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what industrial cthulhu is best at is bringing the prices of petty-bourgeois goods down to the level of the factory ten-yuan store.

black truffle and beef caviar, avocado, foie gras and rose hips, the chinese market can always find breeding or planting methods to solve the scarcity of resources. the prices of light luxury products are half off, and the prices of heavy luxury products are shaved off.

among them, coffee is the one that has been demystified the fastest and whose price bottom line has been broken the most.

if luckin coffee did not have the dark history of fraud in the us stock market, it should be regarded as the most solid inclusive finance business in this century. the 9.9 latte pricing not only made what fu peng called the middle-class "40 yuan" coffee disappear into the long river of history, it also gave starbucks, once the industry leader, a black eye, and also brought all tea brands into the same level of 9.9 track competition on an equal footing.

the expansion perspective of coffee brands has also extended from first-tier cities to the sinking market. when luckin coffee officially exceeded the number of 20,000 stores in july this year, the scene of holding a delicate coffee cup and shaking your head while stirring with a small spoon has become history.

the new era of tea drinking belongs to “no. 406, take it away, right? here’s the straw.”

by the providence of heaven, may i have a drink of _____.

for competitors, luckin coffee sells not only products with extraordinary price advantages, but also reshapes the psychological price point.

the reason why starbucks once became the number one in the coffee industry was its moderately high prices, but after luckin coffee’s 9.9 “raw coconut latte” came out, starbucks fell into a dilemma.

"not participating in price wars" is starbucks' brand insistence, but the invisible hand of the market has already determined the fate of a number of coffee brands to succumb to price wars. if you don't reduce your prices, there are plenty of people who will.

in 2023, luckin's revenue hit a record high of 24.9 billion yuan, with a net increase of 8,034 stores throughout the year. in 2024, luckin continued its growth trend and exceeded the 20,000 mark in july;

kudi coffee, which just opened its first store on october 22, 2022 and is competing fiercely with luckin coffee in the 9.9 segment, currently has more than 7,500 stores in 28 countries around the world, becoming the third largest coffee chain brand in china;

kfc's flagship 9.9 k coffee also reported good news. according to yum china's 2024q2 financial report, its sales and revenue in the first half of the year exceeded 1 billion yuan;

but there are also victims in the "9.9 price war" of scale costs.

according to zhaimen canyan, from 2023 to march 2024, approximately 127,000 new coffee shops opened across the country, while approximately 69,000 coffee shops closed permanently.

the mid- to high-end brand market is shrinking, and independently operated boutique coffee has to move towards the "affordable era".

and this is just the internal competition in the coffee industry, the war of 9.9 has not ended here.

there were also a bunch of new tea brands and even new catering brands watching the fun nearby. after rolling up their tea, fruit and milk products, they watched the 9.9 price war spread and could not avoid it. they could not help but shout loudly. from the specific content, it sounded like someone's mother's matter.

luckin coffee and cudi had a fight, blood splattered all over xinchayin

the history of 9.9 is actually not long.

at the beginning of last year, coodi took advantage of the "coffee carnival in hundred cities and thousands of stores" to adjust the price of more than 70 products to 9.9 yuan for promotion. luckin coffee immediately followed up and announced "9.9 yuan every week", fighting passionately to block coodi.

(image source: screenshots of kudi and luckin mini program)

however, the duration of the blocking and the width of the front line not only exceeded the expectations of both sides, but also disrupted the strategic layout of the new tea drinks that had maintained neutrality and order in the war.

in recent years, the growth rate of the market size of new tea drinks has begun to decline. the inertia brought by 9.9 has made consumers more sensitive to prices, and new tea drinks have to continue to explore lower prices.

according to zhaimen canyan, as of now, the average customer price of the three giants, heytea, nayuki and lelecha, has dropped to 17 yuan, 20.18 yuan and 18.98 yuan respectively. the average customer price of shanghai auntie, coco, yidiandian, chabaidao and guming, which were once moderately priced, has dropped to 13.89 yuan, 13.72 yuan, 14.89 yuan and 15.21 yuan respectively. as competition in the beverage industry intensifies, various promotional activities are constantly being launched. promotional activities such as takeaway platform discount coupons, merchant vouchers, and festival coupons can further reduce the final payment price of new tea drinks to a lower level.

