With the logic of hot selling and affordable price, Kudi fills the gap in the demand for coffee among the people.

In an era when affordable coffee has become a rigid demand and coffee products are becoming increasingly homogenized, Kudi continues to cultivate market awareness by relying on the logic of hot products and affordable prices. What is the significance of such a strategy for the brand?

A cup of coffee priced at “9.9” has caused the top brands to start to differentiate.

At the end of February, Kudi Coffee’s official Weibo account announced that as the number of its stores exceeded 7,000, it would continue the “price war” and the “good coffee for 9.9, unlimited quantity” campaign would continue for three months.

Kudi Coffee is going to add fuel to the coffee craze triggered by 9.9.

Recently, Kudi launched new products, Liuyun Latte and Liuyun Jasmine Light Milk Tea, which became the first new hit since the 9.9 promotion. Yilan Business learned from Kudi that the current sales of Liuyun series products are on par with the flagship raw coconut latte, and market feedback and user reputation are rising all the way. Some netizens even said that Liuyun Jasmine Light Milk Tea is Kudi's "Boya Juexian". With consumer recognition, if Kudi further increases its marketing momentum, this Liuyun Latte may become a strong competitor for the hit coffee of 2024.

On the other hand, the number of optional products for the weekly 9.9 yuan coffee on Luckin Coffee’s mini program has been reduced to 8. As the topic #瑞幸9.9 yuan per cup event shrinks# became a hot search on February 18, Luckin Coffee urgently announced the return of two seasonal limited-edition coffees, and the number of 9.9 yuan coffees increased to 10, but it still only accounts for a small part of its more than 60 beverages.

In an era where affordable coffee has become a necessity, price changes have caused undercurrents in the consumer market.

On social media platforms, some netizens are not buying into the "9.9 reduction" argument, which seems to have "suffered a big loss". Since the era of price wars in coffee, netizens have become accustomed to setting "9.9" as the daily price of a cup of coffee. However, the impact of price reduction subsidies on business operations cannot be underestimated.

China's coffee market may have reached a new node.

1. China’s coffee market is restructured by affordable prices

For a long time, China's coffee market has shown the following situation: there is a large blank area in the price range, and there is a huge unmet demand between the high-priced business coffee represented by Starbucks and the low-priced instant coffee represented by Nestle Coffee.

Demand has created a lot of business opportunities. In recent years, the Chinese coffee market has undergone two major changes and was eventually reconstructed at a fair price.

The first big change is the offensive and defensive battle between Luckin and Starbucks. According to Luckin's 2023 annual financial report, Luckin Coffee's total net revenue in 2023 was 24.903 billion yuan (about 3.45 billion U.S. dollars), a year-on-year increase of 87.3%. For the first time, it exceeded Starbucks China (3.16 billion U.S. dollars) in annual sales. It took Luckin six years to catch up with and surpass Starbucks in terms of operating income, number of stores and other dimensions.

Luckin's secret is to go the opposite of Starbucks. Starbucks adopts the large store model and provides the third space, while Luckin adopts the small store model and focuses on portable coffee. Starbucks prices coffee at more than 30 yuan, while Luckin's coffee is more affordable at 15-20 yuan.

It is worth noting that the financial report shows that in the fourth quarter of 2023, Luckin's self-operated stores had an operating profit of 690 million yuan, and the operating profit margin at the store level was 13.5%, a decrease of 8.1% from the same period in 2022.

The second major revolution in the Chinese coffee market, initiated by Kudi, may be a major reason for the decline in Luckin's operating profit margin.

As mentioned above, if Luckin Coffee has filled part of the gap in affordable coffee between Starbucks and instant coffee, lowering the price to 15-20 yuan, allowing coffee to enter the daily lives of urban white-collar workers; Kudi has further filled the gap in the public's demand for coffee, and its single-digit prices have officially announced the arrival of the era of affordable coffee.

Affordable coffee has become completely popular in China.

In October 2022, the first store of Kudi was opened. The opening promotion of 8.8 yuan per cup of coffee directly brought the price of freshly brewed coffee to the bottom. In February 2023, 9.9 yuan coffee began to become normalized in Kudi, leading the entire industry into the "9.9" era. Coffee has once again entered the Chinese market with a new look, which also means that a cup of coffee at 9.9 yuan has become a drink that all working-class people can afford.

Even so, China's coffee market is still in its early and middle stages.

According to iMedia Consulting data, the market size of China's coffee industry reached 617.8 billion yuan in 2023, and is expected to exceed one trillion yuan in 2025.

Behind the huge market potential, the Chinese coffee market also has some "immature" characteristics.

