Baking frequently fails, but this brand opened in the suburbs has an annual revenue of over 10 million per store

This article analyzes the steady development of Hesuo from three aspects: product polishing, store model, and brand marketing. It is recommended for friends who are engaged in related catering industries.

The Hutou Bureau entered the bankruptcy liquidation process, and the Momo Dim Sum Bureau shrank sharply.

These brands, which were once very popular when they received hot money, also left the market sadly as the money cooled.

Only when the tide goes out do you know who is swimming naked.

The current harsh market environment, while placing higher demands on brands, also allows brands that were once submerged and “working quietly and practically” to be seen.

The baking brand Hesuo, which was born at the end of 2021, is such a low-key brand. There are two reasons why it is low-key.

First, although it received two rounds of financing in 2022 and 2023, Hesuo rarely spoke out in the media; second, unlike most brands that choose to make a high-profile appearance in the city CBD, Hesuo's first store was located in Tongzhou, a suburb of Beijing, and then gradually moved into the city.

However, although he acts in a low-key manner, his performance is not low-key.

In 2022, when the epidemic was rampant, Hesuo's first store in Wanda, Tongzhou, Beijing, had an annual revenue of over 10 million. The four stores currently in operation are all profitable, and the store repurchase rate exceeds 60%.

Why did Hesuo choose to start with a low profile? And how did it achieve stable profits?

DaoFa found Bao Rujiang, the founder of Hesuo. After communicating with him, we found that the reason why Hesuo is so "unique" is that all its decisions are based on solving these two problems:

The first question: Does the product meet the differentiated needs of customers?

The second question: Is the business’s financial model healthy?

In this article, we will analyze Hesuo’s solution in detail from three aspects: product polishing, store model, and brand marketing.

Product polishing: fill the gap in the zero sugar baking market and create a multi-scenario product portfolio

Store location selection: "surrounding the city from the countryside" to do high-frequency, high-repurchase, all-time business

Brand marketing: Focus on the entire production process and maximize the reuse of incurred costs

1. Product polishing: fill the gap in the zero sugar baking market and create a multi-scenario product portfolio

0 Sugarcane is the brand label that Hesuo has established for itself today. But it was not like this in the beginning.

Bao Rujiang first came up with the idea of ​​baking in 2020.

At that time, he wanted to do Chinese-style baking instead of zero-sugar baking. The reason was simple: the market was hot and the premium was high.

Before founding Hesuo, Bao Rujiang made steamed buns for fast food. Steamed buns are a hard business with low profits and high turnover: the premium space is low and they must be made by hand. The taste of pre-made semi-finished products is different from that of steamed buns made by making dough on site.

But Chinese baking is different.

Firstly, Chinese baking brands were very popular at that time and were loved by young people; secondly, people were willing to pay a higher premium for baking products; thirdly, the baking supply chain was mature and not that hard.

However, after Bao Rujiang was really preparing to enter the industry, he discovered the problems.

The Chinese baking market at that time could be roughly divided into two categories.

One category is the old brands that have been around for 20 to 30 years , such as Zhan Ji, Bao Shifu, and Huxihe. They have their own factories and big products that have accumulated market reputation.

The other category is new brands, such as Hutouju . These brands are very popular in the investment and financing market, but 100 brands in operation may have three or five common factories behind them. In other words, these brands are highly homogenized and have almost no barriers in terms of products.

In this case, if you rush in rashly, you can get short-term dividends by relying on the influencer effect, but without barriers, you will easily be replaced. This is different from the long-term business that Bao Rujiang wants.

If you want to gain a foothold in Chinese baking, you still have to find your own unique point of differentiation. After half a year of research, Bao Rujiang defined He's differentiation as "0 sucrose".

There are two reasons for choosing "0 sucrose":

First, “less sugar, low sugar” is gaining momentum in the food and beverage industry.

At the same time, on the policy side, since 2019, the country has issued a number of policies to promote the "Three Reductions and Three Healths" campaign, encouraging companies and consumers to reduce their dependence on sugar.

On the market side, the emergence of low-sugar and sugar-free products such as Yuanqi Forest and Jane Eyre Yogurt has accelerated consumer education.

Second, there is a strong demand for low-sugar baking, but the market is not saturated, so you can find a first-mover advantage by entering the market.

In the 2021 Tmall baking and pastry ingredient trends, the market size of xylitol, low sugar, and no sucrose increased by 177%, 168%, and 84%, respectively, ranking 2nd, 3rd, and 5th in terms of growth rate. However, traditional Chinese baking is still the hardest hit by high oil and high sugar content.

Even bakeries that made low-sugar products only improved some of their product recipes. At that time, there were almost no brands with a full product line of "0 sucrose".

After finding the demand, Bao Rujiang spent 9 months to overcome the technical problems of "0 sucrose" baking. Although it took much longer than expected, it also virtually established a technical barrier for Hesuo.

