China's freshly ground coffee market may see explosive growth

Source: Guangzhou Daily

Image: @Visual China

China's freshly ground coffee market only accounts for 16% of the entire Chinese coffee market, and there will be a potential market explosion in the future. Recently, Meituan stated in its latest research report that in 2018, with the help of capital, the number of freshly brewed coffee beverage stores has increased, and the freshly ground coffee market needs to further explore the potential market. Industry analysts said that China's freshly ground coffee market is still in an unsaturated competitive state, and in the next five years, it will form an industry pattern of flourishing in the explosion.

Meituan stated in its latest research report that there is still much room for improvement in China's freshly ground coffee market. The reason is that freshly ground coffee is more popular among coffee consumers worldwide, while in China, consumers prefer instant coffee, so there is still huge potential market space for freshly ground coffee.

The report said that last year, due to the dual impact of high cost pressure and the rise of new retail coffee, the number of stores in cities of all levels declined. However, in 2018, with the help of capital, the number of freshly brewed coffee shops in cities of all levels across the country increased, and the potential market for freshly ground coffee needs to be further explored.

The ground coffee market, which has always been turbulent, began to surge in 2018. Godiva, a Belgian chocolate brand, has just announced that it will open 2,000 new coffee shops, one-third of which will be located in Asia. Currently, in the Chinese market, Starbucks has 3,600 stores, Luckin Coffee has 1,700 stores, Costa has 450 stores, and there is also the recently emerging Lian Coffee. The battle for the ground coffee market is intensifying and is about to break out.

In early January 2018, Luckin Coffee began trial operations and received $200 million in Series A financing in July, with a post-investment valuation of $1 billion. A few days ago, Luckin Coffee announced the completion of $200 million in Series B financing, with a post-investment valuation of $2.2 billion. Currently, Luckin has completed the layout of more than 1,700 stores in 21 cities or regions across the country.

Starbucks maintained a steady growth rate. As of the end of November, it had opened more than 3,600 stores in more than 150 cities or regions in mainland China, and it is expected to increase to 6,000 stores by the end of September 2022. The latest financial report shows that in fiscal year 2018, Starbucks China's revenue increased by 21%, with a net increase of 585 stores, and entered 17 new cities. Same-store growth returned to the growth track, with a same-store growth of 1%.

Under competition:

China's coffee market is becoming more diverse

"I don't think Starbucks and Luckin Coffee are comparable." Zhu Danpeng, a Chinese food industry analyst, believes that after 30 years of popularization and cultivation, the Chinese coffee market ushered in a real explosion period in 2016. The main reasons are the surge in consumer population and the integration of coffee elements into modern life scenes. The freshly ground coffee industry has extended from the original T-shape to a pyramid shape, and the industrial structure has changed, which can accommodate more brands of different levels, different tones and different selling points. "In my opinion, Starbucks occupies the upper end of the pyramid of the freshly ground coffee market, and Luckin mainly occupies the middle part of the pyramid."

Behind Luckin Coffee's rush into the market is the Internet logic of using money to buy time and market share at any cost. According to media reports, in the first three months of 2018, Luckin Coffee spent more than 8 million yuan on WeChat Moments ads, with more than 100 million ad exposures and more than 45 million people exposed to ads. In addition, 300 million yuan was spent on building elevator ads, and the advertising expenses on elevator TV media accounted for 73% of the total. While opening stores quickly, Luckin implemented a large number of subsidized promotions. After the B round of financing, Qian Zhiya, founder and CEO of Luckin Coffee, said that after the financing, subsidies to users will continue, and the company will continue to increase its investment in product research and development, technological innovation, and business expansion.

Behind Luckin's blitzkrieg is a business model that is completely different from Starbucks. It is a direct-operated "pickup + takeout" business. The store area is smaller than that of traditional coffee shops. It is not a street-side shop, so the cost is relatively low. According to a relevant person in charge of Luckin Coffee, compared with traditional coffee shops, Luckin Coffee can save more than 30% of the cost of renting and decorating the venue.

However, the reporter learned that Luckin Coffee has raised the free delivery threshold in Beijing and Shanghai, from 35 yuan to 55 yuan. The person in charge of Luckin Coffee explained that these core areas have 100% coverage within 500 meters, and customers can walk to the store to pick up their goods in 5 minutes. Properly raising the free delivery threshold can encourage more users to avoid waste. However, industry insiders said that raising the delivery threshold can reduce certain operating pressures.

Next 5 years:

The freshly ground coffee market is still in an unsaturated competitive state

Zhu Danpeng believes that by deeply combing through the freshly ground coffee industry and combining it with the medium- and long-term development strategy of China's coffee industry, we can draw the conclusion that China's freshly ground coffee market, relying on the explosive growth of the consumer end, will present a multi-brand, multi-scenario, and multi-grade trend in the next five years.

Starbucks responded: "The Chinese coffee market is huge, competitive and developing rapidly. We believe that there is broad space in the Chinese market for more coffee brands to grow healthily with us." In Zhu Danpeng's view, the competition in China's freshly ground coffee market, which seems to be fierce, exists on the consumer side rather than the industry side. In other words, the competition is not a head-on confrontation between Starbucks and Luckin Coffee, or other coffee brands, but to transform consumers who have not tasted or purchased freshly ground coffee into target consumers: "What we need to do now is to win over these beginners and bring them into the consumer army. The next step is the differentiation of consumers based on their cognition and consumption level." He believes that in the next five years, China's freshly ground coffee market will still be in an unsaturated competitive state. The relationship between different coffee companies is not a pure competitive relationship, but a competitive and cooperative relationship. Through different models, the population consumption dividend of the Chinese coffee market will be further expanded to make the entire market bigger: "Because the market is large enough, they can coexist and develop together."

data

According to a report, freshly ground coffee accounts for more than 87% of total coffee consumption worldwide, but the situation in China is just the opposite. Instant coffee accounts for 84% of the market share, while freshly ground coffee only accounts for 16%. The domestic freshly ground coffee market is expected to see a potential explosion.