After a noisy 2018, the coffee industry will usher in an innovation elimination competition in 2019

If you missed your life in Beijing in 2018, then when you return to Beijing in 2019 and walk into many office buildings, you will find that in the corner of the first floor, in addition to Starbucks, there will occasionally be a big logo sign that says "luckin coffee" or "Lian Coffee".

After the O2O bubble burst, the Internet catering industry in the public eye seems to be in a downturn. Whether it is the exposure frequency of project financing or the speed of the birth of hot-selling models, it seems that the brakes have been stepped on. In 2018, the Internet celebrity hot words in the catering industry revolved around dirty tea, lazy hot pot, Shar Pei dog mousse cake, etc., but there was no single product track as popular as crayfish. On the contrary, in the beverage industry, Internet coffee brands led by Luckin Coffee have created a lot of waves in the coffee industry with the momentum of challenging Starbucks.

There have been many discussions about Luckin Coffee’s business model, but it is undeniable that this brand, which is just one year old, has indeed brought more attention and vitality to the coffee industry.

Take Starbucks, the industry leader, for example. The aggressive competitors forced Starbucks to accelerate its changes in 2018, when it was about to turn 20. It really started to deliver coffee. In addition to Starbucks, Pacific Coffee also launched many new attempts in 2018, such as launching boutique coffee Brew Bar and self-baking flagship store LUXE. Convenience store coffee brand FamilyMart hopes to join the first echelon of chain coffee brands with the help of more than 3,000 convenience stores. There are also many foreign coffee brands that have opened stores in China or plan to open stores in China, such as Canadian national brand Tim Hortons and Doutor, known as the national coffee of Japan.

Faced with challenges, 2018 is a turning point for the coffee industry

Many coffee industry practitioners have felt the dramatic changes in the coffee industry in 2018. Pacific Coffee told Yiou Catering that an obvious change is that a lot of capital and talent have poured into the coffee market in 2018, and it has attracted much attention in the terminal consumer market.

Starbucks has been in China for 20 years, bringing enlightenment to the mass consumer market about coffee consumption, but in the minds of most consumers, coffee is not the first beverage that comes to mind. Luckin Coffee, which sold 89.68 million cups in 2018, said: Starbucks has popularized coffee culture, and the next step is to popularize coffee consumption.

This also means that the next stage of the coffee industry will usher in a more segmented business competition. To achieve the popularization of coffee consumption, first, it is necessary to expand the consumer group that is aware of coffee culture, second, the way coffee contacts consumers is more diverse, and third, coffee consumption may usher in a wave of price cuts. GREYBOX COFFEE, one of the representative companies of boutique coffee, also feels the same: with the upgrading of people's consumption level and consumption concept, consumption demand is also upgrading. In the minds of consumers, boutique coffee must provide a cup of obviously delicious coffee and a better experience, and traditional chain coffee and Hutong coffee obviously cannot meet these needs.

GREYBOX COFFEE believes that 2018 can indeed be called the "Year of Coffee", and boutique coffee continues to make efforts on the road to branding. Consistent with GREYBOX COFFEE's judgment, Youxin Coffee also believes that 2018 is a node year for the coffee industry. For Youxin Coffee itself, the value of the business model and positioning was clarified in 2018, and the coffee industry in 2019 will be a state of continuous melee. The innovative competition in models, scenarios and experiences will continue to escalate, and the operational war will tend to improve products and refined operations. As of the end of 2018, Youxin Coffee had 12 stores in operation, and 4 stores were waiting to open.

Xiaoka also believes that 2018 can be called a milestone year for the coffee industry. In 2018, Xiaoka is most proud of the fact that, under the premise of insisting on the quality of milk + freshly ground milk, it has solved the problems of milk food safety and operation and maintenance. Through the joint development of hardware research and development, software control and supply chain strategic partners, it has launched a complete set of milk solutions, which has a very large technical barrier.

From the consumer side, this means that consumption is stratified, and coffee operators have also begun to make adjustments to meet the demands of different levels of consumption. In terms of store types, Pacific Coffee, for example, established and opened stores in the "Pacific Coffee" brand pyramid of "PCC+Brew Bar+Luxe" in 2018, and on this basis, stood in the tea and coffee market with the "two legs" of "Taicha" and "Pacific Coffee". Pacific Coffee said that 2018 was a busy and proud year.