But to really enter the market, solving the technical problems is only the first step. To make a profitable business, finding a product and pricing combination that meets the needs is the key.

How to solve it?

The simplest arithmetic logic: first determine the average order value, and then formulate the product portfolio based on the average order value.

When a new brand enters the market, the most prudent pricing is to find a price per customer that can satisfy the largest number of customers. This is also the choice of Hesuo.

According to a report by the China Economic Research Institute, the two price ranges with the highest average customer spending on baking products in 2021 are 20-40 yuan and 40-60 yuan, accounting for 35.8% and 21.3% respectively. Around 40 yuan is exactly the middle value, which meets the expectations of most people who buy baking products.

The data from Dianping.com shows that the average customer spending at the five Hesuo stores is between 42 and 44 yuan, which is exactly in line with the data.

So how does Hesuo achieve this average order value?

Its strategy is: one flagship product takes on profits, creates brand and sales output; and then there are cost-effective items in multiple price ranges as supplements.

Napoleon is the main product of Hesuo and also contributes the highest sales. It was chosen based on several considerations. First, the market price of Napoleon is not low, and it can become the main support for customer orders. At present, the price of Napoleon in Hesuo is 28 yuan each; second, Napoleon is easy to store and can be stacked, which is more efficient for store operations.

For conventional products, Hesuo's strategy is to cover as many scenarios and price ranges as possible to meet the needs of customers with different needs .

For example, scones for 4 yuan and muffins for 8 yuan can be used for breakfast or afternoon tea, and toast for 18 yuan can be used as a lunch substitute.

Generally speaking, after consumers buy Napoleon in the store, they will also pair it with one or two other items. The average customer spending can easily reach around 40-50 yuan.

Product positioning and pricing solve the problem of who the consumers are and why they choose Hesuo. The next step is to find out where to find consumers.

2. Store location selection: "surrounding the city from the countryside" to do high-frequency, high-repurchase, all-time business

For offline stores, location is a life or death decision. The most central location can bring the most customers, but also has the most expensive rent.

In 2020 and 2021, new consumption is still a hot topic in the eyes of investors. Most brands choose to appear in the most prosperous locations, using eye-catching stores and "gimmick" products to attract the attention of young people.

But the appearance of the crane "outside the fifth ring" is completely opposite. Why?

Because the starting point of Hesuo’s thinking is not to become an “Internet celebrity”, but to “live longer”. Therefore, in the selection of store locations, the health of the financial model is as important as traffic.

Specifically, the profit of a bakery = sales - cost.

To increase profits, you either need to increase sales, reduce costs, or both. For offline stores, location selection has a great impact on both sales and costs.

The best location is one that can generate high sales and low rent. But for Hesuo, there is another condition - long-term business, which means that the sales volume must be sustainable.

Let’s look at these conditions one by one.

First of all, sales volume. When defining its products, Hesuo’s average customer spending was basically set at 40-50 yuan, while the ceiling for the number of customer spending in bakery shops in the industry is about 1,200 orders per day.

In other words, the sales ceiling can be estimated to about 80%.

Once the income is expected, there is a basis for estimating the costs.

Bao Rujiang admitted that he had considered downtown areas such as Sanlitun and IFC, but after learning about the rents in these places, he could not make the math. He could only give up the city center.

So after excluding the most central locations, where should we go? Let’s look at the last condition: long-term business.

The prerequisite for long-term business is to have a sustainable consumer customer base; this means that the store should be centered around the permanent population, and it is best if the customer flow is at all times, because longer business hours can generate more consumption scenarios, thereby bringing higher consumption amounts.

That further rules out office buildings that are only busy during the day on weekdays.

Combined with the main leisure afternoon tea scene of baking, the choice range can be further narrowed to commercial entities surrounding residential areas.

Then why did Hesuo finally choose Wanda in Tongzhou as its first store?

Because of the large customer flow, less competition and low rent, the cost-effectiveness is very high.

According to Winshang Big Data, the de-duplicated customer flow in Tongzhou business district is about 330,000 on weekdays and about 360,000 on holidays, which is very stable.

As the largest commercial complex in the area, Tongzhou Wanda Plaza has a stable position in the business district and can radiate to the vast majority of customers in the Tongzhou area.

At the same time, compared with the urban area, the rent in Tongzhou is much more affordable.

According to statistics from Youdian Business District, the average rent of street shops in Tongzhou is about 5.2 yuan per square meter per day, which is only 1/2-2/3 of that in the core urban area. In addition, few bakery shops that want to build a brand will choose Tongzhou as their starting point, and the competitive environment is relatively comfortable.

More importantly, the Hesuo Tongzhou Wanda store is located next to Yonghui Supermarket.

The supermarket customer flow of all time periods and all age groups can be used by He. It can be said that the first store of Tongzhou Wanda is the ultimate solution found by Bao Rujiang after balancing sales and costs.

