Storm in the coffee cup
China News Weekly reporter/Yang Zhijie
Issued in the 1010th issue of China News Weekly on 2021.8.30
Manner Coffee's store in Beijing Huamao Shopping Center is not as low-key as a coffee shop.
This is not a common coffee shop in China. It shares a storefront with a menswear brand. The work area occupies a corner of the room. From the outside, it is just a white window. One or two staff members order and make orders at the window.
There is no rest area, no take-out, customers stand in the corridor to order and wait, pick up and go.
This small stall does not look good, but it is currently one of the star coffee brands in the capital market.
Completed 4 financings within 6 months, and the current market valuation has reached 2 billion US dollars.
It started in Shanghai. It saves the cost of opening a store with a small stall model and sells higher-quality but affordable coffee. Customers can buy a cup of good-tasting coffee for only 10 to 25 yuan, which is very popular among Shanghai white-collar workers.
There are even rumors in the coffee circle that if you open a Manner Coffee opposite Starbucks, Starbucks' passenger flow will drop by 30%.
With the blessing of capital, Manner Coffee has 164 stores in Shanghai. At the same time, it has also begun to break out of the "Magic City" and prepare to conquer cities in other cities.
Manner Coffee is just the epitome of the hot domestic coffee market.
In the past two years, cutting-edge brands such as Manner Coffee, M stand, Seesaw, Sandton Ban, Yongpu, and Shicui have become new coffee powers at the moment, attracting capital to bet wildly, and a storm has been blown in the coffee cup.
According to IT Orange statistics, from 2020 to July 2021, within a year and a half, there were nearly 50 financings in the coffee industry.
In terms of investment amount, in the first seven months of this year alone, the amount of capital financing exceeded 6.3 billion yuan, far exceeding the amount for the whole year of 2020, and also exceeding the peak of the previous round of financing.
In 2020, Luckin will delist due to data fraud, and there are voices speculating that this may cool the bubble growth of China's coffee market.
The reality is quite the opposite. The coffee track is increasingly favored by capital, and even Ruixing received $250 million in financing in April this year.
After the Ruixing fraud scandal, why can coffee still become the darling of capital?
Hot money in the post-Luckin era
Many investors started to pay attention to the coffee track in 2018. In that year, Luckin Coffee opened crazy stores and subsidized at low prices, claiming to use one billion yuan to educate the market and challenge Starbucks.
Feng Xiao, the chief product manager of Shengjing Jiacheng Fund of Funds, was no exception, but at that time, he and his team were just waiting to see whether Ruixing Coffee's model could be established.
"Luckin's first bet was to use money-burning subsidies to educate the market, to see if it could increase the per capita coffee consumption in mainland China, especially in first-tier cities, to a level similar to Hong Kong. If it is established, it will cultivate users' consumption habits, then It means that this is a market of at least hundreds of billions."
According to data from Euromonitor (a foreign consumer market strategy research organization), in 2018, the average number of cups of coffee consumed per capita in mainland China was only 4.7 cups per year, which was much lower than the 261.5 cups per year in the United States.
The per capita consumption of coffee in Hong Kong, China and Japan, which also have long tea drinking habits, also reached 148.6 cups/year and 207.1 cups/year, respectively.
To a certain extent, Ruixing did it.
Deloitte China's "White Paper on Freshly Ground Coffee in China 2021" shows that consumers in first- and second-tier cities have cultivated the habit of drinking coffee, and the coffee penetration rate has reached 67%, which is equivalent to tea.
Although from a national perspective, the average number of cups of coffee consumed per capita in mainland China is only 9 cups/year, consumers in first- and second-tier cities have grown up to consume 300 cups/year, which is close to the level of the mature coffee market.
Therefore, even if Ruixing Coffee experiences financial fraud in 2020 and its stock price fluctuates sharply and retreats to the powder list market, investors still value its changes to the Chinese coffee market.
Another major contribution of Luckin lies in the disenchantment of coffee, removing the tall label and halo that Starbucks gave coffee, and returning coffee to the essence of beverages.
Zhang Lin, director of CMC Capital, noticed that starting from the first domestic Starbucks entering Beijing International Trade Center in 1999, the coffee market in first-tier cities has been educated for many years, but even in Beijing and Shanghai, coffee still belongs to the CBD or core business districts. , It is difficult to connect every ordinary consumer.