It’s not just Pacific Coffee. Brand operators are all trying. Following the Shanghai Roastery, Starbucks opened a Reserve flagship store in Beijing in 2018, which includes three theme areas: Reserve Coffee, Teavana, and Specialty Beverages. Greybox Coffee opened two ROASTERS bakeries in Shanghai and Wuhan in 2018.

In fact, opportunities and challenges coexist in 2018. In an interview with Yiou Catering, Youxin Coffee said that with the influx of capital, the emergence of giants, and the entry of many new players, the Chinese coffee market has entered a stage of rapid development; whether online or offline, there is a lot of room for domestic independent brands in the next three years; the competition in the coffee industry is becoming increasingly fierce, and there is a state of scrambling for supremacy; all walks of life are involved in the coffee industry: real estate, retail, and the Internet; all of them value the role of offline entrances and coffee links.

In addition to stores, coffee brands also need to have differentiated positioning and promotion in terms of products, mainly reflected in coffee beans, milk, water for brewing and coffee machine equipment. As one of the representative companies of self-service coffee machines, Xiaoka Coffee believes that 2018 is a year of new models, new products and new marketing. The so-called new model refers to the development of the model of coffee takeaway and self-service equipment; new products: not limited to basic models such as latte and cappuccino, and the launch of new products such as bulletproof coffee; new marketing: starting to pay more and more attention to user operations. In 2018, Xiaoka's corporate development focus is on equipment hardware, software research and development, and the standardization of offline operation and maintenance system process combing.

We can see that in 2018, big brands began to make more innovative attempts, while small brands accelerated their iterations and established their own competitive barriers.

The industry is accelerating, and the coffee industry will be more lively in 2019

"Although consumers' pursuit of coffee is still mostly limited to "a cup of coffee", the increase in underlying demand clearly tells us that the pursuit of quality and good things is also increasing rapidly." Youxin Coffee told Yiou Catering. Youxin Coffee hopes to build product barriers through continuous iteration, and pay more attention to the consumer side, so as to provide consumers with a better cup of coffee. They believe that the continued strong domestic demand will continue to drive up the demand for coffee.

In 2018, many coffee brands saw a significant increase in the number of stores and the number of cups sold, and they are all accelerating their development. According to Yiou Catering, FamilyMart Paike Coffee's cup output exceeded 50 million cups in 2018, doubling. As of November 2018, there were a total of 2,500 FamilyMart stores nationwide, and more than 2,000 FamilyMart stores sold Paike coffee, with cumulative sales exceeding 40 million cups; for Greybox Coffee, 2018 was also a year of accelerated store expansion - a total of 21 stores were deployed in the CBDs of 9 major cities including Shanghai, Beijing, Guangzhou, and Wuhan, and plans to accelerate the pace of store expansion in 2019 and further increase to 50 stores; Xiaoka has accumulated more than 2,000 locations as of 2018; Youyin Coffee had more than 2,000 machines in 2018, a year-on-year increase of 587%. In 2018, Youyin Coffee had already run through the business model, and its products and operations were still in the early stages of improvement.

As a company listed on the New Third Board, Coffee Wings also made adjustments to its business in 2018, shifting its strategic focus to smart city retail coffee machines. Currently, Coffee Wings' business consists of three parts: one is offline direct sales, the second is national franchise authorization, and the third is the nationwide urban smart coffee machines. Coffee Wings told Yiou Catering that so far, it ranks among the top three in the field of urban smart coffee machines in China, and has deployed nearly 3,000 machines in the country.

We can see that many coffee brands have achieved breakthroughs in the number of stores, number of outlets, and cup output in 2018, and these indicators also reflect the strength of the company and the popularity of coffee consumption. As the industry leader, Starbucks has always been far ahead in China with more than 3,500 stores, and Luckin Coffee has attracted much attention because of its speed of opening 2,000 stores a year. In the self-service coffee equipment industry, the number and density of machine outlets are directly related to operating efficiency and operating costs. Today, within a consumption radius with a small office building as the center, self-service coffee equipment, coffee shops, and Internet coffee brands are all gathering. It can be foreseen that in 2019, players in the coffee segmentation track in different scenarios will often meet.

