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written by wan tiannan

editor: chen jiying

on august 28, a report titled “100,000 restaurants in beijing struggle to make meager profits” described the plight of high-end restaurants in beijing and swept the entire catering industry.

"the real (situation) will only be worse than this," the founder of a high-end restaurant commented on his wechat moments.

today, the catering industry has reached a crossroads of destiny: high-end products are declining, while low-priced products are rising. for beverage consumption, this trend has become a consensus.

the most typical example is the coffee track - as the whistleblower of the 9.9 yuan coffee, kudi coffee, with its keen sense of smell, got on the trend early.

driven by the "king of curls" kudi, the industry was forced to follow suit. 9.9 yuan per cup became the new baseline for coffee consumption, and it also brought coffee consumption, a fashion product, into a new cycle of mainstream consumption.

a report from the "world coffee portal" shows that the total number of coffee brand stores in china has surpassed that of the united states, topping the world with 49,700 stores.

such a rapid growth shocked the well-informed cnn, saying, "china, a tea-drinking country, now has more branded coffee shops than the united states."

kudi coffee is happy to see this happen - kudi is both the initiator and the biggest beneficiary of this wave of popularization of coffee.since its establishment in october 2022, kudi has opened 7,500 stores, ranking fourth in the world and third in china.

now, kudi wants to intensify the fight and popularize coffee consumption among the masses faster.

in the view of chief strategy officer li yingbo, the popularity of coffee consumption depends on three factors: product, price and convenience.

kudi has fully mobilized: the 9.9 price war will continue for another three years, and 50,000 convenience stores will also be built during the same period.

this is an unprecedented all-out battle, and the assembly call has been sounded.

one

50,000 convenience stores in three years, the ultimate deduction of the affordable route

in less than two years since its establishment, the number of its stores has jumped into the top three. kudi's catch-up is a victory for the "affordable route".

in the catering industry, there have always been two models: one is the closed model of self-operation, and the other is the open model of joint venture and franchising.

on the one hand, the joint venture model can greatly unleash the enthusiasm and productivity of terminal stores, because store owners "are doing their own business"; on the other hand, it can leverage greater social resources and accelerate store openings.

even catering giants like mcdonald's rely on an open model to dominate the world. as of the end of the third quarter of 2023, mcdonald's had a total of 41,198 chain stores worldwide, of which more than 39,000 were franchise stores and less than 3,000 were self-operated stores.

since its inception, kudi coffee has positioned itself as a store opening platform. however, unlike ordinary franchise models, kudi coffee and its affiliates have established a bundling mechanism for risk sharing and profit sharing.

in other words, the income of kudi headquarters comes from the profit sharing of stores, and the profit sharing is related to whether the stores can make money - the more money they make, the higher the share of kudi.

this means,"kpis and interests of kudi and its affiliates are completely consistent,"li yingbo summarized.

not long ago, there was news that kudi had closed seven or eight hundred stores. in response to this, li yingbo explained that "the store closure statistics are all in january, july and august. many schools were on vacation, and the stores that specialize in serving students were temporarily closed. this is normal."

fang ping (pseudonym), a kudi franchisee who has opened three stores, also said that the rumors were unbelievable. "two of my three stores are making stable profits, and the new store is breaking even. if there is a good store, i would like to buy another one. how could so many stores close?!"

fang ping made his fortune in the clothing business. under the impact of e-commerce, clothing stores are becoming increasingly difficult to run, so he turned to kudi. "the economy is in recession, business opportunities are scarce, and the franchise model of kudi coffee is becoming more and more popular," fang ping told caijing story collection.

according to the latest data disclosed by li yingbo,in june, 97.8% of cudi's stores had positive cash flow, and only 2.2% had negative cash flow. the overall store closure rate was only 2.6%, and the average number of stores opened per franchisee was also increasing.

in the next expansion, the convenience store format will take over the banner of growth - 50,000 stores in three years.

currently, kudi has three store formats - standard stores with booths, quick-service stores that mainly serve takeout and self-pickup, and convenient stores that were just tried out in may this year and whose model has been verified.

compared with standard stores and quick-service stores,convenience stores have lower barriers to opening, smaller initial investments, more benign cost structures, and easier and more flexible locations.