First, the entire coffee industry is still a bit chaotic and the development pattern has not yet been fully formed. On the one hand, affordable coffee represented by Kudi is still constantly impacting the market and expanding its scale. On the other hand, many boutique coffee chains have not yet clearly defined their own positioning and achieved differentiated competition.

Secondly, the coffee industry is still in a period of rapid growth.

According to iMedia Consulting data, in 2022, the global per capita coffee consumption was 75.2 cups per year, and China's per capita coffee consumption was only in the single digits, far below the global average.

Finally, new consumers who have just entered the coffee market still need to be "educated". Many "coffee novices" have not formed their own unique consumer awareness of the product and are still in the entry-level stage of trying coffee. A large number of price-sensitive consumers account for the mainstream of the general consumer group.

Therefore, it is reasonable that "affordable" has become the keyword in the coffee market.

However, this situation has changed since this year. Many brands have readjusted their operating strategies and are no longer offering affordable prices. For example, in addition to Luckin Coffee, the 8.8 yuan Americano coffee exclusively for new customers at COSTA Coffee has also been raised to 21.6 yuan, the 5.9 yuan Americano coffee for new customers at Sleepless Sea has been raised to 7.9 yuan, and Lavasa Coffee has removed the 9.11 member-priced Italian coffee + ice cream combination from its shelves, and replaced it with a 29.9 yuan croissant with buffalo milk Dirty.

In the eyes of Yilan Business, affordable coffee has reached a critical point. Faced with a huge market gap, many brands are eager to try, but considering the cost issue, they are in a dilemma and are trying to find a balance between occupying more sinking markets and rising cost curves.

However, at this point, Kudi Coffee, which leads the era of affordable coffee, is still methodically adhering to its own strategy, rhythm and style of play.

2. Kudi is fierce: the attacker in the current coffee market

According to the data from Zhaimen Canyan, Kudi has opened nearly 300 new stores this year. After announcing the "Good Coffee 9.9 Unlimited" promotion for three months, Yilan Business learned from Kudi that during the promotion, except for a few stores such as transportation hubs and tourist attractions, all other stores will offer a promotion of 9.9 yuan for all drinks, regardless of category and quantity. In addition, Kudi will provide different subsidies to franchisees based on store location and rent, with the highest subsidy per cup reaching 14.5 yuan. It is estimated that the total subsidy amount for this promotion will reach 200 million to 300 million yuan.

In response to the question of "Luckin Coffee and Kudi's different 9.9 yuan coffee strategies", Li Yingbo, chief strategy officer of Kudi Coffee, said in an interview with the media, "This incident of our competitor will not have a fundamental impact on us, because we have our own pace, and we have clear goals for what kind of products and prices we want to provide to the market and consumers."

Why can Kudi still attack low prices? Li Yingbo gave the answer: Kudi has initially completed the store layout and scale expansion, reaching the cost inflection point. On February 26 this year, Kudi Coffee officially announced that the total number of stores worldwide has reached 7,000, ranking fourth in the world. The risk-sharing joint venture mechanism, the accumulated cost advantages of the self-built supply chain, and the strong growth in store conversion rates have constituted the comprehensive advantages of Kudi Coffee and achieved continuous optimization of the cost curve.

Li Yingbo once did the math for the media: for a cup of coffee with milk or other innovative flavors, plus the outer packaging, the average cost of Kudi's products can be controlled below 9 yuan.

From this point of view, as a leader in affordable coffee, Kudi has already made a plan for its initial rapid development and steady development. Its initial goal was to establish a three-dimensional layout that meets the coffee consumption needs of the entire population.

Last October, Qian Zhiya, Chairman and CEO of Kudi Coffee, released an internal letter on the first anniversary of the store's opening, stating that Kudi Coffee had opened 6,061 stores worldwide within a year and proposed a strategic goal of 20,000 stores worldwide by 2025. This goal doubled the goal of 10,000 stores in three years proposed at the beginning of the company's establishment.

In the Chinese market, Kudi directly adopted the strategy of fully expanding into first-tier to fifth-tier cities from the very beginning, and was the first to achieve the achievement of "a coffee brand with business covering all provinces in mainland China."

In terms of supply chain, Kudi Coffee established a new supply chain base in Dangtu, Anhui Province in July last year, and established an international supply chain base in Wuhu in November. According to Kudi, when designing the scale of this supply chain, the global market was taken into consideration, hoping to match the breadth of future regional expansion.

One month after planning its supply chain, Coodi Coffee announced its overseas expansion and opened its first overseas store in Gangnam District, Seoul, South Korea. It currently operates in 28 countries and regions. According to incomplete statistics, Coodi can be found in Southeast Asia, North America, Australia and the Middle East.

