Three major guesses about the coffee industry in 2019 amid the "store closures" of Lian Coffee

As the festive atmosphere of the New Year has come to an end and the catering industry is stepping up its efforts to welcome the new year, the coffee industry has become the focus first. First, it was rumored that Lien Coffee had closed 30% to 40% of its stores, and then Starbucks seized the spotlight for nearly a week with a cat claw cup.

Looking back a little bit, Luckin Coffee burned 824 million yuan to become the second in the industry, while old companies such as Shangdao Coffee and Carving Time are struggling to survive. One can't help but sigh that the coffee industry is characterized by both chillness and passion. So, where will the coffee industry go in 2019?

Will the coffee market break the “trillion” mark? All recent coffee industry analysis I’ve seen cites the 2018 China Coffee Industry Insights report released by CBNData. The report shows:

In 2015, the scale of my country's coffee consumption market was about RMB 70 billion, accounting for about 0.5% of the global market. However, the annual growth rate of coffee consumption in my country is about 15%. It is estimated that the sales scale of China's coffee market will reach RMB 300 billion in 2020 and is expected to exceed RMB 1 trillion in 2025.

After reading this data analysis, the catering industry (canyinj.com) can't help but question: the coffee market will increase 14 times from 70 billion in 2015 to 1 trillion in 2025. It will more than double in size each year over the past decade. This is an even crazier market than Taobao 13 years ago.

However, looking back at Luckin Coffee, which was the most popular last year, it opened more than 2,000 stores a year, and its sales were estimated to be more than 800 million. Compared with the trillion-yuan scale mentioned above, it seems far away. And if the growth rate is really that fast, then anyone who opens a store should make money. How come 30% to 40% of Lian Coffee stores are closed?

Therefore, entrepreneurs in the coffee industry who are holding back on watching are requested to look at the coffee market rationally together with the catering industry (canyinj.com).

1. Coffee is still in its development stage in China.

There is another set of data in "2018 China Coffee Industry Insights" that the consultant agrees with more: From the perspective of coffee drinking structure, freshly ground coffee accounts for more than 87% of total coffee consumption worldwide, but in China, instant coffee accounts for 84% of the market share, and the market share of freshly ground coffee is only about 16%.

Nestlé entered the Chinese market in the 1980s, opening the prelude to instant coffee. Starbucks entered China in 1999 and started cultivating the freshly ground coffee market. In 2018, Luckin Coffee expanded coffee to the takeaway scene. However, even so, coffee is still a condiment for the Chinese people, not a necessity of life. Therefore, coffee will still be an incremental market in the future, but it is far from being crazy enough to double in a year.

2. Internet infrastructure expands coffee consumption scenarios

According to the "China Sharing Economy Development Annual Report (2019)" released by the National Information Center in Beijing:

In the three years from 2015 to 2018, the proportion of online takeaway revenue in my country's catering industry revenue increased from 1.4% to 10.6%; the average annual growth rate of online takeaway revenue was about 117.5%, 12.1 times that of the traditional catering industry. In 2018, the scale of online takeaway market users reached 360 million. At the same time, from 2015 to 2018, the penetration rate of Internet users increased from 16.5% to 45.4%, an increase of 28.9%.

O2O is a model native to China's Internet. It has not only cultivated consumers' takeaway habits, but also spawned a large takeaway team. This professional takeaway team basically covers my country's first-tier cities to fifth-tier small towns, and can deliver food to the door in about half an hour, which is unmatched in the world. This takeaway team derived from the Internet business can be regarded as an Internet infrastructure comparable to 5G.

The rapid rise of Luckin Coffee in 2018 is not because its coffee is delicious, nor because it is cheaper than Starbucks, but because it made good use of the Internet's "takeout team" infrastructure to expand the consumption scenario of takeaway coffee.

3. The first-tier market is a red ocean, and the fifth-tier market is a new continent.

Catering Industry (canyinj.com) will first show you another set of data. This is the coffee sales data of some stores of a certain international fast food chain giant in the first to fifth tier markets in Guangdong Province:

Thousand rate = sales volume/customer flow*1000%. The thousand-times feedback refers to the number of orders that 1,000 customers will place.

Through this data, we can find that the coffee sales of this fast food brand in these five-level markets present a cone-shaped structure with narrow ends and wide in the middle. Compare this data with the following:

The data comes from the number of stores displayed on apps such as Meituan and Luckin Coffee.