a convenience store only needs three to five square meters or even smaller, and can be a store-in-store model - for example, a supermarket or convenience store owner can set aside three square meters in the store, build a counter, and open a store. the venue and staff can be shared with the original store.

in comparison, the initial investment for regular franchise stores in the coffee and milk tea industry is often hundreds of thousands or even millions.

there is no need to pay extra rent and labor, and the cost of opening a kudi convenience store is as low as more than 50,000 yuan - the brand deposit of 50,000 yuan can be converted into order discount later; the machinery and equipment do not need to be purchased in one lump sum, and the monthly rent is as low as 4,000 yuan.

according to rough estimates, compared with the traditional franchise model, the investment threshold for convenience stores has been reduced by 70% to 80% or even more.

in addition to lower barriers to entry, convenience stores can also collaborate with existing business formats.

it is not new for convenience stores to sell coffee. however, in the past, the coffee products in convenience stores were limited to american coffee and other flavors, which were not suitable for everyone. secondly, without a brand and reputation, it was difficult to become a signboard for attracting customers, so they were mostly limited to small-scale operations.

in comparison, kudi coffee has richer flavors, especially fruit coffee, milk coffee, milk tea, etc., which are loved by light coffee drinkers and can steadily increase the number of cups; secondly, as a signature product, kudi coffee can also activate customer flow for convenience stores and drive cross-selling.

therefore, the convenience store model has been very popular among merchants since its trial in may, and has also verified indicators such as single-store revenue, store opening investment, customer recognition, standardized management, and product quality stability.

according to the team's calculations, a convenience store can usually break even if it sells dozens of cups a day. currently, the hundreds of convenience stores that kudi has tried out have an average daily sales of more than 100 cups. "some convenience stores are only three to five square meters in size, but can even sell 500 cups a day," li yingbo revealed.

from the user's perspective, in the early years, drinking coffee in a store was the mainstream. nowadays, the proportion of self-service and takeaway is increasing, and the format of convenient stores can meet the mainstream coffee consumption needs.

although convenience stores are small in size, they can also shoulder the responsibility of popularizing coffee consumption.

although the average annual number of cups of coffee consumed by chinese people has nearly doubled from 9 cups in 2016 to 16.74 cups in 2023 over the past seven years.

but whether compared with finland, where each person drinks more than 1,000 cups of coffee per year, or neighboring south korea, where nearly 80% of the people drink two cups of coffee a day, the chinese coffee market has several times the room for growth.

how to take over more store locations faster and improve the density and breadth of the service network has become a battle that coffee chain brands must fight.

the goal of opening a kudi coffee store is very clear - there must be a kudi within a hundred meters.

but it is not easy to achieve this goal - firstly, the advantageous locations in the past have been occupied by businesses such as coffee, milk tea, and convenience stores; secondly, the fierce competition for advantageous locations will significantly push up rents.

according to 36kr, in a certain place, a kudi store rented out the storefront for 200,000 yuan, while a competitor even offered a high price of 600,000 yuan for a store of the same location and size nearby.

according to the convenience store opening goal recently proposed by kudi: to achieve the ideal situation of "three stores surrounding one store" and realize the strategic vision of "there is kudi within 100 meters of the main consumption scene" -this seems to reveal another meaning, that cudi is buying at the bottom and grabbing the position, and is changing from being "chased" to "actively surrounding".

in mature business formats, utilizing existing stores and embedding kudi convenience stores is a shortcut that can also more quickly support kudi's goal - to open 8,000 convenience stores by the end of the year and 50,000 stores in three years, thereby achieving high-density coverage of first-, second-, third-, fourth- and fifth-tier cities.

two

9.9 in the whole game for three years, the winner lies in the middle and backstage

from 2017 to the present, the chinese coffee industry has undergone two earth-shaking baptisms.

the first was the disruption of traditional coffee shops by the internet model.

the second time was when the 9.9 yuan coffee set off a wave of popularization of coffee consumption.

in october 2022, kudi coffee started selling coffee at 9.9 yuan. one year later, china’s coffee shops surpassed those in the united states and became the world’s number one.

is the 9.9 yuan price war a blitzkrieg to seize territory or a protracted war to lead the long-term trend?

li yingbo's answer is the latter. "i don't deny that the 9.9 price is a promotional hook to boost sales at the moment, but in the long run, if coffee is to become a real daily consumption culture, its price must not make the public feel burdened."

