A strange phenomenon in the coffee industry: big brands are favored by investors, while small shops are increasingly facing a dead end?

This article is contributed by Rick from Bolan Coffee. He has observed some "strange phenomena" in the domestic coffee market and has many ideas about the current boutique coffee.

The article is a bit long, but it is full of emotion. If you have any feelings after reading it, you can leave a message to share them.

1

The strange phenomenon of the current coffee industry

From 2016 to the present, the coffee industry has been filled with many strange phenomena that outsiders cannot understand.

On the one hand, giants such as Starbucks and Peet's Coffee are responding to the Chinese market with the most eager eyes and the most proactive attitude, expanding the market and opening new stores.

Capitals with a keen sense of smell, such as Hony Capital, have also begun to pay attention to the coffee industry (especially boutique coffee brands) and have invested heavily in Seesaw, Eagle Coffee, and GreyBox. I believe that this list will continue to grow in the near future.

On the one hand, it is a brand favored by capital

On the other hand, the venture capital operation of small and medium-sized coffee shops has fallen into an unprecedented low ebb, public opinion is bearish, morale is low, and everyone is afraid of opening a shop as if it were a snake or a tiger.

In various occasions, all the big names have been persuading people not to open stores, with sincere eyes. This includes the industry elites who are using investors' money to open boutiques.

Everyone is unanimous in their thoughts that the vast land of China seems to be left to Starbucks to advance rapidly and conquer the city.

Occasionally, there is a little-known small shop with no business innovation at all. It only relies on the owner's traditional virtues of hard work and exploitation of his own surplus value to achieve temporary profits. It will also be highly praised by the media in the industry, and people will go through a lot of trouble from visiting the store to worshipping it.

Why is this?

2

The value chain of specialty coffee industry is gradually taking shape

We might as well use the industry value chain theory to make a preliminary diagnosis of the specialty coffee industry.

After the millennium, the specialty coffee movement started in North America, Northern Europe and Australia, and began to heat up in China between 2012 and 2014. If we only look at it from the terminal, it is one of the products of the upgrading of the consumer industry, and it is the inevitable product of the improvement of coffee quality and customer consumption experience. Just like every customer always wants to eat better and drink better, it is just driven by physiological instinct.

The introduction of scientific thinking and craftsmanship has left those coffee brands that rely entirely on packaging, hype, and gimmicks nowhere to hide, and the industry has been purified.

Haven't you seen that in recent years, fewer and fewer coffee beans are priced by making up stories and hoarding goods in the coffee industry. A cupping sheet is indeed more objective and rational.

But from a deeper and more macro perspective, it is a complete reconstruction of the entire coffee industry value chain. It is easy for us to say "from seeds to cups", but in fact it involves dozens of different industry fields such as boutique agriculture, import and export trade, food production, food packaging, equipment production, process manufacturing, catering stores, e-commerce, etc.

The industry has achieved a certain degree of integration

Just like in the early days of the rise of many industries such as PCs, the Internet, automobiles, and LCD TVs, the distribution of value and profits in the industry value chain is also tilted and concentrated in the upstream. As the industry matures, the distribution of value and profits begins to shift, and more profits that were originally eroded by the upstream begin to be enjoyed by the middle and downstream.

The same is true for the newly born boutique coffee industry. The surging wave of boutique coffee was first felt by coffee practitioners, and it is everyone’s common vision to reconstruct a set of competitive coordinates and take back the competitive dominance from the big guys.

Therefore, on the one hand, they started to invest in early learning and upgrade their own boutique coffee, and on the other hand, they tried to influence the people around them through cultural communication and education and training.

In this arduous process, the upstream of the specialty coffee industry began to benefit first, whether it was coffee planting, green bean trading, equipment production, or utensil sales. They all benefited at the first time. One can even use music, wine and food, and bowls full to the brim to describe their current situation of scrambling for land and racing against time.

Whether it’s exhibition competitions or magazine friend circles, their figures are almost everywhere - only if they live a comfortable life can they afford to keep showing up.

Well, after several efforts, a small group of specialty coffee consumers has finally emerged. Although they are not many in number, they are full of curiosity about new things, like new things and dislike old things, have a picky eye, and their own consumption power is quite strong.

Some even call themselves boutique coffee enthusiasts. They have become the first real customers of boutique coffee stores, but they are the most difficult customers to "serve" and also the ones with low loyalty and poor stickiness.

Should you follow the trend of specialty coffee?

However, as pure entities, terminal coffee shops are relatively clumsy and difficult to maneuver. In recent years, they are faced with the dilemma of "strong enemies in front and pursuers behind" - the influx of foreign competing brands is the front enemy, and the rising rents, labor costs and raw materials are the pursuers.

The boutique coffee trend is coming. Should we follow it or not? If we don’t follow it, we will be doomed sooner or later. If we follow it, it means a huge investment in equipment, raw materials and training, and even the design, decoration and traffic flow layout will have to be adjusted. The outcome is still unpredictable.

At this time of dilemma and hesitation, Nestle, Starbucks and other big companies began to take action, either directly investing in acquisitions or simply overtaking on the curve, entering the field of boutique coffee in a big way, and quickly occupying the commanding heights with their strong resource reserves, blocking the way forward in an instant. The strong brand advantages and immersive experience space have almost reaped the fruits of everyone's hard work.

“I feel bitter that I have to work hard every year to make wedding clothes for others.” This is how the coffee shop owners felt standing in the chilly wind of early spring in 2018.

3

Are new boutique coffee shops on the eve of an explosion?

