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This article comes from WeChat public account: Snow Leopard Finance, author: Liu Shuhan, head image from: Visual China

Like a constantly turning gear, Kudi associate Dai Shijun (pseudonym) feels that it is far from time to stop and take a breath.

Over the past year or so, Kudi has been fighting hand-to-hand with Luckin Coffee, and the price of a cup of freshly ground coffee has dropped from 9.9 to 8.8, and even 7.7. However, the resolute attitude of the "price butcher" did not bring the expected victory. In 2024, the smell of gunpowder in the price war has not dissipated, but has entered the second half of a life-and-death struggle.

Li Yingbo, chief strategy officer of Kudi, reiterated that they were ready to continue the 9.9 yuan promotion for three years. But in fact, on major group buying platforms, the lowest group buying price of Kudi Coffee once reached 1.5 yuan.

Franchisees like Dai Shijun, who invested real money and rushed to the front line, can clearly hear the sound of gunfire. It is almost inevitable that profits will shrink and the payback period will be longer. Kudi announced on April 29 that the current store subsidies will be extended to December 31, 2026, and the maximum subsidy per cup can be up to 14 yuan.

This temporarily gave him the confidence to hold on. But the ongoing price war, which seemed to have no end in sight, still made him feel confused about the future.

1. Bleeding and running

In April last year, Dai Shijun opened his first Kudi Coffee shop in an office building near his home. Over the past year or so, he has opened a total of 6 stores, and each store can bring him an average of about 20,000 yuan in revenue per month.

This was the result of Dai Shijun's careful site selection and efforts to reduce costs. But even so, he still did not recover his costs.

According to data calculated by China Merchants Securities, based on an average daily sales of 400 cups and a unit price of 10 yuan, the investment payback period for a well-performing Kudi Coffee store is 18 to 24 months.

However, Dai Shijun told Snow Leopard Finance that due to the large initial investment and Kudi's frequent promotional activities, he estimated that the payback period is getting longer and longer, "It would be a blessing to be able to get a payback in three years."

The return on investment is far away, and the business conditions of the stores are not stable. Before the peak tea season this summer, Dai Shijun's two stores suffered losses, and the average daily sales volume fell to more than 100 cups.

The Kudi franchisees that Snow Leopard Finance contacted generally said that the upper limit of Kudi's daily average cup volume is not as high as Luckin's, and the sales situation is also unstable. When Luckin's business is good, it can sell more than 1,200 cups a day, and it can also sell 500 to 600 cups on ordinary days. Kudi, which is located next door, only sells about 700 cups when its business is best.

What makes them even more helpless is that once Luckin launches a new co-branded product, customers will turn to Luckin without hesitation.

It is difficult for the franchisees to see what the real situation of Kudi's company is.

According to external publicity, Kudi has sufficient funds and its stores are in good condition. In May this year, Li Yingbo said that from its establishment to April this year, the overall closure rate of Kudi stores was only 2.6%.

However, on major social platforms, posts about "transferring Kudi stores" are common, and the IPs come from all over the country.

In February this year, due to "top-level strategic adjustments", Kudi's product research and development testing and marketing departments laid off nearly 50% of their employees, and several senior executives left within a month.

Chen Haoyu (pseudonym), a former expansion employee of Kudi, told Snow Leopard Finance that as early as October last year, Kudi transferred all the front-line expansion personnel at that time, and in March this year, it further cancelled the commission for new stores. For stores closed within six months, the previous commissions had to be returned to the company.

Among the franchisees that Chen Haoyu has contacted, many have suffered losses and closed their stores because of the 9.9 yuan promotion.

Faced with complaints, Chen Haoyu could only comfort them: "After killing" Luckin Coffee, Coodi will be the only giant in the affordable coffee market, and then the bold statement of "recovering the investment in one month" may be realized.

2. Crazy "9.9"

As one of the earliest "pioneers" who joined Kudi when it was just established, Chen Haoyu and his colleagues even believed that the establishment of Kudi was Lu Zhengyao's revenge on Luckin Coffee. The desire to defeat his old employer gave Kudi the aura of an "Avenger" from the very beginning.

Yang Ying (pseudonym), the former operator of Kudi, told Snow Leopard Finance that when the company was first established in 2022, the company's internal store expansion plan was to open 1,000 stores within three months and gain a foothold in major cities in various provinces.

At the end of 2022, the Argentine national football team signed by Cudi won the Qatar World Cup; in February 2023, Cudi co-branded the popular game "Honor of Kings". In order to take on this huge wave of traffic, Cudi has formulated a more radical store expansion plan and set a goal of "opening 10,000 stores by the end of the year".

In February 2023, Kudi launched the "Coffee Carnival in Hundred Cities and Thousands of Stores". In addition to the 8.8 yuan promotion for new customers, more than 70 products are all sold at a starting price of 9.9 yuan, stirring up the entire coffee market.