There are few first-tier markets, which is obviously related to the fierce competition in the first-tier markets, which is like a red ocean market. The fifth-tier county market has shown a decline, which should be related to consumption habits. Because in that level of market, milk tea shops can be seen everywhere on the street, but professional coffee shops are nowhere to be seen.

The most interesting thing is the second-, third- and fourth-tier markets. A coffee that no one drinks in first-tier cities has achieved more than 10-fold growth in these cities. This indirectly reflects that consumers in these markets have a demand for coffee, but lack better choices. This is a market to be developed.

Okay, after analyzing the market, let’s go back to our original question: where is the entrepreneurial space left for us in the coffee market in 2019?

The future of the coffee industry: filling gaps and innovating forms

First-, second-, third- and fourth-tier cities will usher in a coffee shop craze.

Starbucks' goal this year is to open 500 stores in China, while Luckin Coffee has announced that it will open another 2,500 stores in 2019 and will surpass Starbucks in terms of store count to become China's largest coffee chain. As first-tier cities are fully loaded, the 3,000 stores of Starbucks and Luckin will cover more second-, third- and fourth-tier cities and cultivate more consumers.

By following the industry giants to fill the market gap, there will always be room to support a small coffee shop after the pie becomes bigger.

2. Starting from consumer demand, find new forms of coffee.

Our in-depth analysis of the coffee market reveals that the existing coffee industry is a combination of three major demand points to create consumption scenarios: taste, convenience, and added value.

According to the above table, let’s analyze the current top coffee players:

Instant + portable + self-demand (refreshing), that's Nestle and Maxwell,

Freshly ground food + dining in + socializing (offline) is the third space: Starbucks, Costa, Man Coffee, U.S. Island Coffee…

Freshly ground + self-pickup + social networking (online) is Luckin Coffee and Lian Coffee

Freshly ground + self-pickup + self-demand, that’s convenience store coffee: FamilyMart Paike Coffee, 7-11 Coffee, etc.

Common sense in marketing is to accurately position the market segment. Look at Starbucks and Luckin Coffee, although they are so powerful, they only occupy one scene. The reason why Lian Coffee, Man Coffee, and Shangdao Coffee are closing stores is also because they lost to the leading players in one scene. However, Nestlé and convenience store coffee in another consumption scene are still thriving.

Three conjectures on coffee development trends

Similarly, the opportunities left for later players in the coffee market may include the following new consumption scenarios:

1. Handmade + Dine-in + Self-demand = Specialty Coffee

"We only sell organic coffee beans that are freshly roasted within 48 hours. If not used within 48 hours, they must be discarded." This is one of the selling points of blue bottle coffee, which is popular in the United States.

As coffee has evolved from a niche to a mass market, there will inevitably be a group of customers who have better demands for coffee flavors, and "boutique coffee" has really come into being under this trend. Seesaw Coffee, founded in 2012, and Starbucks' new boutique store opened last year are both hot spots for investment in the coffee industry.

2. Freshly ground coffee + self-collection + social networking (online) = unmanned coffee machine

Luckin Coffee targets a five-kilometer delivery area, but it is impossible for it to open stores in every office building, every subway entrance, and every shopping mall. Previous self-service coffee machines lacked social attributes and were operated more with the mindset of selling machines offline.

If there is an unmanned coffee machine, combined with Internet gameplay, and then taking advantage of the currently popular AI and facial recognition technologies, it is very likely that a giant in the coffee segment will be born within a 100-meter range from consumers.

3. Freshly ground + homemade + social (online) = shared coffee

Imagine a coffee machine that can be provided to companies for free. Employees can scan the code to pay when they want to drink. When the coffee beans are used up, it will automatically prompt to restock. Add in the gameplay of Internet community operation, and a shared coffee model that is within 10 meters of consumers will emerge.

Chan said that the life algorithm was a very popular concept last year. In fact, looking back at the coffee market, there is also such a "coffee algorithm": what kind of flavor appears where the consumer is, and what additional needs of the consumer are met.

The success of Starbucks and Luckin Coffee is nothing more than the correct answer to this coffee algorithm. So let us wait and see what wonderful answers this "coffee algorithm" will produce in 2019!

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Original statement: The author of this article is kenko, and it is original from the catering industry. Please indicate the source of the catering industry (canyinj.com) when reprinting. Violators will be held accountable according to law!