Can the “9.9 yuan” in the coffee market last?

In this summer, many consumers have observed that the competition among coffee brands has become increasingly fierce. Many brands or offline coffee shops have even adopted a low-price strategy, which will undoubtedly affect the survival space of coffee brands that originally took the low-price route. So, how to interpret the current low-price competition in the coffee market and the consumption logic of the coffee market? Let's take a look at the author's interpretation.

Luckin Coffee at 9.9 yuan and Kudi at 8.8 yuan, the battle over coffee is quietly happening this summer.

Since June 5, when Luckin Coffee opened its flagship store on Zhongshan Road in Xiamen, Luckin became the first chain coffee brand in China to have more than 10,000 stores. Subsequently, Luckin launched the summer internal competition among coffee brands with the pretext of "celebrating the opening of 10,000 stores".

When Kudi Coffee offered 8.8 yuan to attract consumers in Luckin Coffee's territory, Luckin Coffee quickly responded with a price of 9.9 yuan. This fierce price war made consumers very excited, the store clerks complained, and other brands had no way to express their suffering.

For example, Pacific Coffee, which once had a domestic market share second only to Starbucks, recently reported that a large number of stores were closing, and it seems to be becoming the "tears of the times."

At the same time, in order to survive in this summer war, many boutique coffee shops have also launched promotional prices or event packages for a limited time, and chain restaurant brands such as KFC and McDonald's have offered a discount price of 9.9 yuan. However, brands such as Lucky Coffee and Nova Coffee, which originally took the low-price route, seem to have their exits blocked.

This internal competition of low coffee prices, which will last for an unknown period of time, has pushed this track into difficult mode.

1. The second place after Starbucks was photographed on the beach

Pacific Coffee, which was founded in Hong Kong, China in 1992, seems to have become an old man who cannot keep up with the pace of the times in this era when everyone is striving to expand to 10,000 stores.

According to the "Restaurant Boss Insider", there are only about 166 Pacific Coffee stores in China. In 2020, the number was 443. In other words, in less than three years, the number of Pacific Coffee stores has dropped by 60%.

Once upon a time, Pacific Coffee was known as "China's own coffee chain brand". At the end of 2017, with a 2.5% market share in the mainland, Pacific Coffee ranked second, closely following Starbucks.

Pacific Coffee's decline is in the opposite direction of market changes. According to the "China Catering Development Report 2022" released by Red Canteen, from 2018 to 2022, the scale of my country's coffee beverage market will show a growth trend of 29.7 billion yuan, 37.4 billion yuan, 46.5 billion yuan, 60.8 billion yuan to 79.7 billion yuan. It can be said that the competition landscape of the entire category is constantly expanding, and many brands are ushering in a period of rapid growth.

In this fertile land, brands such as Luckin Coffee, Nova Coffee, Lucky Coffee, Manner Coffee, M STAND, and Tim's have risen rapidly. Not only have they easily surpassed the second-ranked Pacific Coffee in terms of the number of stores, but they have also absorbed consumer groups that may have originally belonged to Pacific Coffee.

In fact, Pacific Coffee is not a company that will sit back and wait for death. It is just that its vague positioning and innovation that cannot keep up with the times have ultimately led to a continuous decline in its brand power.

Previously, Pacific Coffee had also tried various marketing methods. For example, when mulled wine became popular, it launched mulled wine-flavored lattes and American coffees; when raw coconut drinks became popular, it launched apple cinnamon raw coconut lattes; and when raw cheese drinks became popular, it launched similar products...

Pacific Coffee did not miss any of the marketing opportunities such as Women's Day, Mother's Day and Valentine's Day, but unfortunately the response was still mediocre.

As for the reason, the sense of separation of Pacific Coffee is probably a major reason for its decline. With a price positioning of 30 yuan+ to follow the trend of Luckin Coffee with a price of 10 yuan+, it has neither been able to create the due "third space" advantage, nor can it attract consumers with low prices, let alone be compared with the style and products of boutique coffee shops.

The accumulation of numerous problems has made Pacific Coffee’s heyday particularly short-lived, and now it has become a “front wave” left on the beach.

2. The territory of low-priced coffee is being invaded

In the fiercely competitive coffee market, in addition to old players like Pacific Coffee finding it difficult to keep up with the pace, brands such as Nova Coffee and Lucky Coffee that take the low-price involution route have also been "affected" by the 9.9 yuan coffee war.

On June 5, Luckin Coffee’s official WeChat public account published an article titled “9.9 yuan a week, Luckin celebrates with 10,000 stores, and thanks to all users”, which received more than 100,000 views in less than an hour. In the comment section, some people said, “Luckin has indeed changed the coffee drinking habits of Chinese people, which makes it convenient and fast for coffee lovers to bring their own coffee machines. Come on, Luckin.” “Thank you Luckin for turning me from a person who doesn’t like coffee into a distinguished Black Deer member in half a year. Thank you Luckin for saving me from countless early mornings.” After a comeback with thick milk latte and raw coconut latte, Luckin once again captured the hearts of consumers with 9.9 yuan.