fang ping, who opened a store in a first-tier city, feels that "in the past, in our provincial capital, coffee was probably only drunk by white-collar workers, but once the price came down, students also started to drink it. the price of 9.9 yuan has been deeply rooted in people's hearts. customers who pay more than this will find it too expensive, and those who pay less will worry about whether the taste is authentic enough."

the price is extremely involuted, but the taste is not lost. morning c (coffee) and evening t (tea) have hot products. for example, the cumulative sales of kudi kuko ice series have exceeded 30 million cups, and the sales of youjian american fruit coffee alone exceeded 7 million cups by the end of june.

on xiaohongshu, posts reviewing the ranking of delicious kudi coffee at 9.9 yuan often become popular posts that attract traffic.

therefore, 9.9 yuan may seem like a price war, but in fact it is a battle for the hearts and minds of users, a battle for industry dominance, and a key battle for whether coffee can be universally accessible.—whoever can always dominate the 9.9 yuan battle will become the winner of this super bonus of popularizing, alleviating and making coffee a daily necessity.

but it is not difficult to keep the price low for a while, but it is not easy to keep the price low.this seemingly out-of-control price war actually has its winner determined not only in the front stage but also in the middle and back stages after a series of complex model deductions and demonstrations.

a cup of coffee mainly involves three major costs: raw materials, rent, and labor. these three factors must be continuously optimized to play the high-difficulty game of 9.9 yuan.

according to fang ping's calculations, in a relatively mature kudi store, the cost of raw materials is approximately 4-5 yuan, the labor cost is 1 yuan, and the rent per cup is around 1 yuan, with the average cost per cup being around 7 yuan.

to reduce the cost of raw materials, we can rely on economies of scale. the larger the scale, the greater the bargaining power. the second way is to shorten the intermediate links and independently control the supply chain.

li yingbo admitted that when the number of kudi stores soared to 6,000 last year, "the supply chain was indeed a bit unstable."

he changed the subject and said that with the completion of the kudi supply chain base this year, "the entire supply chain has gradually become more stable."

at the end of april this year, kudi coffee's global supply chain base in anhui has officially started production. the base has a total construction area of ​​about 360,000 square meters and has supply chain projects including coffee roasting, food raw materials, packaging materials and other supporting facilities.

"this base can not only meet current needs, but also provide redundancy for growth in the next few years."li yingbo revealed this to "financial story collection".

previously, according to citic securities research, coffee brands can build their own supply chains, integrate raw beans and roasting processes, and reduce intermediate channels, which is expected to reduce costs on the raw material side by 20-30%.

also decreasing at the same time is the reduction in labor costs due to digitalization.

after online ordering, self-pickup, and take-out became popular, coffee shop employees have reduced tedious services and no longer need to promote products, so manpower has been freed up.

at the same time, kudi also provides its affiliates with an efficient digital management system.

in the past, traditional store managers were responsible for tedious management tasks such as scheduling, inventory, ordering, door-to-door visits, counting, and supervision. now, this series of tasks have been replaced by machines and systems, and store managers can concentrate on making coffee.

by opening the backend of the kudi system, affiliates can also track real-time business operations, including account income and expenditure, profit calculations, hourly order volume, business efficiency analysis, etc. all kinds of data are clearly visible and fully under control.

cudi's coffee machine also makes the coffee-making process completely foolproof - there are dozens of ways to extract different coffees, and store clerks don't need to spend a lot of time and effort memorizing the recipes. they just need to scan the product label and the machine will automatically complete the extraction.

in this way, the threshold for coffee making is greatly lowered, and convenience stores do not even need to be equipped with additional professional baristas. the original store clerks or bosses can easily get started after simple training.

in addition to continuously optimizing the three major factors of raw materials, rent, and manpower, kudi coffee is also continuously providing "ammunition" for stores.——the subsidy policy for existing stores will be extended to the end of 2026.

subsidies involve all aspects.

coupon subsidy - after issuing zero-yuan coupons and other coupons to customers, the minimum settlement price for a single cup between kudi and the store is always above 9.5 yuan; rent subsidy - if there is a competing store within 50 meters or 100 meters, the closer the distance, the more subsidies there are. "in extreme cases, when a store sells a cup, kudi's settlement price is 14 yuan."