In order to fulfill the ambitious goal of "opening 10,000 stores", Chen Haoyu's development team almost followed Luckin Coffee. "The leader told us clearly that he wanted two results: one was to turn Luckin Coffee into Kudi, and the other was to open stores next to Luckin Coffee so that Luckin Coffee's rent would increase significantly due to Kudi's involvement," he told Snow Leopard Finance.

Luckin’s counterattack was equally powerful.

In early April 2023, the number of Kudi stores increased to nearly 2,000, and product prices were raised in some cities. Taking advantage of the suspension of Kudi's promotional activities, Luckin Coffee began to target Kudi: all Luckin Coffee stores near newly opened Kudi stores issued 9.9 yuan coupons to consumers.

In order to meet the challenge, Kudi had to restart the 9.9 yuan discount policy in May of that year. A month later, Luckin Coffee announced the launch of a 9.9 yuan weekly promotional event for all its stores, and announced that the event would last for "at least two years."

This chaotic and crazy price war lasted throughout the spring and summer. Yuan Jie (pseudonym), a Kudi franchisee, felt the booming business. In May last year, his newly opened Kudi sold more than 400 cups a day. But soon, the cup volume of Kudi stores, which were "fighted back" by Luckin Coffee, began to decline. Yuan Jie asked the Luckin Coffee clerk next to him and found that the average daily cup volume of his store was only about half of that of the other store.

This spring, when Chen Haoyu was conducting market research in the fourth-tier city where he lives, he found that Luckin Coffee had more stores. In the shopping district he often goes to, Luckin Coffee has opened three stores around a Kudi.

The story took a turn that was beyond everyone's expectations. One year after the bloody battle, the initiators of the price war were also struggling.

Yang Ying told Snow Leopard Finance that due to the rapid pace of store opening, Kudi had no time to train employees, and instead poached a large number of people from KFC, McDonald's, Starbucks and Luckin Coffee. However, because they were not familiar with Kudi's business, many operation managers often did not understand the terms themselves and rushed to launch the business.

During the operation, Dai Shijun found that the shortcomings of Kudi's supply chain capabilities were gradually exposed. Several Kudi stores he managed often encountered shortages of raw materials, and franchisees in different cities had to rely on transferring goods to "help each other."

3. No Ending

Lu Zhengyao's "revenge" has not yet been completed, and Cudi has to continue to fight with Luckin Coffee in the quagmire of low prices.

On February 26 this year, when the number of stores worldwide reached 7,000, Kudi announced the launch of a three-month "9.9 Unlimited" campaign. On June 1, Kudi launched another three-month marketing campaign, with all drinks on sale for 9.9 yuan, except for a few special stores.

As the war becomes more brutal, more and more coffee brands are drawn into the conflict.

In June, Lucky Coffee, owned by Mixue Ice City, announced that the price cap for all items was RMB 6.6, which lasted until the end of June. Tims, which repeatedly stressed that it would not participate in price wars, issued a 9.9 yuan coupon to consumers every week. Seesaw, which focuses on boutique coffee, launched an event on a third-party platform, reducing the average customer price from RMB 30 to RMB 9.9.

Since the end of last year, Seesaw has closed nearly 40 stores in four months. Pacific Coffee, which once ranked second in the Chinese coffee market, has closed more than 200 stores in three years. Peet's Coffee and Nova Coffee have also closed different numbers of stores.

An analyst who follows the coffee industry has calculated the cost of a single cup of coffee from a chain coffee brand: Taking milk coffee as an example, even if you choose lower-priced coffee beans, the cost per cup is at least 8 yuan. Add in the costs of water, electricity, labor, etc., and the reasonable selling price of a single cup of coffee should be between 20 and 30 yuan.

Last year, most analysts believed that the price war in the coffee market would last until the second half of 2024 at most. But this summer, the increase in the stakes of Kudi and Lucky Coffee showed that this infinite involutionary money-burning game will continue.

The majority are bleeding, but the real winners in the market have not yet appeared.

Before joining Kudi, Chen Haoyu worked in the coffee supply chain business for several years. He told Xuebao Finance that three or four years ago, a cup of iced American coffee sold for 15 yuan and no one said it was expensive, and the gross profit margin could reach more than 80%. Last year, the gross profit margin dropped to around 30%.

"After the surging Kudi entered the market, the coffee industry was like a stalled train, with practitioners from upstream and downstream industries and brands, as well as franchisees of chain coffee brands, all running wildly on the road of 'small profits but quick turnover'."

When Chen Haoyu was conducting offline expansion, he noticed that nearly 80% of the franchisees who joined Kudi were attracted by Lu Zhengyao's reputation. They could not reach the threshold of joining Luckin Coffee, but were afraid of missing out on the next Luckin Coffee, so they paid for Kudi without even calculating the rental-to-sale ratio.

In Dai Shijun's imagination, following Lao Lu in business would be an "experience full of passion and opportunities." After a year of stumbling and bleeding, the price has been paid, but where is the answer?

This article comes from WeChat public account: Xuebao Finance, author: Liu Shuhan

This content is the author's independent opinion and does not represent the position of Huxiu. Reprinting is prohibited without permission. For authorization matters, please contact [email protected]