The 9.9 war brought down my coffee shop

The coffee market is undergoing a reshuffle recently. Under the severe situation, many independent coffee shops have expressed that they are dying because of the 9.9 yuan coffee. So how can independent coffee shops survive in this situation? Let's take a look!

The coffee market is undergoing a new round of reshuffle.

In recent years, Luckin Coffee has blazed a new trail for branded coffee chains with its low price of 9.9 yuan. Soon after, Luckin's original founder Lu Zhengyao replicated Kudi Coffee, still following the low-price route, and the number of stores of both companies has repeatedly set new records.

However, just as Luckin Coffee and CooDi were dominating the market, a large number of coffee shops also collapsed.

There are two main types of coffee shops on the market. One is the brand chain franchise, which includes old European and American companies such as Starbucks, Tims, and COSTA, as well as local players such as Luckin Coffee and M Stand. The other is independent coffee shops opened by individual entrepreneurs, also known as boutique coffee shops, which mainly exist in the form of single stores. The independent coffee shops are the ones facing difficulties now.

An independent coffee shop owner complained: "Luckin Coffee and Kudi Coffee opened stores next to me, it's so hard for me." The owner said that in May this year, Luckin Coffee and Kudi Coffee opened stores less than 200 meters away from his store. After Luckin Coffee opened, his sales were directly reduced by 40%. After Kudi Coffee joined, his sales were cut in half. Later, the independent coffee shop followed suit and launched a 8.8 yuan coupon, but immediately started to lose money.

Many entrepreneurs who have had similar experiences have shouted, "My independent coffee shop was killed by the 9.9 yuan coffee."

In theory, independent coffee shops focus on specialty coffee, which is much better than branded chain coffee in terms of ingredients and taste, so they should have their own market space. What is the problem with independent coffee shops that are killed by the 9.9 yuan coffee? When the 9.9 yuan coffee is sweeping in, is there still room for specialty coffee that costs 30 or 40 yuan a cup?

1. Independent coffee shops are under siege by 9.9 yuan coffee

In recent years, an obvious change in the coffee market is that the number of chain coffee brands has been increasing, with Luckin Coffee and Kudi Coffee growing at the fastest rate. Founded in 2017, Luckin Coffee had a total of 10,800 stores by the end of the second quarter of 2023, ranking first among many coffee brands.

Kudi Coffee, which was only established last year, has been growing rapidly and opening stores like crazy. It opened its first store in October 2022 and its 5,000th store in August 2023. According to public reports, as of October, the number of Kudi Coffee stores has exceeded 6,000.

In contrast, the number of stores of Starbucks, a long-established company, is not growing fast, but it is also increasing. In August, Starbucks announced its third-quarter results for fiscal year 2023, showing that Starbucks China added 237 stores during the quarter. As of the end of the third quarter, Starbucks operated 6,480 stores in China.

Price wars have also been the main theme of the coffee market in recent years. Luckin Coffee's prices are between 10-20 yuan, and there are often coupons stacked, so you can drink a cup of coffee for 10-15 yuan. The pricing range of Kudi Coffee is not much different from Luckin Coffee, but overall, the prices of several major series of Kudi Coffee drinks are generally about 1-5 yuan lower than Luckin Coffee. The outside world joked that Kudi Coffee directly hit Luckin Coffee's "price heart".

At the same time, the two are still fighting overtly and covertly. In June, Luckin Coffee just launched the "9.9 yuan" gratitude feedback event, and Kudi Coffee launched a weekly 8.8 yuan free drink event. Both parties also launched big moves such as "Luckin Coffee 0 yuan purchase" and "Please drink Kudi for 1 yuan" from time to time. The price war continues to be intense.

As the saying goes, when the first and second brothers fight, the third brother usually dies. The same is true in the coffee industry.