However, Luckin made price subsidies and used a social-oriented communication method, so that many people in the traditional sense (coffee) non-just need people began to come into contact with this beverage, and cultivated their habit of drinking coffee.
New opportunities are born in this soil.
Zhang Lin told China News Weekly that the longer people drink coffee, they will inevitably have higher requirements for quality, which implies the logic of product upgrade and iteration.
She and her team found that after Luckin, coffee consumers began to expand from non-rigid needs to casual people, coffee shops also opened from the CBD to the community, into the transportation hub, and the product types became more and more diverse.
In addition to being regarded as a daily need for refreshing the mind, more people have begun to regard it as a casual drink.
Luckin Coffee, which claims to be subverting the industry, has failed, but its play and business model have been repeatedly scrutinized by latecomers.
Feng Xiao and his team conducted an in-depth study of the Luckin Coffee model. It broke away from Starbucks's third space model and used the small shop model to reduce store opening costs and improve floor efficiency.
"Our research has found that this single-store model is healthy, which verifies that the model of making coffee fast-fetching stores in mainland China or first- and second-tier cities is valid."
Ruixing has experienced financial data fraud and delisting scandals, and its development momentum in the country has weakened, but it has also left room for the local coffee market.
Feng Xiao believes that some domestic startups are doing models similar to Ruixing, and Manner Coffee, which has recently become popular, is one of them.
Sun Yu, the founder of the domestic specialty coffee chain brand Fisheye Coffee, also mentioned in an interview recently that in the past two years, capital has placed very high expectations and valuations on the offline coffee shop model. One of the driving forces is Ruixing Coffee.
"Before, an offline catering can open 2000 to 3000 stores in two years. This is unthinkable. No matter how it is achieved, no one will think this is a feasible thing. But we see now, At the very least, rapid scale-up is feasible."
Capital is optimistic about new coffee brands, and there is a bigger background, which is the investment boom in domestic consumption this year.
Not long ago, Lanzhou ramen has also become a new category for investment institutions.
"There are not many platform-type opportunities that can be tapped in the entire consumer Internet. It is difficult to have a platform as big as Ali, Tencent, and Bytedance. This round of primary market enthusiasm is in the process of peaking in the consumer Internet. Everyone realizes that the new consumption opportunity is offline." Feng Xiao said.
Zhang Lin mentioned that the e-commerce dividend period around 2018 was in the midst of the e-commerce dividend period, and offline pedestrian traffic was excessively diverted to online, and shopping malls had a very difficult period.
After experiencing the shock and rebound, now everyone still feels the need to return to offline, but found that the shopping mall brands are either domestic brands of the previous generation, or overseas brands that no longer have freshness, and there is an urgent need for interesting, young, and differentiated stores. Attract the returning crowd.
In the coffee field, Zhang Lin saw that from the supply side, for a long time, Starbucks, Luckin, McDonald’s and KFC coffee, Costa, and Pacific are the top five coffee brands in the offline coffee industry with market concentration, but these chains are fast. Among consumer brands, with the exception of Starbucks and Luckin, the growth rates of other traditional brands have slowed down or started to decline.
From the demand side, younger consumers no longer like fully internationally chained standard products. They pursue individuality and high quality, can distinguish whether coffee is good or not, and are more willing to show their individuality through lifestyle and products.
"There is a mismatch between the demand side and the supply side. This is an opportunity in the industry that everyone sees." In an interview with the media, Zhang Lin pointed out the logic of this round of capital investment in coffee brands.
The superposition of multiple factors has enabled many emerging coffee brands to usher in a bright moment in 2021.
Temasek, ByteDance, Meituan Dragon Ball and other capital are all rushing to invest in Manner Coffee. After completing 4 rounds of financing, the valuation has reached 2.8 billion US dollars.
Coffee chain brand M Stand completed a round A financing of more than 100 million yuan in January this year. Only half a year later, on July 23, M Stand announced the completion of the B round of financing, with a post-investment valuation of about 4 billion yuan.
In June, the online coffee brand Santon received hundreds of millions of yuan in new financing, and its post-investment valuation reached 4.5 billion yuan.
"Specialty Coffee" False and Real
Jiang Ping is a specialty coffee lover. He studied and worked in the United States for 10 years and returned to Beijing in 2008 to start his own business.
