Is the hotel lobby being occupied by Costa and Cudi?

The combination of the hotel industry and the coffee industry has become a major trend, and hotel lobbies are gradually being "occupied" by coffee brands. This attempt to integrate new formats not only brings new growth points to hotels, but also opens up new consumption scenarios for coffee brands. This article will explore the phenomenon of cooperation between hotels and coffee brands, analyze the business logic behind it and the challenges it faces.

"As long as you write a five-star review, you can get a free cup of coffee." Many consumers who are used to staying at Hanting on business trips have found that more and more Hanting, Quanji and other Huazhu Group's express hotels have Costa coffee in their lobbies. When you check out, you can get a free cup of coffee by giving a good review.

Coincidentally, Kudi Coffee also announced in May this year that it would expand into convenience stores, hotels, chain restaurants and other formats; the small town chain hotel brand "Shangkeyou" announced that it would launch a new brand "Shangkeyouyue 2.0" in the form of "Shangkeyou Hotel + Coffee Shop Lobby" to build a new coffee consumption scene; Hilton Group also recently announced a partnership with Starbucks to connect the membership systems of the two companies and bring more life-oriented membership benefits to residents and consumers...

It seems that the hotel industry is actively cooperating with the coffee industry. Both hope to take this opportunity to create a new growth curve.

1. Integrate new business formats to accelerate store expansion

As early as 2022, Costa and Huazhu signed a strategic cooperation agreement, but it was only in the past two years that stores were gradually rolled out and discovered by consumers.

Also in 2022, Yongpu Coffee and Atour Hotel had a similar collaboration, but so far, only the first store in Shenzhen and the Hefei store opened this year.

Retail Jun found that setting aside a space in the hotel lobby for coffee brands to open store-within-stores is a model that is also becoming common in convenience stores and chain restaurant formats.

For example, Cotti launched the convenient store "COTTI Express", but it is not the first coffee brand to target convenience stores. The coffee chain brand Tims "tied the knot" with Sinopec's EasyGo convenience store in May last year and opened an "EasyGo × Tims Express" fusion store, which only covers an area of ​​about 20 square meters.

In addition, Tims has also carried out similar cooperation with offline stores of brands such as 21st Century Real Estate and Bestore. However, some media visited the store and found that the average price of Tims coffee, 20 to 30 yuan, was still a bit high for drivers.

Many convenience stores have their own coffee brands, such as FamilyMart's Paike Coffee, 7-11's 7 Coffee, Lawson's LC Coffee, etc. Most of them adopt a people-friendly price route that is differentiated from traditional coffee shops - this is in line with Kudi's positioning.

Gong Yizhi, an analyst at Guojin Securities, believes that the cost of raw beans in a cup of coffee only accounts for about 4%, and the factors that really affect coffee pricing are mainly rental costs, which account for more than 25%, and human-related costs (including administrative, labor, and operating costs, etc.), which account for nearly 30%. This may mean that if the single-store model of coffee brands and partners such as convenience stores and hotels can run smoothly, they will be able to save more than 50% of their costs.

On the other hand, this is also the reason why hotel chains tend to cooperate with mature coffee chain brands with mature supply chains and management systems. This is obviously easier and more cost-effective than creating a coffee brand on its own, and coffee brands are also happy to cling to hotel chains.

In the past two years, with the continuous growth of the tourism industry, the hotel industry has thrived. In April this year, Jinjiang Hotels released its 2023 annual report, with revenue reaching 14.649 billion yuan, a year-on-year increase of 29.53%, and a profit level that soared 691.14% compared with the same period in 2022; Huazhu Group's revenue in 2023 was 21.9 billion yuan and its net profit was 4.1 billion yuan, achieving its first turnaround since the epidemic; BTG Hotels' revenue last year was about 7.792 billion yuan and its net profit was about 795 million yuan, turning losses into profits year-on-year.

As a result, the pace of opening new hotels has also accelerated. The "2024 China Hotel Investment White Paper" released by the Yijing Data Research Institute of Hotel Home shows that from 2021 to 2023, the number of newly opened hotels showed a trend of "first decreasing, then increasing", especially in 2023, both the number of newly opened hotels and the number of newly opened chain hotels jumped to a "new level".

Image source: 2024 China Hotel Investment White Paper

On the other hand, the price war in the tea and coffee industry has lasted for too long, and even Luckin Coffee can’t stand it - in the first quarter of this year, due to the price war, Luckin Coffee’s operating profit margin fell sharply by 18.2 percentage points year-on-year to 7%.

