Luckin Coffee started a price war with the price of 9.9 yuan, and my coffee shop became a "cannon fodder"

Luckin Coffee and Kudi are engaged in a fierce price war. In this coffee market environment, many small and medium-sized independent coffee shops say they can no longer survive. The coffee market is not yet mature, and these independent coffee shops may face more challenges.

In 2023, coffee is "rolling up".

First, a tea brand launched a cup of coffee at 3.9 yuan, launching the "first volume of the new year". Then Luckin Coffee and Kudi, two coffee brands with the same founder, started a close fight and lowered the price of coffee to 9.9 yuan, 8.8 yuan or even 0 yuan.

Price is always the most sensitive factor that can touch the nerves of consumers. On Xiaohongshu, Douyin and Weibo, what is more popular than the new milk tea products is the new "wool" of coffee.

Among the overwhelming number of posts about Luckin Coffee and Kudi Coffee, there are also many small and medium-sized independent coffee shops that are being transferred. Some independent coffee shop owners have even started a "countdown to bankruptcy", hoping that everyone can help them come up with ideas to save their shops: "I can't beat the price war anymore . "

Consumers cheered for Kudi and Luckin to "fight louder" so that they could get more benefits. However, "when the first and second are fighting, the third is the first to suffer." When Kudi and Luckin fight, the first to suffer are many independent coffee shops: most of these shops are located in the suburbs of cities or small towns, and they are not well-funded. They have little ability to fight back under the impact of the price war.

A coffee shop owner in Taizhou, Zhejiang, opened his coffee shop in January this year. At the end of April, he posted a transfer notice on Xianyu: "We were hit by a price war right after opening. In addition, the milk coffee we make collides with two brands. The average customer spending cannot be so low. Now we lose nearly 10,000 yuan every month and we can't hold on any longer.

Aqin, who has run a coffee shop in Jiangxi for two years, was also caught off guard by the price war: "On the left side of the store is Luckin Coffee, and on the right side is Kudi. After the two companies started the price war, our order volume directly decreased by 60% . "

When brands with strong capital began to compete, the first to be impacted were the many small players who fought alone. Some independent coffee shop owners chose to leave directly, "without capital to win, and now can not afford the loss"; some chose to join the melee, using the low price of basic models to attract traffic and compete with brands; some chose to "stay" temporarily, waiting for new opportunities brought by a more mature market.

1. Cut in order volume and transferred stores

If you search for "coffee shop transfer" on Xiaohongshu, associated words from various regions will automatically pop up. Most of them are coffee shops in non-first-tier cities. Some coffee shops package their equipment for transfer, and the owners have also prepared training services: free recipes and teaching.

Someone commented: "I saw a lot of coffee shops for sale. Is the market so bad this year ? "

There are many information about coffee shop transfers on social platforms.

Sen Sen from Dongguan posted a transfer post on a social platform. Many coffee shop owners around her are transferring their businesses. "The three biggest pitfalls in starting a business are coffee, milk tea, and flower shops. This year, there are a lot of coffee shops that have been transferred and closed down. Many coffee shops that survived the epidemic have closed down this year."

Many coffee brands first chose to expand in super first-tier and first-tier cities. These cities have completed coffee market education and cultivated consumer minds. Independent coffee shops that survived have experienced a round of competition early on: they have their own strategies and customer bases; some sell storytelling atmosphere; some sell quality; and some sell "third space". However, in many low-tier cities, coffee has not yet completed market education and can only sell the most basic "business".

At the same time, the coffee market in super first-tier and first-tier cities is gradually approaching its ceiling, and brands are gradually targeting the coffee market in lower-tier cities: The "2023 China Urban Coffee Development Report" released by the First Financial Business Data Center and Meituan shows that in MAT (monthly rolling annual sales trend) 2023, the fastest growing number of online stores are in third-tier, fourth-tier and fifth-tier cities, accounting for 78%, 74% and 65% respectively.

Starbucks has opened stores in county towns, Nova Coffee has set a slogan of opening 20,000 stores in five years to target the sinking market, and Kudi is competing with Luckin Coffee in low-tier cities.

Luckin Coffee, which has opened tens of thousands of stores, has secretly changed its benchmark from Starbucks to Mixue Bingcheng: In 2018, Guo Jinyi, then senior vice president of Luckin Coffee, blasted Starbucks, accusing the company of having exclusive agreements with many properties, which prevented Luckin Coffee from entering shopping malls; now, Guo Jinyi, who is already the chairman and CEO of Luckin Coffee, has been much more low-key. He no longer talks about Starbucks, but has secretly benchmarked against Mixue Bingcheng's "downstream strategy" and "scale strategy", saying that he will continue to develop the downstream market and provide support.

