From identity consumption to functional consumption, what can we do in the coffee price war?

"19% off for the first cup, less than 4 yuan for a cup of Orly white coffee." To meet the growing demand for quality coffee from urban white-collar workers, the freshly ground coffee in 2,000 convenience stores of Beeline will be gradually upgraded, covering raw materials, coffee machines and brewing methods. It is reported that the price of the upgraded coffee will be adjusted down by about 50%, with a medium cup of hot latte as low as 6 yuan.

In recent years, the coffee market has grown rapidly, the main consumer groups have changed, consumption habits have also changed, business models have been transformed and innovations have emerged, and the coffee price war has quietly arrived. Some industry insiders said that behind the price war is not only the competition between the old and new coffee forces, but also represents the competition between different coffee development paths, different industry depth layouts and strategic ideas, and different cultures and service concepts.

High-cost-effective coffee gradually seizes the market

From the perspective of user scenario needs, freshly ground coffee brands can be divided into "slow coffee" and "fast coffee". Among them, "slow coffee" such as Starbucks and independent coffee shops focuses on environmental experience; "fast coffee" focuses more on functional experience and cost-effectiveness. According to the "2021 China Freshly Ground Coffee Industry White Paper" released by Deloitte and Mumian Capital, the consumption proportion of "fast coffee" scenarios has increased year by year, and the number of freshly ground coffee cups consumed per capita in the "fast coffee" scenario accounts for 70% of all freshly ground coffee intake.

It only costs 6 yuan to buy a latte at a convenience store. In order to meet the growing consumer demand for quality coffee among urban white-collar workers, the freshly ground coffee in 2,000 convenience stores of Convenience Bee will be gradually upgraded recently, covering raw materials, coffee machines and brewing methods. According to relevant staff of Convenience Bee, the upgrade is based on the concept of "a cup of high-quality coffee can be inexpensive", and the price will be reduced by about 50% while improving the quality.

"As early as the beginning of this year, Convenience Bee started the coffee upgrade plan. After finalizing the raw materials and production process, the freshly ground coffee in 2,000 stores across the country entered a gradual iteration stage since April this year. Under the strategy of iterating while testing market reaction, the self-service coffee in stores in Shenzhen and Guangzhou has been upgraded, and the completion rate in Beijing, Nanjing and Hangzhou is nearly 90%." A person related to Convenience Bee said.

In fact, in addition to the upgrade of Convenience Bee coffee, there have been many major events in the coffee industry during this period. At the end of last year, McDonald's said that it would increase investment in new store development, equipment upgrades, and personnel training in the future. It is expected that the investment amount will be about 2.5 billion yuan in three years. By 2023, there will be more than 4,000 McCafés across the country providing high-quality, cost-effective handmade coffee. At the end of March this year, Sumida River, founded in Hangzhou, announced that it had completed a round B financing of 300 million yuan. In May of this year, Easy Mart launched "92# Popular Drinks", "95# Flavored Coffee" and "98# Flavored Coffee", selling coffee in the "gas station + coffee" model. With the development of the "fast coffee" culture, more and more brands have begun to sell freshly ground coffee, such as FamilyMart's Pengpai Coffee, 711 Coffee, etc. The continuous entry of competitors also shows the broad prospects of the "fast coffee" market.

In the "fast coffee" scenario, coffee shops do not need to provide space and atmosphere. Consumers often want to buy and go, without any spatial experience. Most of the shops are small shops of 5-10 square meters, located in places with high traffic but relatively cheap rent. In this scenario, consumers are more sensitive to price and demand speed and convenience. Even if additional services are provided, they are more inclined to support take-out fast food.

Industry insiders said that whether it is Convenience Bee, which claims that "a cup of high-end coffee can be affordable", McDonald's, which has invested a large amount of money in coffee, or the new internet celebrity Sumida River, they are all trying to reverse the stereotype that "good coffee means high price" in consumers' minds. By providing high-quality freshly ground coffee and giving consumers benefits, they are attracting more high-end people who focus on coffee enjoyment into the main consumer group of coffee in convenience stores or fast food restaurants.