There is no doubt that we are in a period when the value chain of the specialty coffee industry is developing rapidly and becoming increasingly mature. It is also the most difficult historical transformation period for terminal stores. It is not an exaggeration to call it the "darkness before dawn."

The three dark mountains above our heads are making it hard to breathe: the operating cost pressure from rent, labor and materials; the environmental pressure from well-known foreign brands and emerging capital ventures; and the competitive pressure from Internet e-commerce and food delivery platforms. What is even more suffocating is what should we do in the future?

Where will the next cup of coffee come from?

But at the same time, what is brewing in silence and dormancy is the huge potential energy that will explode in the future. The darkness before dawn also means that the dazzling dawn is about to come. Those who actively stick to it and plan ahead will reap the first pot of gold in the new era.

In an era when only network equipment vendors were making fortunes and Yingke hastily sold its Tencent shares for US$12.6 million, South Africa's Naspers would never have dreamed that the Tencent shares it had held for more than a decade would earn it US$800 billion.

The coffee shop industry, which has been prosperous for hundreds of years, is still in the ascendant in China and has a great future. It is just going through a new round of transformation pains, accumulating enough momentum to break out of the chrysalis and become a butterfly to amaze the world. In fact, quietly, new boutique coffee shops are on the eve of an explosion.

If you want to know why I make such an assertion, there are five reasons:

1

Insights from the laws of development

First, it is the inevitable law of development of any emerging industry.

The development of China's coffee industry must first solve the basic problem of industrial structure adjustment, because in the past we really had a weak foundation, a poor basis, and an unreasonable structure. Only when these problems are roughly solved can we solve minor problems in the future and finally solve the problems of terminal coffee stores.

The inevitability of the laws of business development

For example, how to support coffee farmers in Yunnan, Hainan and other places so that they can be enhanced in breeding and seedling raising, field management, harvesting and processing, etc.

For example, how to reduce the proportion of instant coffee and roasted coffee beans in the total coffee imports, significantly increase the proportion of green coffee beans, and keep more industry profits in the country.

For example, how to cultivate a group of excellent local coffee equipment manufacturers to reduce the continuous outflow of this huge amount of real money...

Only in this way can structural adjustments be gradually implemented, the industrial value chain become more reasonable, and value and profits be transferred to consumer terminals.

What is gratifying is that the above problems are being rapidly improved: we can already drink clean, sweet and flavorful premium coffee from Yunnan, China; the number of local premium coffee roasting companies is increasing; and local coffee equipment manufacturers are beginning to emerge...

2

The “trendsetter” role of big brands

Second, the actual actions of almost all coffee industry giants such as Starbucks and Nestlé, as well as investment capital, show that they have the most consumer resources, the richest industry experience, the largest consumer data, the best industry talent pool, and they also have the most sensitive business sense.

Big brands start to focus on specialty coffee

They all see China as the biggest surprise and the hope for their businesses in the next 20 years. Should we still doubt it? There are so many news reports and data on this point that I really don’t need to make a statement.

3

Consumption potential is imperative

Third, as the world's second largest economy and the largest developing country, China has a huge population of working-age people and middle class as well as amazing consumption power.

Combined with the pitiful coffee consumption figures in China compared to developed countries such as Europe, America and Japan, this has laid a solid foundation for the subsequent explosive development. This is the general trend, and you can't believe it or not.

4

The inevitability of the business development path

Fourth, in the past four or five years, a large number of boutique coffee shops have been established one after another, and the spectacular venture capital and operation cases have basically explored the way forward for latecomers, and the business path of new boutique coffee shops is also generally clear.

From the perspective of business development, this is also a trend

If you buy a set of coffee industry publications from the past three or four years and read them carefully, if you pay attention to the changes in industry keywords in the past three to five years, if you look at the changes in Starbucks China's business decisions in the past few years, if you look at the articles published by the Platinum Coffee Academy in the past three years, a generally clear set of ideas is actually already presented to you.

It is a pity that most of the new entrants into the industry are still ignorant and either follow the trend blindly or act in a shabby manner, which is really regrettable.

5

Those entering the industry gradually return to rationality

Fifth, our Bolan Coffee Academy has accumulated basic knowledge and judgment on the coffee industry over the past twelve years, and there are also a lot of data and cases to support this.

For example, between 2011 and 2013, nearly 70% of the students in the academy had a clear vision for opening a store, but a closer look revealed that sentimentality was still the main theme.

At that time, the books on the market such as "I Want to Open a Store", "I Just Want to Open a Store", "I Really Want to Open a Store", "It's So Beautiful to Open a Store" and so on also contributed to these irrational bubbles.

By 2017, this number had dropped to only about 20%. More students entered the Bolan Coffee Academy simply hoping to make their lives mellower and more interesting. This is undoubtedly a return to rationality after the bubble was squeezed out.

Returning to rationality

But at the same time, the students of Bolan who still hope to start a venture capital coffee shop almost all have more rational and comprehensive thinking, careful business model design, sufficient financial reserves and technical knowledge of coffee, especially boutique coffee, which are necessary conditions for achieving business success in the future.

This year seems to be particularly cold. Affected by the global La Nina effect, the "strongest cold wave in history" has hit frequently. In the chilly spring, a bamboo stick and straw sandals are better than a horse. Just keep walking and the dawn will appear ahead. Don't be afraid! A pot of coffee will keep you going.

END

Coordinator: Ka Sir | Editor: Hu Er

This article is original by Kamen. Please do not reprint without permission

This article is from Kamen. It is authorized by Entrepreneur. It has been slightly edited and modified. The copyright belongs to the author. The content only represents the author's independent views. [Download Entrepreneur APP to understand the 7,000 most profitable businesses in China]