according to a research report released by huaan securities at the end of may, over the past three years, the growth rate of affordable tea drinks has been faster than that of mid-priced and high-priced ones. the proportion of tea drink brands priced below 10 yuan has increased from 7% to 30%, while the proportion of tea drink brands priced above 20 yuan has dropped from 33% to 4%.

according to the "white paper on the development of china's new tea beverage industry" released by sullivan, in 2020, the average customer unit price in the new tea beverage industry was still 35 yuan, and the industry price "ceiling" at that time, heytea's customer unit price was as high as 52-56 yuan.

the era of rapid expansion in which new tea drinks could make money easily was brutally interrupted by luckin coffee. the price of a cup of coffee at 9.9 yuan lowered the price of all drinks equally.

moreover, in addition to coffee, which is more addictive than tea, there are also endless alternative options such as coffee capsules and cold brew tea bags, which are further expanding the downward space for the price of tea.

sword discussion 9.9: it’s time to compete with each other

even luckin coffee, which has been making great strides in the price war and expanding its store base crazily, has not had a smooth sailing.

in the third quarter of 2023, luckin's operating profit margin fell into decline, and in the fourth quarter it plummeted by 465% to only 171 million yuan. by the first quarter of 2024, it had directly become -3.6%.

luckin coffee has also considered raising prices.

faced with the dilemma of shrinking profits, luckin coffee also adjusted its 9.9 yuan coupon strategy, making it so that only 8 designated drinks were eligible, but a large number of users who defected to kudi immediately demonstrated the power of voting with their feet.

moreover, at this critical juncture, cudi also announced that the "9.9 yuan promotion" will continue for another three years, and the subsidy policy for franchise stores will be continued simultaneously.

9.9 seems to have strangled the coffee industry by the throat.

this year, starbucks has not been able to stay out of the price war, and the topic "9.9 wind finally swept starbucks" has become a hot search on weibo. although starbucks is still very "stubborn" in the price of single products, preferential activities such as "three cups for 49.9", "two cups for 39.9", and "30% discount coupon for a single cup" are helping starbucks to actually join the price war of coffee - or, in other words, return to the reasonable price range of coffee.

as for why 9.9 is reasonable, it is the result of industrialization with chinese characteristics.

in the cost structure of coffee, raw materials have always been the largest component, especially after luckin coffee has drastically reduced the number of stores. compared with rent and labor, coffee beans, milk, syrup and packaging are the store’s heaviest assets.

scaling up the supply chain responsible for raw material supply and processing in the middle and upper reaches is what chinese companies love to do and are good at doing in recent years.

luckin coffee invested $120 million to build a coffee roasting base in kunshan, with an annual production capacity of 30,000 tons;

in the kudi coffee east china supply chain base, the coffee roasting base has an annual production capacity of 45,000 tons, making it the largest single coffee roasting factory in china.

what does this output mean? take finland, the country that loves coffee the most, for example. it ranks first in the world with an annual per capita coffee consumption of 12 kilograms. with a population of 5.58 million and an annual total coffee consumption of about 67,000 tons, luckin and kudi's two factories can fully cover the country that loves coffee the most.

a strong supply chain allows coffee brands in the chinese market to break down costs and distribute them to each cup of coffee, allowing 9.9 to reasonably cover scale costs.

in the second half of the "sword battle", the basic skills of the supply chain are the real incremental gains. the "9.9" war has long since departed from its first phase of marketing and has turned to competition in cost control, efficiency improvement, organizational optimization, and operational efficiency, and tea drinks are no exception.

judging from the price war among companies and the prospects of the coffee and tea market, there seems to be a lot of room for growth. luckin coffee may find it difficult to return to the good days of its gross profit margin of 40%, but there is no shortcut to the era of low profits it has ushered in.

so will the 9.9 price war end?

of course.

after all, who would call a normalized business situation a war?

references:

"the 9.9-yuan coffee war will continue for another three years, and no one can refuse it", yan finance

"multiple freshly brewed tea brands offer 9.9 yuan promotions, how long can the low-price strategy last?", the paper

"behind the 9.9 cup of starbucks", china business news

"cheaper than luckin coffee! the 9.9 trend has finally reached starbucks", china business news

"coffee "three kingdoms" war: luckin coffee expands its products, ken yue accelerates, and starbucks is anxious. who will be the final winner?", retail business finance

"a cup of coffee costs 40 yuan, consumers are not willing to pay for it?", restaurant owner's insider