Chain coffee brands are competing for the first cup of coffee among young people in small cities. Independent coffee shops that previously "lived and worked happily" in third- and fourth-tier cities and small towns have been directly impacted by this wave of price wars.

Aqin from Jiangxi Province saw his order volume drop by 60% due to the impact of Luckin Coffee. Mr. Li, who opened a coffee shop near a university in Changsha, also lost nearly half of his takeout orders in this wave of price increases.

Keke in Hubei used to be a "neighbor" of Luckin, with the two stores only a few dozen meters apart. "At that time, the price difference was not much, so there was no impact. This year, another Kudi opened nearby, which had little impact when it first opened. Later, Luckin joined the price war, and our orders on Mondays and Tuesdays dropped by 50%, and the daily orders also dropped by about 40%." Keke has already lost nearly 3,000 yuan in May, and according to the current trend, it may lose more in June.

A coffee bean distributor further upstream concluded through purchasing sales that business for independent coffee shops will not be good this year, and he already knows that many shops are being transferred.

Brands have a stronger advantage in the supply chain. CITIC Securities once said in a study: If you purchase roasted beans directly, there will be a 20%-30% premium in the middle link. Luckin has cooperated with high-quality coffee bean producing areas and has established its own coffee bean roasting base. Most other chain brands also have their own mature supply chains.

"The cost of coffee beans cannot be ignored. A bag of coffee beans is 454 grams and can make about 20 to 25 cups. An ordinary coffee shop has to pay 40 to 70 yuan for a bag of commercial coffee beans. If chain brands purchase in bulk or purchase raw beans and roast them themselves, the cost can be lower. The same goes for syrup and milk. Fresh milk is the most expensive. The price I get a bottle of cold fresh milk from a distributor is 13 yuan. Luckin Coffee's price is definitely lower." Chen Ran, who opened a coffee shop in a small county in Zhejiang, did the math for a reporter.

Chen Ran's small county has a population of less than 300,000. Previously, there was only one Starbucks and a few independent coffee shops, and everyone's business was OK. A Luckin opened last year, and this year Kudi opened. Under the price war, Chen Ran's order volume dropped by about 30%. "Originally, the daily turnover of 400 yuan could cover the cost, but now it's not possible. If the situation is not good in the future, I plan to find a store with lower rent."

Under the posts about coffee shop transfers on social platforms, some people leave messages asking shop owners why they don’t leave their shops and join Kudi. Many shop owners are somewhat helpless: “We are just running a small business, and the investment does not exceed 100,000 yuan. Kudi’s franchise costs 400,000 to 500,000 yuan, and the payback period is also long. We dare not invest so much money.”

2. The sentiment is not enough, the owner opens the "roll"

Many coffee shop owners admitted that they initially opened their shops with some sentimentality, but their dreams were shattered by reality: it is not easy to survive in non-first-tier cities where the coffee market is still immature.

As Luckin Coffee and Coodi are fighting, many tea brands have also entered the coffee market this year. CoCo launched Americano at RMB 3.9 and raw coconut latte at RMB 8.9 in February this year. Mixue Ice City sells coffee under its main brand and has begun to vigorously develop its sub-brand "Lucky Coffee". Lelecha has also launched a coffee brand "Dou Dou Le"...

The coffee market is becoming increasingly volatile. Among the coffee shop owners interviewed, some have already started to save themselves, in addition to those who have chosen to sell their coffee shops and leave the market:

1. “Volume” lower prices

Some coffee shop owners have made basic coffee drinks into lower-priced products than Luckin Coffee and Kudi’s promotional prices. Aqin has launched an American coffee at 6 yuan, "which is a loss-making product. Including various raw materials and ingredients, the cost is 4 yuan, and the food delivery platform will also deduct a 20% commission."

In terms of price, it is difficult for independent coffee shops to compete with "chain brands". The franchise fee of Kudi is between 400,000 and 500,000 yuan, and the franchise fee of Luckin is around 700,000 yuan. Merchants who choose to join already have strong capital, not to mention that brands will provide subsidies in price wars.

On social media platforms, a Kudi employee said that low-price orders in the store will receive subsidies from the brand, "a 0-yuan order can subsidize the store 8-9 yuan." A Luckin store manager also said that a 9.9-yuan coffee order is subsidized by the brand.

2. "Roll" towards better quality

Keke recently replaced the room temperature milk in the store with cold fresh milk and coffee beans with higher quality ones. The cost increased by nearly 20%, but the price did not increase. However, the effect was not good. "I originally wanted to improve the quality, but many people can't taste the difference." Faced with the continuous decline in the number of orders, the frustrated Keke has been hesitating whether to change the milk and coffee beans back.

