Franchisees of Kudi Coffee, do you remember the Hero of Tongue Tip?

Kudi Coffee is the manifestation of Lu Zhengyao's attempt to turn the tide in his entrepreneurial career after his failure in Luckin Coffee. This article starts with the price increase of Kudi Coffee, objectively analyzes the reasons behind it, and makes an objective summary and evaluation of Lu Zhengyao's entrepreneurial career. I hope it will be helpful to those who want to know the latest developments of Kudi Coffee.

Just half a year after opening its first store, Kudi Coffee has quietly raised prices across its product line.

Lu Zhengyao, who has the halo of Luckin's founding team and is fighting close to Luckin, seems to be unable to replicate the essence of Luckin's rise - cultivating user minds and purchasing habits through large, long-term subsidies and low-price strategies.

In his entrepreneurial career, Lu Zhengyao used bombardment, ultra-low price strategy, and digital transformation as his three main entrepreneurial tricks. After his failure at Luckin Coffee, Lu Zhengyao tried to replicate these strategies in other areas such as Qu Xiaomian and Tongue Hero, but they all failed and ended in failure.

After many twists and turns, Lu Zhengyao and his team had to return to the coffee industry to look for opportunities. With the example of Luckin Coffee, Kudi Coffee was making money within the scope of cognition, which became one of Lu Zhengyao's important strategies to brainwash franchisees.

However, having lost its credibility in the capital market and unable to continue to burn money on a low-price subsidy strategy, Kudi Coffee, which is competing in the coffee red ocean, does not seem to have any better tricks. This is a dangerous signal for franchisees. After all, Kudi Coffee has no news of financing, and the subsequent market expansion and brand expenses need to be self-raised, and franchisees are one of the main sources of funds.

The Kudi Coffee franchisees who have rushed into the market at this time should also look back at the fate of their predecessors who joined Tongue Heroes.

0 1 Can franchising avoid financing?

As April began, Kudi Coffee, which had just been in business for half a year, was making a series of moves, showing its anxious side.

On the one hand, Kudi Coffee, which offered a low price of 9.9 yuan when its first store opened, has raised prices for its products in some regions.

According to media reports, the price of Kudi Coffee products in some areas has risen to between 15 yuan and 16 yuan. Customer service staff also said in response to the media that "from April 1, the price of products in some cities will indeed increase."

On the other hand, Kudi Coffee is suspected of launching a new cooperation policy in April, hoping to "recruit" franchisees of other coffee brands through the means of "flipping rewards".

According to the cooperation news circulated on the Internet, if Luckin Coffee franchisees switch to Kudi Coffee, the service fee will be directly waived for three years. If the store can achieve the level of 600 cups of daily sales, Kudi will also bear the penalty and decoration costs.

“A stable coffee shop that sells 600 cups a day means it has a stable customer base in the surrounding area. Why take the risk of flipping the brand and creating a new one?” A fast-moving consumer goods person in Henan said that the authenticity of the cooperation policy circulated on the Internet has not yet been confirmed by the coffee circle.

In the view of this person, the coffee industry has entered a red ocean, with the entire coffee industry showing a "double high" phenomenon of high store opening rate and high store closing rate. "From the current point of view, Kudi Coffee's capital reserves are insufficient. Although it has developed rapidly, the supply chain efficiency of more than 1,000 stores is far behind that of Luckin Coffee and Lucky Coffee, which is backed by Mixue Ice City, in terms of bargaining power and supply chain costs.

"For Kudi Coffee, with the endorsement of Luckin Coffee's founding team, it can attract stores that have turned over. Most of the stores are franchisees whose business is dismal and who want to give it another try." A tea franchisee told Lujiu Business Review that franchisees have a simple mindset and will work with whoever can make them money.

However, low prices are a guarantee of store traffic. On the one hand, Kudi Coffee is eager to expand its franchise business, but on the other hand, it has "abandoned" the low-price strategy. The "contradictory" Kudi Coffee shows that it is under financial pressure.

For Kudi Coffee, unlike Luckin Coffee, which had the "ammunition" of capital support to fight a subsidy war for a long time, there is no news of financing, no hot products that have made a splash in the market, and no price advantage. It seems that only the story of the founder remains.

Expanding the franchisee team and using their funds to expand the market has become the only remaining hope for Kudi Coffee.

02 The failure of the tongue hero

According to public data, Kudi Coffee, which has been in business for half a year, has already had over 1,000 franchisees, which is a great achievement for a new brand.

For franchisees, the story of Lu Zhengyao and Luckin Coffee has become their belief in joining. After all, everyone hopes to bet on the next Luckin Coffee and be one of the first to enter the game.

For the franchisees of Kudi Coffee, they are definitely not the first group of people who followed Lu Zhengyao to start a business because of Luckin Coffee.

In April 2021, Lu Zhengyao, who had just been kicked out of Luckin Coffee, announced that he would start his last business in his life. In August of that year, the first store of "Qu Xiaomian" opened, but it was closed only three months later.

