline physical stores, co-founder Sun Binbin once said that "ninety percent are franchise stores".
Cudi is the new dark horse in this camp. In May this year, Cudi said at a briefing that the number of stores expected to reach 5,000 by the end of July. Like Luckin Coffee, Cudi Coffee does not charge franchisees a franchise fee, and operates in the form of a commission from gross profits from the headquarters. However, Cudi Coffee adopts a franchise model, focusing on third- and fourth-tier cities.
According to the data of Narrow Door Restaurant, the number of existing stores of Cudi Coffee is 7,380, covering 31 provinces and 326 cities. Among them, the location distribution of store types are ranked as township stores, shopping mall stores, and school stores. Previously, Cudi obtained funds through new franchisees, with a minimum investment of about 120,000 yuan to lower the threshold for franchisees.
At the same time, Cudi Coffee launched a new tea brand, Chamao, and still adopted a risk-sharing joint venture model. It is understood that before December 31, 2023, "Tea Cat" will only be joined by Cudi Coffee associates, and priority can be given to site selection, and each store can be exempted from 100,000 yuan in service fees. From January 1 to March 31, 2024, the franchise is open to everyone.
Coffee brands have relied on franchises, and overseas brands have also accelerated their entry. Tims chose to combine "City Franchise" with "KA Franchise". According to the financial report, in the first quarter of this year, among the newly opened stores of Tims Tianhao China, there were 4 self-operated stores and 27 franchised stores, and the number of franchised stores grew faster. Lu Yongchen, CEO of Tims Tianhao China, said that in 2023, it plans to enter 40 cities, covering third-tier cities and above, and aims to complete 2,750 stores by 2026.
However, at present, in the field of domestic specialty coffee track, franchise is still rare. Most specialty coffee brands, such as M Stand and Seesaw, are still in a direct sales model. At present, M Stand, Seesaw, Peet's Coffee and %Arabica, which belong to the same price band, have not publicly stated that they want to accelerate their expansion and focus on sinking into the market.
For a broader market, the second solution is to go overseas. In 2023, a number of ready-made beverage brands will accelerate the pace of overseas layout, and the overseas stores of brands such as Luckin, Heytea, Mixue Bingcheng, Bawang Chaji, and Tianlala have successively landed to seize the cake in the overseas market.
According to reports, Heytea has opened applications for business partners in overseas markets, including Japan, Singapore, Thailand, Vietnam, Malaysia, the United States, Canada and other places. During the National Day, Tianlala, a new tea drink brand that focuses on the sinking market, opened 6 new stores in Jakarta, Indonesia at the same time, and is expected to open 60 stores in Indonesia by the end of this year, and gradually penetrate the Southeast Asian market. On October 31, the first store of Chabaidao in South Korea landed in Seoul, and the prospectus revealed that it planned to enter the overseas market, mainly to develop the Southeast Asian market.
The strategies of new tea brands going overseas in 2023 are also strikingly similar - Southeast Asia, which is relatively close to the geographical location, has become the first choice for mainland new tea brands to go overseas, and then make efforts to Europe, America, Japan and South Korea.
Everything is ready, only the IPO is owed
Today's new tea and coffee brands have a certain foundation in terms of products, user minds, scale, and brand influence. But if there are any regrets and shortcomings, it is that everything is ready, and only the IPO is owed.
In 2021, Nai Xue's tea was listed on the Hong Kong stock market. The news has excited investors and practitioners alike. Because as far as China's new tea market at that time is concerned, there are still several brands in the first echelon with Naixue. At that time, the industry hoped that the new tea drink would take this opportunity to have more brands ring the bell in the capital market.
However, it backfired, whether it was Hey Tea, which was close to Naixue's tea scale and positioning, or Mixue Bingcheng, which took the parity route and gained market attention with its 10,000-store scale and flexible marketing strategy, did not usher in the favor of the capital market. On the one hand, this is related to the cyclical impact of the macroeconomy, and on the other hand, it is also related to the fact that the new tea drink is classified as a catering category by the securities regulatory department.
In 2023, the new tea drink has not given up its efforts to go public. On August 15, 2023, Sichuan Baicha Baidao Industrial Co., Ltd. (hereinafter referred to as "Chabaidao") submitted a prospectus to the Hong Kong Stock Exchange. According to the prospectus information, the revenue of Chabaidao in 2022 will be 4.232 billion yuan, with a compound annual growth rate of 97.9%, and from 2020 to 2022, the net profit will grow at a compound annual growth rate of 101.3%.
In fact, just from the perspective of business data, at least a few new tea beverage companies that are currently preparing to go public should be able to give it a go. For new tea beverage companies with chain as the basic model, listing can provide the support needed for front-end expansion and back-end supply chain building from the capital level, which is important for the development of enterprises.
Not only new tea companies, but also coffee. The IPO is also the most important part of Cudi Coffee's development plan. In addition to business considerations, what is more important is the process of self-certification by founder Lu Zhengyao. After all, he has made two listed companies: Car China and Luckin.
However, whether it is new tea or coffee, it seems that one of the major obstacles to landing in the capital market is that these two subdivisions have not gotten rid of the label of big catering. In the A-share market, it has been difficult for catering companies to go public, resulting in only single-digit catering companies in the A-share market. Even if they switch to Hong Kong stocks, because the companies that have been listed have not yet come up with enough convincing performance (the new Luckin is another story), this will also affect investors' perception of new tea and coffee companies, whether they are a quasi-restaurant chain brand that does subdivided categories, or has the possibility of independent explosive growth?
These questions need to be answered by new tea companies and coffee brands in 2024.
(This article was first published on the Titanium Media APP, author | Liu Dafang, editor - Fang Yu)
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