According to the coffee category data of Zhaimen Canyan, as of September 13, 2023, 77,083 new coffee shops were opened in the past year, but the net increase in coffee shops was only 42,450. Nearly 35,000 shops "disappeared". Although this data does not indicate whether the disappeared shops are brand chain coffee shops or independent coffee shops, based on the expansion of the leading brands and the feedback from independent coffee shop entrepreneurs, the closures may be mainly independent coffee shops.

Xiaohongshu blogger "Bayuan Limei" told "Dingjiao" that she opened an independent coffee shop in Tianjin in May 2022. Considering that financial white-collar workers have the habit of consuming coffee, she chose the address near several major banks. However, she soon discovered that consumption habits are not equal to payment habits. Many people are used to buying Luckin Coffee directly for 9.9 yuan.

She had no choice but to join the price war. " We also launched American coffee for 9.9 yuan. Sales were good at the beginning, and we could sell about 100 cups a day, but we had no profit at this price. The better the business, the more losses we suffered. Especially if users place orders through food delivery platforms, after deducting the platform commission and delivery fees, I can only get 14 yuan for a 20 yuan cup of coffee, and only 5 yuan for a 9.9 yuan cup of coffee."

Due to cost considerations, the event could not be maintained, and sales began to decline. After opening the store for more than half a year, in the last few months, the coffee shop was losing money and the capital chain could not hold up. "Ba Yuan Li Mei" chose to close the store. She sighed: "No matter how much money we spend, we can't beat Kudi Coffee, which costs 8.8 yuan, and Luckin Coffee, which costs 9.9 yuan."

Afterwards, "Ba Yuan Li Mei" concluded that independent coffee shops like hers simply could not compete with big capital chain coffee shops in terms of expansion and price: "We did not lower the quality even in the most difficult period. The milk we selected was comparable to that of boutique coffee shops that sold coffee for 30 yuan per cup, and our latte was only 15 yuan. However, many white-collar workers buy coffee to refresh themselves, and they do not have high requirements for specific coffee beans and milk, and rely more on chain coffee shops such as Luckin Coffee and Kudi Coffee."

Moreover, Luckin Coffee’s online ordering system is better than that of independent coffee shops. Users can order coffee on the subway and take it away when they arrive at the store, saving the commission and delivery fees of the food delivery platform. In addition, the popular joint ventures and peripherals can drive a wave of sales from time to time, and independent coffee shops have no power to fight back in this regard.

Similarly, in the first half of 2023, Qingzi's coffee shop in Yixing, Jiangsu also closed down. After one year of operation, sales did not increase and the company lost more than 200,000 yuan. According to her observation, the main reason why the coffee shop business was not ideal was that the local coffee culture atmosphere was very poor. Most people still drank coffee-flavored milk tea, such as Luckin Coffee. Few people were willing to pay for her carefully selected coffee beans and better quality milk.

On one side, the 9.9 yuan coffee is booming, and on the other side, independent coffee shops are exiting the market miserably. It seems that the 9.9 yuan coffee is squeezing the living space of independent coffee shops.

2. Why can’t boutique coffee beat 9.9 yuan coffee?

Independent coffee shops survived the epidemic, but failed to withstand the onslaught of affordable coffee. Why?

Price is one reason.

Kang Fei, a heavy coffee user from Beijing, basically drinks two cups of coffee a day, one of which is made at home, and the other is from Luckin Coffee. Before Luckin Coffee rose to prominence, she even often drank coffee from 7-11 convenience stores and Bianlifeng, which also cost about 10 yuan. "Workday coffee is something I need to consume every day to refresh myself. It doesn't need to be particularly delicious, as long as it has ice and caffeine. The core is convenience and high cost performance."

In Kangfei's view, the concept of specialty coffee is becoming more generalized. Many coffee shops think that buying better beans will make specialty coffee, but in fact, without precise control of the process, the difference in the coffee produced is not that big. "People are beginning to be a little disenchanted with specialty coffee and are not so popular anymore."