The Wanda store in Tongzhou, which has had sales of over 10 million for two consecutive years, has a rent cost of less than 5%, while the average rent cost in the same industry is 15%.

Moreover, due to the distinctive “0 sucrose” and relatively stable customer base, the repurchase rate reached 61%.

The success of the first store gave He two experiences. First, it found the model of "regional business + supermarket"; second, the rental budget could be adjusted upwards.

Therefore, at the beginning of 2023, Hesuo opened its second store in Beijing Impression City, slowly moving closer to the city, and officially embarked on the route of "surrounding the city from the countryside."

But for chain brands, a location selection model is too limited. Therefore, under the premise of "healthy financial model", Hesuo began to try more possibilities.

So far, He has tested three single-store models in the five stores it has opened.

The first is the relatively mature standard store type of "regional business + supermarket"; the second is the TOD store type based on subway passenger flow; the third is the mini store type with small investment.

Although the operations of the stores that have been opened so far are considered successful, Bao Rujiang believes that it is still not time for large-scale expansion.

As early as when he founded Hesuo, he made it clear that "the first three years are not for opening stores, but for polishing the store model."

And 2024 happens to be the third year.

3. Brand marketing: Focus on the entire production process and maximize the reuse of incurred costs

Unlike most brands’ high-profile narratives, Hesuo’s brand promotion focuses on its products.

"Save as much as possible - maximize the reuse of incurred costs" is the marketing strategy of Hesuo. Since products are the most important part of the effort, all of Hesuo's brand promotions are closely centered around products.

First, trace the birthplace of healthy ingredients and record the process of "searching for ingredients".

Since the supply chain for zero-sugar baking is not mature, Bao Rujiang often needs to find the ingredients he wants by himself. This also became a natural material.

Telling the exploration stories of the most important ingredients each year is the main direction of Hesuo’s brand promotion.

The introduction of Hesuo Video Account is: "Spreading valuable content around the countryside, land, humanities, and folk art production." The existing video content is also a record of the process of finding ingredients.

For example, when I went to Daxing'anling to look for wild blueberries, I felt the ingredients, the land, and the local customs; when I went to Longzi County, Shannan, Tibet to look for black barley, I made and shared black barley bread of different flavors with villagers and lamas. Most of these videos were shot directly with mobile phones without fine editing.

Second, shoot a 360-degree transparent kitchen to show the “product production” process.

When opening the first store, Bao Rujiang gave the designer the following requirement: How can I make customers trust me more through space?

The designer asked Bao Rujiang, “Is there anything you dare not show to the client?” Bao Rujiang replied, “No.” This is how the 360-degree transparent kitchen of Hesuo was born.

Through the 360-degree fully transparent kitchen, customers can directly see the entire process of pastry making. The most candid display also gives the most direct endorsement of trust.

Not only that, for those who are not familiar with pastry making, the transparent kitchen can also satisfy their curiosity.

Initially, it was decided to use Napoleon as a large single item, and Bao Rujiang also considered that when Napoleon was cut, it could produce a certain performance effect.

Third, use in-store materials to promote the effect of “finished product presentation”.

Compared with large-scale communication campaigns, Hesuo is more concerned with making the best use of the materials on hand that have already incurred costs, such as in-store posters, product packaging bag design, etc.

Due to the high repurchase rate, putting effort into packaging can bring about subtle and long-term communication effects.

Therefore, Hesuo will highlight the characteristics and differentiation of the brand in design.

The enlarged version of the Chinese and English words "low sugar and zero sucrose" plus a simple drawing of a crane standing on a turtle make up the brand logo of Hesuo.

Both the turtle and the crane are traditional Chinese auspicious animals, and the yellow and pink color scheme of the poster not only highlights the brand characteristics of "0 sugar cane", but also adds a sense of fashion. It is easy to distinguish from other brands.

4. Analyst Comments

“There are no conspiracies in the catering industry, only open conspiracies,” Bao Rujiang would describe it this way whenever someone asked about Hesuo’s successful experience.

Every brand bears the mark of its founder.

Looking back on the development history of Hesuo, it can be seen that compared with grand narratives, Bao Rujiang is more concerned about whether every step taken is solid.

“Rural entrepreneur” is the most common evaluation Bao Rujiang received from investors.

He himself admitted: "Maybe I wouldn't have been able to get financing five years ago. I'm not the superhero entrepreneur that people traditionally imagine. But today it seems that everyone likes me a little more."

The cautious and steady nature makes Hesuo run slowly. In fact, compared with most brands nowadays, it is very slow.

Just like the logo of Hesuo, it is sitting on a turtle and moving forward. However, it is precisely this characteristic of seeking stability and solidity that has allowed Hesuo to survive the epidemic and the ups and downs of the industry.

Seeing that many brands quickly “build red buildings, entertain guests, and then the buildings collapse”, isn’t being able to slow down a kind of ability?

Author: Li Zi; WeChat public account: Knife Skills Research Institute (ID: DigipontClub)