However, from the perspective of business operations, the coffee industry in 2019 will usher in an innovation elimination round. In an interview with Yiou Catering, Pacific Coffee gave three key words for the coffee industry in 2019: innovation-led, scenario-based consumption, and accelerated development. Specifically for Pacific Coffee itself, based on the "Pacific Coffee System" pyramid, it will establish emotional connections between the brand and consumers through content marketing to build PCC's strong brand influence and expand customer base in segmented markets.

Upgrading, diversification and scenarios are the keywords given by FamilyMart Paike Coffee for the coffee industry in 2019, which is roughly consistent with Pacific Coffee's judgment. Facing more "picky" consumers, brands need to continue to innovate, enrich product lines, and impress consumers with differentiated experiences. For the industry, the development of new products and new ideas will also boost the development of the industry and help form a virtuous circle.

From its own business perspective, GREYBOX COFFEE believes that in 2019, the development of the coffee industry will be "keep improving", and boutique coffee will further enter daily life. As consumers become more aware of coffee culture, consumption trends will return to the essence of coffee: taste and experience. In terms of experience, SEESAW COFFEE said that in 2019, in addition to the coffee drinks themselves, it will explore more content that happens in the space and provide products with brand cultural attributes.

This point is also recognized by Xiaoka. Xiaoka believes that the coffee industry will continue to heat up in 2019, and competition will become more and more fierce. Although the business models and product forms may be different, refined operations must be put first. In different scenarios, the competition in the coffee industry will become more intense. At the same time, 2019 will also be a year in which the top brand effect will emerge and the survival of the fittest will accelerate.

In the self-service coffee industry, Youyin Coffee believes that the advantages of standardization and flexibility of self-service coffee machines in 2019 are highly consistent with the timeliness and dispersion of coffee scenes. In the future, self-service coffee machines will occupy one-third of the coffee market, accounting for 30% of the market share. With the emergence of billion-dollar companies in Europe and the United States, the Chinese market has great potential in the future.

Xiaoka also told Yiou Catering that the coffee market is expected to reach a trillion-level market by 2025. Looking at the market size of self-service equipment alone, it is estimated that 1 million units will be put into use in corporate office scenarios nationwide, and 5 million units will be put into use in various offline life service scenarios, such as convenience stores, 4S stores, hotels, hospitals, etc., and the total market size is expected to reach about 6 million units nationwide.

It can be seen that whether it is a boutique coffee brand or a self-service coffee track, 2019 will be a year of competition in terms of management ability. After the baptism of Internet coffee in 2018, traditional coffee brands are also trying more possibilities in operation.

In 2018, the marketing method with "fission" as the core has a very obvious impact on the industry. The method of exerting efforts online and offline at the same time has been recognized by most brands to meet consumers' coffee needs in more consumption scenarios. Starbucks, Pacific Coffee, and FamilyMart Coffee have already established deep or shallow cooperative relationships with third-party platforms. FamilyMart Coffee said that it will also launch its own delivery platform in 2019, with the goal of achieving nearly 100% coverage (except for special channels such as subways and airports), and does not rule out the possibility of creating independent coffee shops.

As for the future of the coffee industry, it is very worth looking forward to. In an interview with Yiou Catering, Coffee Wings said: "Everyone says that the weather in 2018 was very cold, the stock market was very green, and people were very panicked, but the impact on the consumer sector was not so strong. The coffee market is rising against the trend and continues to heat up. The pattern of China's coffee market from 70 billion to over 100 billion will accelerate."

In the eyes of Coffee Wings, the current coffee consumption market has greatly improved in terms of efficiency compared to previous years. In the future, deepening cultivation is the correct long-term strategic choice in the upward trend of the coffee market. Brands that can really stand out in the market basically have to go through 9 years of training: 3 years of exploration, 3 years of foundation, and 3 years of explosion. Brand is the moat of an enterprise, and only with time accumulation can the brand foundation last forever.

The "2018 China Coffee Industry Insights" report released by CBN Data also shows that the sales volume of China's coffee market is expected to reach 300 billion yuan in 2020, and is expected to exceed 1 trillion yuan in 2025.

However, problems of congenital deficiencies and acquired deformities still exist in the coffee market, and the dual industry structure of big giants and small retail investors has not been broken. How to understand and define coffee with Chinese eyes, Chinese stomachs, and Chinese culture is still a problem faced by all local independent brands.