The reason why Luckin is under so much pressure is undoubtedly due to Kudi - Kudi has opened 7,000 stores in the past year, which can be said to be a rapid progress, and it wants to catch up with Luckin's more than 18,000 stores.

However, since the end of last year, Kudi’s affiliates have been posting on social media such as Xiaohongshu that Kudi has supply chain problems and the brand’s cash flow is in crisis, saying that many Kudi’s affiliates are leaving. However, some people related to Kudi Coffee have “refuted” the rumors to media such as Xinfeng, saying that as of May this year, the closure rate of Kudi Coffee stores was only 2.6%.

According to the data from Zhaimen Canyan, except for Kudi and Luckin Coffee, which are still competing with each other to open stores, other coffee brands have significantly slowed down the pace of opening stores since this year. For coffee brands, opening stores will only become more and more difficult.

Therefore, it has become a natural thing to "hitch a ride" on existing business formats such as hotels and convenience stores. The thresholds such as franchise standards and franchise fees for store-within-store franchises have been significantly lowered.

In addition, cooperating with other business formats in the store-in-store format can help chain coffee brands better reach consumer groups that have never been reached before, further expand new users or bring back silent old users.

2. 1+1>2?

In addition to opening stores within stores in conjunction with other offline formats, other collaborations between coffee brands and hotels are also common. Recently, Hilton Group announced that it will cooperate with Starbucks through the exchange of membership benefits, hoping to enhance the sense of value of member users through such cooperation, and try to expand membership benefits to daily lifestyle scenarios, and then break the circle.

However, Retail Jun observed that, apart from the coffee brands that have opened store-in-stores mentioned above, most hotels’ current approach to coffee is still based on “co-branding”.

In essence, the hotel does not really want to sell coffee, but hopes to cooperate with coffee brands to reasonably utilize the lobby space to create a coffee scene and serve a small number of users who have coffee needs. However, the revenue of these coffee scenes can basically only be tied to the hotel's passenger flow and add to the room revenue.

However, how many users are used to drinking coffee? Are they really willing to drink coffee in the hotel lobby? There is not much market data to prove whether this business model can really work.

However, the cost of opening a coffee shop in a non-first-tier city may be higher than you think. While traveling, I found that in cities like Jinan, Chongqing, and Jiaxing, the price of a cup of coffee sold in roadside non-chain coffee shops is about 25 yuan, and the cost-effectiveness is not as good as that in first-tier cities.

This is mainly because the supply of coffee beans is not as volatile as in first-tier cities, and local consumers' coffee drinking habits have not yet been formed. The imbalance between supply and demand has indirectly raised the price on the consumer side.

This also makes consumers who have the habit of consuming coffee more inclined to look for familiar chain coffee brands in tourist cities to ensure the quality of coffee - these consumers seem to be the target group for cooperation between chain coffee brands and the hotel industry.

According to the data from Canbaodian, in 2023, the scale of China's ready-made coffee market will exceed 160 billion yuan, reaching 162.35 billion yuan, with a relatively obvious growth; it is estimated that by 2025, the scale of China's ready-made coffee market will exceed 220 billion yuan, but it has clearly shown a downward trend, and the market is obviously saturated.

Image source: Cantonese Dining Guide

Therefore, what coffee brands are destined to gain from hotel guests, gas station drivers, and convenience store consumers is only a small portion of the existing market share.

In any case, the entire coffee market is obviously going to change from wild expansion to a steady and long-term development, and a slowdown in growth is inevitable. Whether it is banding together for warmth or crossing the river by feeling the stones, whether it is coffee or hotels, or more online and offline brands and formats, they are all working hard to find more ways to reach consumers.

But after the Manner coffee powder spill incident, coffee chain brands should ask themselves: in addition to the speed of store expansion and store profitability, what can support the healthy development of the company in the long run? If they cooperate with more formats, in addition to achieving a win-win situation in terms of turnover, what higher-value services can they provide to each other's consumers?

References:

1. "'9.9 yuan' will be offered for another three years, and will be sold in convenience stores: Kudi will "roll up" the price", Wall Street Journal

2. "Soy sauce latte is popular on the Internet. Can hotel coffee break through the circle through joint ventures?", Blue Whale Finance

3. "37,000 stores closed in one year, nothing new in the coffee market in May", Yilan Business

4. "2024 China Hotel Investment White Paper", Hotel Home Yijing Data Research Institute