There are 360 ​​professions, and can every profession make coffee?

The coffee industry has become a "good business" in the eyes of the capital market. Many companies have begun to cross-border layout in the coffee market and actively embrace the huge incremental market. Li Ning, China Post, Wanda, PetroChina, Sinopec, Tong Ren Tang and other brands have "aggressively" crossed borders. For a time, the domestic coffee market has fallen into a blowout development and fierce competition. The author of the following article explains to us the popularity of coffee in the market. Let's take a look.

The coffee market in 2022 can be described as a "battle of the gods". With the continuous innovation of old coffee brands such as COSTA and Starbucks, and the rapid financing and expansion of new market "upstarts" such as Manner and Seesaw, coupled with the "ferocious" cross-border expansion of brands such as Li Ning, China Post, Wanda, PetroChina, Sinopec, and Tong Ren Tang, the domestic coffee market has been caught in a blowout development and fierce competition.

According to public data, in 2021, the scale of my country's coffee market is about 381.7 billion yuan, with about 300 million consumers. It is expected that the domestic coffee market will maintain a growth rate of 27.2%, far higher than the global average growth rate of 2%, and the market size will reach 1 trillion yuan in 2025. The coffee industry has become a "good business" in the eyes of the capital market. Many companies have begun to cross-border layout of the coffee market and actively embrace the huge incremental market.

1. New brands enter the market and cross-border competition is fierce

In recent years, the scale of China's coffee market and the consumer population have shown a rapid growth trend. Such a market with high gross profit margin, low entry threshold, high consumption frequency and huge market scale will naturally attract many companies to join.

In June this year, Xtep applied to register six trademarks including "XTEP COFFEE" and "XTEP COFFEE", continuing the trend of sports brands crossing over to coffee. Previously, Li Ning registered the trademark "NING COFFEE", and Anta also opened the first beverage store in the country and launched products such as Anta Coffee. Not only in the field of sportswear, according to Crawley's observation, in just one year, many companies in different fields such as China National Petroleum Corporation, Sinopec, Tongrentang, BTG Home Inns, Huazhu Group, China Post, and Goubuli have all made arrangements in the coffee track.

It is not difficult to see from the business types of these companies that the companies that cross-border layout of the coffee business are all giants that already have a large number of physical stores and have their own channel advantages. Coffee is not the main business of these companies. Selling coffee can meet and match the needs of the new generation of consumers. On the one hand, the brand can expand the service scope of the store to improve store efficiency. On the other hand, high-frequency consumption can drive low-frequency shopping and accommodation traffic. The core is to make full use of existing offline channels to attract young consumer groups. Coffee is a low-cost drink with social attributes. For today's young consumers, coffee has become a "life-saving artifact" to cope with daily work and life. This has undoubtedly become a key outlet for traditional brands to communicate with young consumers.

In addition, for some companies whose development speed has slowed down, the layout of the coffee track is more to seek new growth points for the company. Under the influence of relevant policies, Yuanfudao's development fell into a certain degree of "pain". Subsequently, the company aimed its efforts at the coffee track and established an independently operated coffee brand Grid Coffee. The brand focuses on "only selling coffee from a single origin" and uses the original online platform and private domain resources for integrated marketing to explore new development directions.

Overall, improving the service system, attracting the attention of young consumers, and exploring new growth points are the core reasons for companies to cross over into the coffee industry.

As many companies have entered the coffee market, the industry has entered a stage of fierce competition. The cost of attracting customers has become increasingly high, the market differentiation trend has intensified, and investment enthusiasm has dropped sharply. Companies should work harder on brand, product competitiveness, profit model, management model and operation model to ensure long-term high-speed growth.

2. Sides A and B of the Coffee Market

With the frequent entry of new brands and the emergence of entrepreneurs, the current coffee track is already a little crowded. According to data from Tianyancha, more than 60% of coffee-related companies were established within 5 years. In 2021, the number of newly registered companies was nearly 26,000, with an annual registration growth rate of 9.49%. As of October this year, the data increased by 26.6% year-on-year. There were 14 financing events in the coffee track, with a financing amount of 1.235 billion yuan.