Lu Zhengyao selectively forgot his boast of "the last entrepreneurial venture" and quickly launched the pre-prepared food brand "Tongue Hero". Like Qu Xiaomian, although no results were seen, Tongue Hero began to "leak" in the media, saying that it had signed contracts with nearly 6,000 potential distributors.

While the "Tongue Heroes" in the media were hot, the offline scene was very different. Around August 2022, eight "Tongue Heroes" stores in Zhengzhou closed at almost the same time.

At that time, when Lujiu Business Review visited, it was found that the Tongue Hero store near the business outer ring of Zhengdong New District closed shortly after opening. At that time, a clerk said that they had moved to the vicinity of Yuanda Ideal City. "The location selection was problematic at the time. I thought that office workers would buy some pre-prepared dishes after get off work, but I found that office workers nearby hardly cook." When Lujiu Business Review chatted with the store of Yuanda Ideal City, the clerk complained privately.

Lujiu Business Review saw at the scene that the entire Tongue Hero store is about 20 to 30 square meters, and 4 large commercial freezers are the main equipment. At that time, it was the peak season for crayfish. Lujiu Business Review found that most of the orders were for pre-made crayfish at 99 yuan for 3 kilograms.

In another store, a clerk privately admitted that "direct-operated stores are just models for franchisees to see. Franchisees have to pay a portion of the management fee and deposit, which is the source of profit for the headquarters." A person in charge was very enthusiastic and provided Lujiu Business Review with the phone number of a business investment manager named Guo.

According to Henan media reports, Tongue Hero adopted the "regional agency" model from the beginning. As long as you pay a 200,000 yuan agency fee, you can obtain the agency rights in a certain area, and then the franchise stores in this area will be "responsible" by the agent. In addition, Tongue Hero can absorb 10,000 yuan of intention money, 20,000 yuan of brand management fees and 30,000 yuan of brand deposit from each franchisee (the deposit will be refunded at the end of the cooperation period).

"The intention deposit, security deposit and brand management fee will eventually become the start-up capital for the business." A business person told Lujiu Business Review that regional agents and franchisees are definitely losing money.

The Tongue Hero project was left unfinished, but some suppliers or franchisees did not want to suffer in silence. According to Tianyancha, in February this year, Tongue Technology (Beijing) Co., Ltd. added a new person to be executed, with an execution target of 16,137 yuan, and the executing court was the People's Court of Tianjin Binhai New Area.

03The turnaround was not supported by capital

Luckin Coffee seems to have exhausted Lu Zhengyao's business luck, and he has become more and more eager for quick success in his subsequent ventures. This may be due to the high debts he faces, and like Luo Yonghao, he needs to "return the truth". But unlike Luo Yonghao, Lu Zhengyao may not have the capital to support his comeback.

Also in February this year, Lu Zhengyao had a new execution information, the execution target was 6.8563 million yuan, and the execution court was the Beijing No. 3 Intermediate People's Court. According to Qichacha, Lu Zhengyao has been restricted from high consumption many times, and the total amount involved in the cases where he was restricted from high consumption reached about 2.31 billion yuan.

Many business practitioners told Lujiu Business Review that Lu Zhengyao and Kudi Coffee's business approach does not conform to normal logic. "From the perspective of the team, although the Luckin founding team is a label, it is also a shackle that will limit the company's future financing process, etc." Zhang Xu, head of a business project investment promotion, said.

Dalong, a media observer of the tea beverage industry, believes that the coffee industry is now quite saturated with brands. If Kudi Coffee did not borrow the names of Lu Zhengyao and Luckin Coffee’s founding team, the huge amount of marketing advertising it invested in the early stages might not have had much effect.

Obviously, Kudi Coffee, which has not yet announced any financing news, can only ease the pressure of burning money to run the market by raising prices, although it has obvious advantages in early expansion.

In February, a Qingdao investment manager of Kudi Coffee also expressed concerns when the media revealed that the low-price coupons would not be available in the next quarter. "We are also worried about this problem, but the price increase will not be raised all at once. It will definitely be gradual and give consumers a process to adapt."

Of course, Kudi Coffee’s concerns are not just about the shortage of funds, but also about management. Previously, Luckin Coffee kicked out Lu Zhengyao and completely cut off the relationship between Luckin and Lu Zhengyao.

What's even more embarrassing is that Luckin's revenue soared directly after it was cleared of any connection. According to the second quarter financial report of 2022, Luckin's net income in the second quarter was 3.299 billion yuan, a year-on-year increase of 72.4%, and its net profit was 240 million yuan, turning losses into profits.

Luckin Coffee seems to have become a model for Cudi, and this path is feasible.

However, even if Kudi Coffee finally makes a profit, how to deal with the relationship with Lu Zhengyao will become a focus. After all, there are so many creditors. Between small success and big success, it seems that only the latter is the antidote.

Hopefully, Lu Zhengyao can follow in Luo Yonghao's footsteps and truly achieve a win-win-win business: he can get back on track, franchisees can make money, creditors can get their money back, and consumers can drink good coffee.

Everyone is happy.

Author: Xiaochan

Source: WeChat public account "Lujiu Business Review (ID: liujiucaijing69)"