She added that some independent coffee shops charge 20 to 30 yuan, but the taste is very unstable. She spends 10 to 20 yuan more than Luckin Coffee, but is not sure how much the flavor can be upgraded in the end. She is unwilling to take this risk. Moreover, even if the prices of independent coffee shops go down, the shipment volume is unlikely to be as high as Luckin Coffee, and the coffee beans and milk may not be fresher. In addition, some independent coffee shops are located in remote areas, so ordering takeout requires extra delivery fees.

However, more practitioners believe that price wars are just one of the external factors. Looking through numerous cases, the reasons for the closure of independent coffee shops are varied, including site selection, model, owner, positioning...

Xinxin, the owner of Jibai Coffee Shop from Ningxia, has seen three or four coffee shops close down while working for others. She entered the industry in 2017 and has worked as a barista, bartender, and store manager. The first coffee shop she opened was in 2018. The owner was a wealthy sister who wanted to invest. At that time, she rented a shop of nearly 300 square meters and invested about 1 million yuan. Xinxin served as the store manager.

The entire store was full of pitfalls from the beginning. When the store was renovated, the boss asked a friend to help, but there was no overall planning and design in advance. For example, after the bar was built, it was found that there was no space for things, so it was dismantled and rebuilt. The equipment ordered before the New Year was not delivered after the New Year. In the end, when the store opened, there was no one and no coffee could be sold. More than half a year later, the coffee shop was converted into a bar.

Last year, Xinxin also managed a coffee shop. The three partners could never stand on the same front. They wanted to open a coffee shop that combines Chinese food, red wine, and a chess and card room. In the end, the relationship between the three of them became very strained. After a few months, the money from selling coffee was just a drop in the bucket for the 200-square-meter shop, and the shop finally closed down.

The above are all cases where outsiders’ cross-border investments in independent coffee shops went bankrupt, which shows how critical the entrepreneur’s personal qualities are to coffee entrepreneurship.

According to business consultant and former coffee shop owner Kantiluo, the core reason why many coffee shops go bankrupt is that the people who open them are not qualified entrepreneurs. Many people who open coffee shops have not designed a business model properly. They are usually people who are a bit artistic, don't want to work, have some spare money, and decide to open a shop on impulse.

Zhang Hong, a coffee industry expert, also believes that the coffee industry has placed higher and higher demands on store owners in recent years. If an independent coffee shop does not learn by itself but only invests money and hires people to run it, it is very likely to go bankrupt. "If the boss does it himself, on the one hand, it can reduce labor costs, while maintaining the stability of personnel and product taste. On the other hand, the boss himself can better implement his own ideas."

Going bankrupt due to joining an unreliable project is also one of the reasons for the closure of coffee shops.

Xinxin once worked in a coffee shop that was an indoor golf + coffee project, and the model was a franchise system. In those years, the cross-industry cooperation model of coffee + other industries was quite popular, but after the store opened, no one bought anything. Xinxin analyzed that it sounded like coffee and golf were things related to elites, but in fact, people would not drink coffee for golf, nor would they play golf for coffee. In addition, there were not many people in the mall at that time. After operating for more than half a year, the store also went bankrupt.

The internal factors of entrepreneurs are fundamental, and market competition has accelerated the death of independent coffee shops. Luckin Coffee and Kudi Coffee are opening stores like crazy now. They have brand advantages, supply chain advantages, standardized equipment and processes, and more stable tastes. More importantly, chain brands have diversified profit methods. The headquarters makes money not only by selling coffee, but also by high franchise fees. At the same time, these coffee shops usually have capital support and are able to quickly expand their territory and scale by burning money to subsidize.

These are things that independent coffee shops, which are mainly self-employed, have high costs and weak risk resistance, do not have.

3. What can independent coffee shops do to compete with the 9.9 yuan coffee?

The lack of advantages of branded chain coffee shops does not mean that independent coffee shops have no room for survival.