Last year, Manner received investments from Temasek, Meituan Longzhu, and ByteDance, and its post-investment valuation rose to $3 billion, doubling in less than half a year. In addition, M Stand, which received investments from Qicheng Capital, Black Ant Capital, and Gaorong Capital, also saw an astonishing increase in valuation. Its valuation in the A round of financing was 700 million yuan, and in the B round of financing six months later, its valuation rose to about 4 billion yuan. These valuations reflect the expectations of capital and the market for the growth space of the coffee category and related brands.

With huge market potential, many brands have entered the coffee market, bringing new impetus and positive momentum to the coffee market. However, the pressure of market competition has also brought new challenges to the coffee industry.

First, coffee brands are caught in a "price war", which is a good thing for consumers, but it is a phenomenon that brands and capital are unwilling to face. The "2022 China Freshly Brewed Coffee Category Development Report" jointly released by Meituan and Kamen analyzed the trend of China's freshly brewed coffee market, pointing out that affordable coffee has entered daily life. For example, the coffee brand Lucky Coffee invested by Mixue Ice City has an average product price of less than 10 yuan. The low customer unit price has attracted more consumer power in the sinking market, and has also affected the market expansion and layout of other coffee brands to a certain extent.

Secondly, the current cross-border coffee market is far from what was expected. Take Sinopec's Easy Coffee as an example. As of now, the brand has opened 54 offline stores, which is a huge gap from the original goal of "opening 3,000 stores in three years". In addition, Tong Ren Tang's Zhima Healthy Coffee is far from reaching the goal of opening 300 stores in Beijing. Li Ning also has only a handful of stores that provide coffee services, and the product quality has also been questioned by consumers.

As a physical industry, coffee is a decentralized market. Consumers are not very sticky to a certain brand and are highly replaceable. User retention is a test that brands need to face urgently. Whether for professional boutique coffee or for cross-border brands, the coffee market in the past two years has been in an era of coexistence of opportunities and challenges. In the face of huge market demand, only by improving product strength and brand power and avoiding the phenomenon of "bad money driving out good money" can the coffee market release commercial value and vitality in the long term.

3. The future of Internet coffee is on the way

Traditional coffee business models are often centered around stores, which can meet people's offline coffee consumption and social needs. The core of competition lies in factors such as store location, coffee making technology, and brand power. However, in today's relatively "fast food" urban life, the so-called social space and scenes do not simply exist in physical space, and people's social interactions occur more on the mobile Internet. Therefore, it is crucial for coffee brands to think about the future development layout of the brand with an Internet mindset.

Luckin Coffee is a representative example of a brand that has opened up the market through the Internet operation model. In the early stages of brand expansion, Luckin carried out various marketing activities with its own funds, angel investment and new financing, attracted new customers through social platform advertising, subsidized and cultivated users, and explored new consumer groups. At the same time, the independent APP created by the brand has become a new private domain traffic pool, realizing the accumulation and precipitation of user assets.

In addition, as the basic flavors of coffee are becoming more and more similar, coffee brands are focusing on creating brand differentiation through innovative products. Whether it is Luckin Coffee's popular coconut latte or Manner's oatmeal osmanthus latte, which has received unanimous praise from consumers, the development logic is the same as other consumer industries. Products are always the fundamental guarantee for brand development.

In general, in the process of changes in eating habits and consumption habits, coffee has gradually moved out of the niche circle and become a high-frequency consumer product for young people. With the help of the capital market, the scale of the coffee industry has expanded rapidly, and the number of brands entering the market has continued to grow. However, the resulting competitive pressure has forced brands to re-examine their development strategies. Only by building brand power from the product can they gain an advantage in the future coffee market competition and seize a certain market share.

Author: Dake

Source: WeChat public account "Marketing Kanke (ID: shangyeyiguohui)"