Changes in the main consumer groups

In the past, drinking coffee meant high-end and style. People would sit in a cafe for an hour or two and enjoy a leisurely and slow life. Nowadays, most white-collar workers living in first-tier cities choose coffee because of work pressure, which has led to the expansion of the domestic coffee market. "A cup of black coffee every morning is my work habit." White-collar worker Xiao Li said, "Sometimes I go to a cafe with friends to have a cup of coffee and chat and relax, but more often it is to refresh myself."

The change in consumption is due to the change in the main consumer groups. As young people turn coffee from a business and social habit to a personal lifestyle, the domestic coffee market has evolved from the earliest "identity consumption" to the mid-term differentiation into the parallel of "scenario consumption" and "functional consumption", and now gradually entered the stage of "quality consumption" and "functional consumption". Consumers pay more and more attention to the taste, flavor and cost-effectiveness of coffee itself, and coffee is gradually becoming a daily consumer product. This has brought business opportunities to fast coffee brands introduced by restaurants, convenience stores, etc.

For example, McDonald's McCafé adopts a "store-in-store" model. Instead of opening independent stores, it uses the space of existing McDonald's restaurants to open separate coffee counters, introduce professional coffee making equipment, and have baristas make coffee by hand. McCafé's market research shows that from the perspective of consumption trends, Chinese consumers' demand for high-quality and cost-effective coffee has far exceeded their demand for environment and atmosphere. With the diversification of coffee dining scenes, 70% of McDonald's consumption comes from takeout and delivery, so the pursuit of convenience is crucial.

Functional consumption of coffee to refresh the mind and drinking it with meals are more mainstream consumption scenarios. According to the "2020 Coffee Consumption Market Insight Report", 55% of respondents drink coffee to refresh the mind, and 17.2% of respondents drink it with meals. In addition, the survey data shows that the vast majority of coffee drinking scenarios are daily life scenarios, not business scenarios. It can be seen that functional consumption, inertial consumption, and drinking with meals have become the most important consumer demands, which also requires coffee products to provide better product quality and match corresponding consumption scenarios while meeting functional consumption needs.

The battle between fast and slow coffee is still undecided

According to data from the Forward-looking Industry Research Institute, China's coffee market is expected to reach 217.1 billion yuan by 2025. The domestic coffee market has been experiencing rapid development in recent years, and emerging domestic coffee brands have also been constantly laying out the industry and consolidating their position by accelerating store openings and improving supply chains. With the advent of the epidemic in 2020, the coffee industry was hit hard, and capital once tended to be calm, but this year is expected to usher in growth again. There are currently 164,000 coffee-related companies in China that are in operation/existing. From the perspective of investment and financing, since 2013, coffee projects have received financing 114 times, with a total amount of 11.568 billion yuan.

Freshly ground coffee consumption in China only accounts for 18% of the total coffee consumption. Compared with the global coffee consumption, there is still huge room for growth in freshly ground coffee in China. At present, freshly ground coffee, which contributes to the huge operating costs of coffee shops, costs 30 to 40 yuan per cup. Such high prices have scared away a group of consumers who have daily drinking needs and pursue quality coffee, which has given fast coffee brands a huge market opportunity.

"In fact, Convenience Bee launched the freshly ground self-service coffee business as early as its inception. Based on the use of Arabica beans of the same quality as the brand's coffee shops, it invested in coffee machines imported from Switzerland. After this upgrade, the Brazilian beans with a mellow base will be paired with Mandheling beans from Sumatra, Indonesia. After double roasting, it will present a comprehensive flavor of nuts, spices, caramel, dark chocolate and smoke to coffee lovers." A person related to Convenience Feng said.

For the slow coffee shop business, rent, manpower, and equipment are the three core costs. Among them, the high cost of rent makes many people discouraged, and also puts great pressure on those who are operating coffee shops. "From the operation method and technology, it is a replicable operation. Coffee does not have an absolute taste moat, but only a relatively higher price." A professional barista introduced.

Industry insiders revealed that the special thing about the coffee industry is that most of the raw materials such as coffee beans on the market are homogeneous, and it is difficult for brands to make breakthroughs at the raw material level. Innovation in the coffee industry is more driven by innovations in business models and user experience. In this context, who has better quality, more affordable prices, more convenience, and better services will become the final decisive factor in the new round of coffee price wars.

If the price war really starts, what can we do? All we can do is hold on to the coffee utensils in our hands and welcome more friends to join. Some hobbies have little to do with how much money you spend.

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