He and his friends searched for independent cafes on the streets and alleys of Beijing, and there are still few good specialty coffees.
Jiang Ping began to notice the gaps in the Chinese coffee market.
Today, this wave of coffee entrepreneurs in the air is no longer focusing on burning money subsidies, but positioning in "specialty coffee", which is different from the previous domestic coffee boom.
Specialty coffee is a professional term in the coffee field. It was first proposed in 1974 in the Tea & Coffee Trade Journal, which specifically refers to coffee beans with unique aroma and flavor grown in a special environment. , To distinguish it from bulk commercial coffee.
In addition to the planting process, the roasting and brewing of high-quality coffee beans have quite professional requirements.
But in this wave of coffee craze, capital demands for many offline specialty coffee brands to expand rapidly.
Is there an inherent conflict between specialty coffee and large-scale operations?
Wei Lingpeng is the founder of SOE COFFEE ROASTERS, a boutique coffee shop and an international judge of the WBC World Barista Competition. He told China News Weekly that the better the coffee beans, the lower the output, and the more a single bean, the greater the change in taste.
When a person first wants to open a specialty coffee shop, he must want to present it with the best coffee beans.
However, if you want to expand the scale of chain stores, contradictions will arise. The upstream coffee beans are limited, and the coffee taste will definitely change or decrease.
SOE wants to expand its brand influence and now has 4 branches in Beijing. Wei Lingpeng believes that to solve the contradiction of beans, we must change the traditional thinking, "We should not copy the taste of the product, but copy everyone’s brand. Understanding, showing the diversity of coffee."
Traditional boutique coffee shops take the "small and beautiful" route, but they often face operational problems such as high rents and labor costs.
Jiang Ping visited many coffee shops and communicated with baristas and found that most specialty coffee shops in China are difficult to grow. Semi-automatic or fully manual coffee machines are extremely dependent on baristas, and baristas often have an artist-like attitude to the quality of coffee. The pursuit of traditional specialty coffee shops is difficult to scale.
Sun Yu, the founder of Fisheye Coffee, once introduced that even Blue Bottle, which is currently popular all over the world, is known as the “Apple of the coffee industry”. Ten.
Specialty coffee has inherent limitations, but the current new coffee forces seem to redefine this concept and expand the living space of local coffee brands outside of Starbucks.
Manner is currently one of the few brands that emphasizes "coffee is a daily drink" in this wave.
The store reduces social space, but also saves rent and decoration costs, and puts more effort on the barista.
Brands such as M Stand, Seesaw, and Yingji Coffee are taking a more high-end route. They open their stores in large commercial centers and devote themselves to designing the space of coffee shops to convey the brand's aesthetics.
They also add creative coffees that are not available in other coffee shops on the menu, with prices ranging from RMB 30 to RMB 50.
Zhang Lin told China News Weekly that this wave of coffee entrepreneurs advertised specialty coffee in a broader sense. The so-called "premium" is more preferably light-roasted and medium-roasted coffee beans, which are formed from the deep-roasted beans used by Starbucks. Differences include the use of better equipment, fresher and higher-quality milk, etc.
Deep-roasted beans have a long shelf life, but have a strong flavor. Light-roasted and medium-roasted beans have a relatively short shelf-life, and the replenishment can be updated faster.
"Even some national coffee chains that specialize in specialty coffee will not use specialty coffee beans selected in the barista competition to make Italian coffee. Everyone uses relatively better quality coffee beans."
Luckin and Lian Coffee created a new concept of "Internet coffee" by using the Internet "burning money for scale" model.
After Luckin fell, the "specialty coffee" model appeared in the coffee arena.
Someone concluded that these brands have two labels: one is to emphasize the quality and professionalism of coffee production, and the other is to emphasize the brand's own aesthetic concept.
However, the industry is also beginning to worry, when the boundaries of specialty coffee are becoming more and more blurred, can specialty coffee that have begun to try to expand on a large scale can withstand the ambitions of capital?
Will capital-ripened coffee taste bad?
Behind dozens of financings, the domestic specialty coffee market is being accelerated.
Luckin's lessons have made capital investment more rational, instead of blindly pursuing the number of stores, and paying more attention to improving the profitability of a single store, but the "financing-expansion" model has not been abandoned.
In 2018, Capital Today participated in Manner's first round of financing, investing 80 million yuan, holding 40% of the shares.