3. “Roll” creativity and categories

A coffee shop owner told the reporter, "Some coffee combinations are weird, but they can attract attention and traffic, and can become short-term Internet celebrities." Many coffee shops have also begun to increase the categories of their stores, combining baking and simple meals.

Qiu Yang, which opened a boutique coffee shop in Yongkang City, Jinhua, is planning to add croissants, sandwiches and other items to increase the average customer spending in the store.

4. “Volume” time

Under pressure from the three coffee giants in Ruikuxing, some coffee shop owners opened their doors at 7am or 6:30am to grab the business when the three coffee giants were not open yet. Some coffee shops even opened until the early morning, serving coffee in the morning and alcohol in the evening. One coffee shop owner even said on a social platform: "Alcohol is selling better than coffee now."

More owners of small and medium-sized coffee shops have chosen to live a Buddhist life. "It takes capital to make money. The losses are not that big now, but I can't bear to transfer the shop or declare bankruptcy. I can't make money anymore, but I can't die. It's just torture."

3. Independent Coffee Shop

Wait for chain brands to complete the "education".

Faced with the price war, some coffee shop owners withdrew, some joined the fight, and some continued to operate quietly, but they all mentioned the same thing: the price war affected consumers' minds about coffee prices .

Mr. Li is planning to sell his coffee shop in Changsha and return to his hometown of Linxiang, Yueyang to continue making coffee. "Big ships are more stable, small ships are easier to turn around, and each has its own advantages. I used to make milk tea and worked in some brand stores. Later, I chose the coffee track. First, I thought the entire tea market would turn to coffee, and second, people thought coffee was more "high-end" than milk tea. But now the price war has made everyone start to think that coffee is a very cheap thing."

"The coffee market in China is still immature. This wave of price wars can attract more users to start drinking coffee and learn about coffee, which can also help cultivate user minds."

On the one hand, small and medium-sized coffee shop owners in low-tier cities are transferring their businesses or closing down, and the market is beginning to reshuffle; on the other hand, chain coffee brands are rapidly expanding their business, and independent coffee shops and boutique coffee shops in high-tier cities still have their own audiences.

Data from Zhaimen Canyan shows that as of April 2023, the number of coffee shops nationwide has increased by 19,521, while the overall number of milk tea shops has decreased by 50,239.

The "2023 China Freshly Brewed Tea and Coffee Industry White Paper" released by Ele.me shows that the coffee market is expected to reach 191.7 billion yuan in 2024. The market size of milk tea is expected to reach 174 billion yuan in 2024. The coffee market is larger than the milk tea market and still has room for development.

At the same time, the Chinese coffee market is still in its early stages, with the average per capita consumption of only 9 cups, but there is a huge difference between high-tier and low-tier cities. The average per capita consumption of coffee consumers in first- and second-tier cities has reached 300 cups per year, while the consumption frequency of consumers in third- and fourth-tier cities is far lower than this figure.

Consumption always radiates from high-tier cities to low-tier cities. Camping, skiing and land rush, which were popular before, all have similar radiation trends. Now, the coffee market is also gradually showing such a trend.

Chen Ran mentioned Shanghai's coffee culture in an interview: "When I went to Shanghai for research before, I found that many coffee shops had people sitting outside instead of young people, but uncles and aunts. Many office workers also go to chain coffee shops on weekdays and go to boutique coffee shops on weekends and holidays. Shanghai's coffee culture is already very mature, and other cities may also develop a mature culture in the future . "

Meituan data shows that Shanghai will have 8,530 coffee shops in 2023, of which independent boutique coffee shops account for 55%. Chain affordable brands and independent coffee shops seem to have found a balance in Shanghai.

Keke also expects Luckin Coffee, Kudi and many other low-priced coffees to help the coffee market complete the education of consumers' minds. In her opinion, when consumers begin to come into contact with coffee, the audience will naturally be stratified - those who really want to experience coffee will choose boutique independent coffee shops, and those who want caffeine to refresh themselves will choose affordable chain brands.

However, if independent coffee shop owners want to wait for the coffee market to mature, they still have to "survive" on their own. Qiu Yang's daily turnover is about 200 yuan. He joked that he dared not do anything else except eating, "I will just wait and close the shop when I can't bear it anymore."

However, the Daily Economic News once mentioned in a report that Luckin Coffee's "9.9 Store Anniversary Event" will last at least until the end of 2024. Many independent coffee shops in low-tier cities may have to survive a two-year cold winter under the competition from chain coffee brands.

Author: Wang Zhan, Editor: Si Wen

WeChat official account: E-Commerce Online (ID: dianshangmj), see sharpness and insights, and focus on innovative media on the Internet and new business.