Zhang Hong pointed out that the flexibility of independent coffee shops lies in the diversification of their products. They can use coffee beans from many different origins to blend different styles of coffee products to meet the personalized needs of consumers . The more refined the products, the more they can select the customer base, that is, the heavy coffee lovers.

In addition to unique products, independent coffee shops also carry some humanistic functions, such as socializing among coffee lovers, spreading the culture of boutique coffee, and exchanging coffee recipes. However, chain brand coffee shops such as Luckin Coffee and Kudi Coffee cannot meet such needs.

Therefore, as a small and beautiful business format, independent coffee shops have demand and value.

In fact, the profit margin of independent coffee shops is not low. Many practitioners mentioned that for a cup of coffee that costs 30 yuan, the cost of good coffee beans is 2-3 yuan, the cost of high-quality milk is about 3 yuan, and the cost of cups and other materials is basically no more than 8 yuan, so the gross profit margin is not low. However, once sales volume does not increase, hard costs such as rent and labor will overwhelm people.

Practitioners mentioned that a lot of effort needs to be put into the coffee product aspect alone.

Zhang Yuanchu, an investor and avid coffee lover, believes that the core competitiveness of a coffee shop is the owner. In his opinion, the owner must have a sophisticated and accurate palate to select better coffee beans and know what kind of milk to pair with them. In addition, the production process requires adjusting the grinder according to the temperature, humidity and water content of the coffee beans on that day to ensure that the beans are in the best extraction state.

The user groups selected by independent coffee shops are basically willing to pay a certain premium for better coffee taste, so the pricing of independent coffee shops can be maintained at a relatively high level.

In addition to products, independent coffee shops can also add some memorable points or experiences if they want to beat the 9.9 yuan assembly line coffee.

In addition to her daily "staple coffee", Kang Fei also goes to several independent coffee shops that she likes to meet friends for coffee, or to read books by herself. She believes that if a boutique coffee shop wants to survive, it must have at least one point that is impressive enough. She gave the example that some shops have very good baristas who are champions of certain coffee making competitions; some shops roast their own coffee beans, have very good special flavors, and frequently change their menus; and some shops have very high-end decorations, good-quality speakers, second-hand furniture, and good photos.

In addition, mix and match is also an idea recognized by many coffee practitioners. It is difficult to make money simply by selling coffee. In addition to training, books, simple meals, coffee bean sales, etc., broadening the source of income is an effective way for independent coffee shops to survive.

As for the selection of cities for opening stores, Zhang Hong believes that the coffee market in Beijing is more concerned with brands, efficiency and cost-effectiveness. In the southern market, independent coffee brands are relatively better off. He currently does not recommend opening independent coffee shops in Beijing. In addition, he is also optimistic about second-, third- and fourth-tier cities because many young people are willing to pursue new things, which is a bit like the situation in Beijing, Shanghai, Guangzhou and Shenzhen more than a decade ago. There is still room for the development of boutique coffee.

If you want to open a shop, he suggested that first, the boss should do everything himself and not be a hands-off manager; second, it is not recommended to open a large shop and do not buy so-called high-end brand equipment. The initial cost of opening a shop should be kept within a reasonable range; third, the coffee market has been constantly segmented, so you must create characteristics and think clearly about what kind of shop you want to open . "For example, if you want to do business with outdoor enthusiasts or motorcycle enthusiasts, the coffee shop's decoration layout, products, peripherals, publicity and promotion, and culture should all be centered around these consumers."

The current coffee market has become over-involved and opportunities are limited, which also indicates that those who enter the market without professional background and solid homework will inevitably end up in a miserable situation. After the industry reshuffle, independent coffee shops that have experienced the baptism of the market will usher in a bright future.

*At the request of the interviewees, Qingzi, Kang Fei, Kang Tiliu and Zhang Yuanchu are pseudonyms in this article.

Author: Tang Yahua, Editor: Wen Gu

Source: Dingjiaoone (ID: dingjiaoone), deeply influencing innovation.