Obviously, what Kudi is eyeing is the bargaining power and low cost brought by future scale: using sustained price advantages to enter all sinking markets at home and abroad, and striving to become the preferred brand in the national market. After the scale advantage is formed, Kudi also has more advantageous bargaining power on the upstream raw material side.

With such clear ambitions, what challenges will Cudi face?

On the one hand, if consumers have a "9.9 yuan" mentality about Kudi, they may be unwilling to pay a higher price in the future. On the other hand, whether Kudi's cash flow can support its long-term low-price strategy is also a question.

At present, it seems that Kudi has crossed the hurdle from 8.8 to 9.9 last year. As competitors gradually stop offering low prices, Kudi has gained the opportunity to expand more market share in the lower-tier cities. In terms of cash flow, Kudi has made plans to fight this tough battle in the early stage. In February this year, Kudi revealed to the National Business Daily that it had made a five-year financial plan and model internally.

Therefore, Cudi’s current strategy remains very clear: continue to cultivate market awareness.

So, what is the significance of cultivating market awareness for a brand?

3. Discovering new opportunities in a large market is a key step in seizing a trillion-dollar market share

From a long-term perspective, using sufficient costs to cultivate the market is the key for companies to gain a foothold in the market in the future.

Kudi Coffee’s market cultivation strategy is divided into two parts: explosive logic and affordable pricing.

At a time when coffee products are becoming increasingly homogenized, how to quickly build brand recognition is the core of the logic of hit products. Kudi's product innovation is also based on this. Aiming at the younger trend of coffee lovers, Kudi Coffee combines Chinese elements with coffee craftsmanship to occupy the minds of more young consumers. For example, the Wuchang Rice Milk Latte launched by Kudi in September last year uses 100% Wuchang high-quality rice and incorporates gold medal coffee beans Sirius to create a series of products with a rich rice flavor; its products do not contain lactose and are more suitable for the Chinese physique. It attracted widespread attention when it was first launched on the market and was called "Chinese Latte" by many consumers.

Among the popular products in Kudi's Pampas Blue series, Pampas Blue Yoghurt Jasmine Latte is a popular one. Users on Dianping commented that it has "just the right amount of coffee aroma, blended with a light jasmine fragrance".

In the expansion towards the national market, Kudi Coffee noticed that even though the price was attractive, there were still a large number of people in the sinking market who had never tried coffee. The entry-level products for this group of people became Kudi's other killer feature besides 9.9.

Take the recently popular Liuyun Latte as an example. This is the first new product launched after the 9.9 event, and it is said to be developed for coffee novices. Judging from the various feedback on social media platforms, this new product has the following main features: light taste and moderate sweetness, which is very suitable for coffee novices or entry-level enthusiasts.

All of Kudi’s best-selling products have the typical “Kudi flavor”.

For example, in terms of product taste, Kudi has always had its own positioning. According to a Kudi store manager, Kudi's coffee extraction time reaches 40 seconds. Therefore, a considerable number of first-time Kudi users generally sigh that "Kudi coffee is very strong."

In addition to the longer extraction time, Kudi's latte, cappuccino, and mocha all specify dark roasted coffee beans with a stronger aroma. Only Americano offers two roasting levels of beans: dark roasted and medium roasted. Because Americano is generally consumed by people with more mature coffee consumption habits and more sensitive taste.

Focusing on "coffee novices" and continuously developing the "next hit" and using a sustainable and affordable strategy to cultivate the market is the path that Kudi must take if it wants to become a long-term Chinese coffee brand.

First of all, only brands that have been cultivated in the long term can establish a brand mindset among consumers and gain an advantage in the broader competition in the future.

What Kudi wants to do is to make this brand the first thing that comes to mind for everyone who “wants to drink coffee”.

Secondly, from the perspective of the coffee industry, there are still very broad market opportunities for coffee that have not yet been tapped.

As mentioned above, the per capita coffee consumption in China's coffee market is still very low, and there is huge potential in the sinking market. Kudi is also a coffee chain brand covering all regions of China. As long as it can cultivate the market for a certain period of time, its competitive advantage will become apparent year by year.

Finally, Kudi is positioned more like a business support platform rather than just a coffee brand.

In other words, under the joint venture model, Kudi can be more efficient in market development and it is easier for it to seize the initiative.

From this perspective, Kudi already possesses several characteristics: proactive competition, good at discovering new opportunities in the big market, and turning opportunities into wins through super execution. It can be inferred that Kudi's expansion will not slow down in the short term, and Kudi still holds the initiative in the new round of changes in the Chinese coffee market. At the same time, Kudi's model may be copied and pasted to any fast-moving consumer goods industry with opportunities in the future and create a storm.

Author: Li Yan, Editor: Muyu

WeChat public account: Yilan Business