Before launching the 9.9 yuan discount in 10,000 stores, the price of a single cup of Luckin Coffee was basically stable at around 15 yuan. Therefore, Nova Coffee, which is priced slightly lower by 1-2 yuan, and Lucky Coffee, whose products are generally priced at around 10 yuan, have room for rapid growth.

In the past year or so, the net increase of Lucky Coffee stores has exceeded 2,000, and the net increase of Nova Coffee stores has exceeded 500. Some media have mentioned that the frequency of Lucky Coffee's internal discussions in 2022 even exceeded that of Starbucks, which means that the rapid expansion of Lucky Coffee has indeed brought a considerable impact on Luckin Coffee.

In addition, with Kudi Coffee, which emerged in the second half of last year and attracted new customers at low prices of 0 yuan and 1 yuan regardless of cost, Luckin Coffee really needs to show greater sincerity to win back its users.

The 9.9 yuan promotion is very subtle. On the one hand, Kudi Coffee, which currently poses a considerable threat, has long maintained a preferential price of 8.8 yuan. Although the price of 9.9 yuan is slightly higher, Luckin Coffee has occupied the minds of consumers for some time, so consumers will still choose Luckin Coffee, which is slightly more expensive at 1.1 yuan. More importantly, compared with Kudi, which was almost free at the beginning, Luckin's price reduction is more tempting.

On the other hand, both the chief strategy officer of Kudi Coffee and some consulting agencies have mentioned that 9.9 yuan is actually a normalized low price that can be brought about by economies of scale. To put it bluntly, when the number of brand stores and product sales reach a certain level, the low-price promotion of 9.9 yuan is no longer a way to burn money for traffic, but a survival model that can be sustained in the long run.

The key point is that not all brands have achieved Luckin Coffee’s scale of tens of thousands of stores, so if they blindly use low prices to compete with Luckin Coffee, they are likely to get hurt.

However, at this stage, Nova Coffee has begun to compete head-on with Luckin Coffee and Kudi Coffee with a price of 8.8 yuan. Lucky Coffee, which has been sticking to the low-price zone, has even launched the "Enjoy 2 cups every day for 9.9 yuan" campaign to continue its internal competition.

But what is hard to say is that if this price war is a protracted one, it may be difficult for smaller brands to persevere to the end. Even if they survive, how much loyalty will consumers cultivated with low prices have?

3. Instead of "fighting too quickly", it is better to change the direction

The consumption logic of coffee in China is changing. The once high-end appearance has been removed, and now the younger generation of consumers represented by young white-collar workers and college students have become the core audience of the Chinese coffee market.

Young consumers are often price-sensitive and pay more attention to creativity and personalization. Therefore, a single brand marketing method is no longer effective, and the combination of "product + marketing" can not only stimulate the consumption of potential customers, but also have a group of more loyal fans.

It can be said that both hot-selling and low prices have become the demands of young consumers for coffee. It is also in this context that the 9.9 yuan internal competition between brands such as Luckin Coffee and Kudi is also predicted to be a protracted war. The era of mass and affordable consumption has arrived, and the more cost-effective low-price market will be a battleground in the future.

However, at this stage, not everyone can hold on to the end. First of all, the price control of the source materials determines the product cost. For example, in the past three years, Luckin Coffee has reached strategic cooperation with suppliers in Ethiopia and Brazil, and has maintained the supply and quality of raw materials as one of China's largest green bean importers. In addition, the order volume generated by its 10,000 stores is enough to support the model of small profits but quick turnover.

Coffee brands collectively start the summer war

Coffee brands that do not have enough stores and orders to support them will naturally have weaker bargaining power over raw materials. If they adopt low-price competition without strict enough control over product costs, the disproportionate input and output will affect the sustainable development of the brand and create a vicious cycle.

Tang Jun, an analyst at Soochow Securities, once publicly stated: "Global coffee consumption has gone through the process of instant coffee, brand chain, and boutique coffee. my country's freshly ground and boutique coffee are developing rapidly, and local brands are quickly emerging. The domestic coffee market is in a period of rapid growth. In the future, consumption upgrades will create diversified demands, and third- and fourth-tier cities will become the main engine. It is time for the domestic coffee track to prosper and develop."

Indeed, the diversified demand for coffee consumption is emerging, and low-price involution is not the only way. For example, Tim's Coffee has opened up a new world through the differentiated coffee + warm food model, Manner has quietly increased the unit price of its products by adding gifts, and some boutique coffee shops have launched 1L Americano and latte to meet the needs of many consumers who have large barrels of drinks...

When you really can’t roll it anymore, you can try changing the direction.

Author: Xing Wan; Editor: Li Jinlin

Original title: The coffee market has entered difficult mode, who has been swept away by the 9.9 yuan?

Source public account: Zinc Scale (ID: znkedu), focusing on original in-depth reports on technology and the new Internet economy.