Today’s capital founder Xu Xin once publicly stated, “Is Starbucks coffee the best in the world? Then why do you think of Starbucks when you drink coffee? Because you can see it everywhere. So, open a store.” After 2018, Manner Then embarked on the road of expansion.
In 2019, Manner has 52 stores across the country, and at the beginning of 2021 it has reached 119. According to media reports, Manner's goal of opening stores this year is 400 to 500 stores, and it plans to open 1,000 stores by the end of 2023.
It's not just Manner who is also accelerating store expansion.
After receiving the financing, Algebraist Algebraist Coffee currently has 30 stores, most of which are located in Suzhou. It is expected that the number of stores will exceed 100 by the end of 2021.
M Stand will continue to expand in the second half of the year and is expected to exceed 100 stores by the end of the year.
"We are very concerned about how fast it is expanding, such as how many stores it opens this year, how many stores it will reach next year, and when (scale) can it really approach Starbucks, or become a country with a real national influence. Li's chain of unicorn brands." Zhang Lin said.
But on the road to expansion, Manner also had differences with capital.
In May of this year, Capital Today withdrew from Manner, and LatePost reported that the withdrawal of Capital today is not subjective. The core reason is that the investors and founders have different opinions.
The founder Han Yulong even said that if capital does not withdraw today, he will recreate a new brand with the same positioning.
Manner's official website shows that brands want to provide a cup of high-quality coffee at a reasonable price, and capital often hopes to increase the brand's valuation on the road to expansion.
However, this expansion road is not easy to follow, and whether it is suitable for all brands has to draw a question mark.
At present, most of the specialty coffee brands on the tuyere started in Shanghai. Shanghai has the best coffee atmosphere in the country, with 6,545 coffee shops, far ahead of other cities in the country, and ranking first in the world.
If these coffee shops go out of Shanghai, and even go to second-tier and lower cities, whether they can open up the market or not, the future is uncertain.
Zhang Lin mentioned that the M Stand team is currently exploring the business model of coffee in second-tier cities with friends. Whether the local demand is different from the past, everyone needs to explore together.
In addition, for large-scale expansion of stores, coffee brands will inevitably face the problem of operating costs, which has long been verified by Luckin and Lian Coffee.
In addition to low-cost subsidies, large-scale shop opening is also Luckin's initial strategy.
According to reports, after 2019, Ruixing Coffee's store rental and operating costs reached 280 million yuan, exceeding the sales and marketing expenses of 168 million yuan for the first time.
After 2016, Lian Coffee received multiple rounds of financing and also accelerated offline store openings.
According to reports, at the end of 2018, Lian Coffee had 400 stores in Beijing, Shanghai, Guangzhou and Shenzhen.
Until 2020, due to the impact of the epidemic, the capital market has cooled, and the problem of high-cost operation of offline stores has become prominent.
In the second half of 2020, after the capital carnival, Lian Coffee went bankrupt. At the peak of Shanghai, there were more than 200 Lian Coffee, but only a dozen were left.
Feng Xiao told China News Weekly that today the Chinese consumer market, including the coffee market, has reached a relatively hot cycle, but it is hard to say how to go next.
After the cycle, investment enthusiasm may drop.
When the patience of capital is slowly exhausted, how many new coffee forces can survive?
In Jiang Ping's view, there is a market demand for domestic specialty coffee to create a third space, but the quantity does not need to be too large, otherwise a lot of people will die.
"I think the development direction of domestic coffee should not be the concept of large-scale stores like Starbucks Third Space. This is not the development trend of China's coffee industry. More should be the combination of online and offline, and the two complement each other. And offline The store efficiency must be very high, the floor efficiency is very high, a very high-quality experience store, or a coffee production point, not a place that provides a social space."
Feng Xiao's team is still looking for suitable coffee team investment, but has become more cautious and will take longer to investigate a project.
"The market space of Chinese coffee is calculated, such as using data from Japan, South Korea, or the United States to calculate the penetration rate, but whether the overall market growth rate will fall short of expectations is what we worry about the most. In addition, we are also worried about this. The track is overheated and a lot of money is pouring in. Everyone starts to pay for subsidies, and the probability of a single project going out will also decrease."
(Intern Huang Jinglin also contributed to this article)
China News Weekly, Issue 32, 2021
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