"under such subsidies, the 9.9 price for the entire venue does not cause any cost pressure for franchisees," li yingbo told financial story collection confidently.

three

just reached the middle, far from the end

seven or eight years ago, perhaps no one in the coffee industry dared to question starbucks's dominance. challenging this global giant was like an ant fighting an elephant.

however, just a few years later, chinese players were able to compete with the "elephants".

but this arm wrestling battle is just a mid-game battle, not the final battle.

from the perspective of market space, whether it is the per capita consumption of cups of coffee which is dozens of times lower than that of developed countries, or the industry growth rate which is several times higher than that of developed markets, it actually shows that the chinese coffee market is still in its early stages and the competitive landscape is far from being settled.

the "2024 china urban coffee development report" disclosed that the average annual compound growth rate of china's coffee industry in the past three years reached 17.14%, and it is expected that the scale will increase to 313.3 billion yuan in 2024.

the ready-made coffee market in which kudi coffee is located is growing even faster. the "2023-2024 annual development report of china's coffee industry" released by canbaodian predicts that "the proportion of ready-made coffee in the overall coffee market will increase from 18.5% in 2020 to 40.2% in 2023, and this proportion will increase further in the future."

if we compare the per capita coffee consumption levels of japan, south korea, europe and the united states, it is only a matter of time before china's coffee industry triples or quadruples and reaches a trillion-dollar scale.

therefore, the competition in the coffee market is a battle for incremental growth rather than a battle for existing stock.

let’s look at a horizontal comparison.

according to imedia consulting, the total output value of the tea beverage industry in 2023 will be 330 billion yuan, which is equivalent to the scale of the coffee industry in 2024.

however, the total number of stores of the top 10 milk tea brands has exceeded 100,000. in comparison, the total number of stores of the top 10 coffee brands is less than 30,000, with only the top three having more than 5,000 stores and the fourth having only about 2,000 stores.

in comparison, the density of coffee shops is far inferior to that of milk tea shops, and the output value of the two is comparable, so there is still room for coffee shops to significantly increase their locations.

in this super bonus grab battle, who will win the battle, new or old players?the key to success or failure lies in the contest between first-mover advantage and late-mover advantage, and who can adapt to and grasp future trends.

today, internet models and digital capabilities that once helped various industries reconstruct their business value chains have gradually become standard capabilities of leading coffee brands.

the next major battle is to promote the universalization, daily and mass consumption of coffee, which is actually to use the 9.9 yuan price war to grab the incremental market that is far higher than the existing market.

in terms of number of stores, customer service, and economies of scale, our competitors do have obvious advantages.

but in the price war, just like in the initial internet model offensive and defensive war, as a latecomer, kudi has a smaller historical burden and can completely let go and fight very resolutely - the price war of 9.9 yuan for the whole meal will last for another three years.

friendly competitors are relatively followers.

according to dolphin investment research, luckin's 9.9 yuan strategy is currently mainly implemented in 1,000-2,000 stores where competition with cudi is fierce, and promotions are implemented dynamically based on the performance of the corresponding cudi stores.

this is not difficult to understand.

kudi is not a listed company, so as long as it can ensure that its food supply is sustainable and its model is feasible, it can focus on long-term accounts and ignore short-term accounts. in order to win the final game, it does not need to rush for temporary profits.

however, as a listed company, it is constrained by short-term performance and it is difficult to completely let go.

in addition, the interests of the management of listed companies on the front line of business and the capital parties who hold the final say behind the scenes are sometimes not consistent. conflicts and bargaining are inevitable in decision-making, and they will not be so neat and decisive when taking action.

in short, in the key battle involving the reversal of the cycle, being the first mover is both an advantage and a burden to some extent. the hesitation and entanglement of the first movers also give the latecomers more opportunities to maneuver, bringing many variables to this coffee war.。

kudi, which is well versed in the ways of rising and falling, has continuously lowered the threshold for opening stores and consumption, and continuously upgraded its digital capabilities, supply chain building, and product innovation. it has thoroughly integrated into the new wave of popularization and daily coffee consumption in china, and has also taken part in the market, gaining insight into the future trends of the trillion-dollar coffee market from a long-term perspective.