Text | Xiangshan Finance
Recently, when I was browsing Xiaohongshu, the system pushed me this piece of news: A joint franchisee in Ruijin, Jiangxi, hired someone to pretend to be the operation manager because the provincial general manager refused to cooperate in reselling to other provinces. One store sold 8 stores, but 7 of them could not get their deposits back. The Kudi headquarters knew about the incident early, but it was slow to take effective measures, resulting in 6 more stores being deceived. The police have now intervened. Can we still get on this big ship of Kudi? The management standards of each province are thought-provoking.
I was shocked. I had heard about the bitter experience of Kudi’s business partners, but I didn’t expect there would be such an operation. Then I contacted the blogger to confirm the information. Since the blogger has not replied yet, we will leave it here for now, and we cannot confirm the authenticity.
Taking this as an excuse, let’s talk about the coffee track today, and whether there is still a way out for being a Coodi franchisee now?
The “Infinite Game” of the Coffee Circuit and the “Limited Bullets” of Kudi Coffee
If someone complains, it may be the complainer’s fault. Just open a social media and search for Kudi, transfer posts, and complaining posts, which are more lively than Kudi’s offline stores:
Of course, netizens’ comments are for reference only, because they are based on personal preferences, so they are for reference only. However, with such a large volume of complaints, it is worth analyzing the industry trends behind the complaints.
1 Free is the most expensive, this is a problem with the affiliate model.
Most of Kudi Coffee’s stores adopt the joint venture model. Unlike the franchise model, Kudi does not charge franchise fees to franchisees under the joint venture model, but charges a certain service fee based on gross profit. Operators of Kudi Coffee stores under the joint venture model are collectively referred to as franchisees.
therefore,The coffee business run by Lu Zhengyao and the coffee business run by his affiliates are essentially not the same business model.
Lu Zhengyao is a traffic model.The traffic model means that as long as there are a steady stream of franchisees coming in, the business can be closed. If there are enough franchisees, the revenue will be good enough. Even if Kudi Coffee Company is losing money, it can still complete the closed loop if it can IPO in the future.
The franchise model is a cost model.Cost model, revenue logic is turnover minus various expenses, only then can the profit fall into the hands. No matter how busy the store is, no matter how much turnover there is, once calculated, if it is not profitable, then it is really not profitable. It is really just for the sake of making a fuss, and the atmosphere of the entire coffee market is set. Kudi’s affiliates have been busy for half a year, and in the end they may still lose money, so they don’t have to post a transfer post on Xiaohongshu.
2 The coffee race is an infinite game.
According to a late article: In October 2022, Kudi opened several first stores in Fuzhou, Hangzhou, Xi’an, Nanjing and other places. At the exchange meeting, franchisees learned the details of Kudi’s “Coffee Dreamer Plan” – no franchise fee, registered capital of 200 million US dollars. Kudi’s investment promotion PPT detailed the “breakeven of coffee shop” table. The cost of a cup of coffee, including raw materials, rent, labor, depreciation, water and electricity, is marked as 9.55 yuan. The “single cup income” item in the table is written as “16 yuan”.
This is the blueprint that Cudi has drawn for franchisees:As long as we survive the price war, the pricing of coffee will return to this price in the future and we can make money.
What I didn’t expect was that the price war would last so long and there was no sign of it stopping.
Recently, Li Yingbo, chief strategy officer of Kudi Coffee, revealed in a media communication meeting that the “9.9 Event” is expected to last for three years, but it is not ruled out that it will end early.
I don’t know if it will end early.However, given the current market situation, the price war has to continue and franchisees will still have to face the reality of losing money.
Why is the coffee industry so tough? The core reason is that it’s too competitive.
The track structure is solidified, and industry giants are everywhere.It is certainly not an easy job for a franchisee. Although they are running a small business, they have influence on the overall pattern of the industry.
As the big brother, Starbucks is naturally unwilling to give up the market.On May 31 this year, topics such as “Starbucks is getting anxious” and “Starbucks is reducing prices in disguise” were trending on many social media platforms. Although the brand has not reduced the price, the actual price of a cup of Starbucks coffee has been reduced to around 20 yuan. According to some netizens on social media platforms, after placing orders online and adding various discounts, some people did buy Starbucks for 9.9 yuan.
You have to know that what Starbucks essentially sells is space and scenes. It has its own differentiated competitive strength. It does not belong to the same category as Cudi and others, so it was also involved.
As for Luckin Coffee, the core I summarized is: geographical location + loyal fan base + brand tone complete the closed loop.
As a pioneer in the industry, Luckin Coffee has seized the core geographical locations in various regions. Offline high-quality geographical locations are limited and scarce, which is like seizing the “traffic entrance”;
Luckin has accumulated a group of loyal coffee users over the years. Coffee is addictive, just like smokers who get used to a certain brand of cigarettes and always like the same taste.
The problem with Kudi is that users do not have a deep memory of the taste. Without a memory of the taste, the brand value cannot be increased, and naturally the repurchase rate will be difficult to increase further.
At the brand level, first there was the Maotai coffee, and then the recently popular Black Myth: Wukong co-branded coffee, a marketing event that went viral. Fast-moving consumer goods companies are essentially advertising companies and creative companies, which is the same status as quality and channels. If this succeeds, it will be stable at the consumer mind level.
If a latecomer wants to grab the market, that’s like starting a revolution, and a revolution is not like treating people to a meal. Think about the e-commerce field, JD.com and Taobao have a solid position, and Pinduoduo, as a latecomer, has fought its way out of the siege. It really can’t do without some skills, and the price is huge.
What about Kudi? It still has to rely on price wars and sacrifice profits to fight hand-to-hand. In the end, it is the franchisees that suffer. But can the franchisees survive the hardship? I am afraid it is hard to say.
At present, the coffee industry is an “infinite game”, but Kudi and Kudi’s associates have “limited bullets”. Tianyancha App shows that on January 8, Lu Zhengyao added a new person to be executed, with an execution target of 7.8178 million yuan, and the execution court is the Beijing No. 3 Intermediate People’s Court. At present, Lu Zhengyao is associated with 3 persons to be executed, and the total amount of execution exceeds 1.09 billion yuan.
The fact that so many franchisees are moving stores or closing stores is a vivid example.
In the era of weak recovery: Can franchisees still do business?
In fact, everyone knows that business is not good now, but if you go to find a job, there are not many good jobs, especially in second- and third-tier cities, so joining a milk tea shop, coffee shop, or restaurant has become the choice of many people.
I can only say that the matter of franchising is as complicated as the sea, especially in this era of consumption downgrade, franchise business should be more cautious. Because of my work as a self-media, I often pay attention to the new consumption track and have come into contact with many franchisees. Based on my understanding, I have compiled a simple guide for everyone to avoid pitfalls:
1 Join only Top1
I remember that I wrote about the offline snack track at the beginning of the year and communicated with snack practitioners.
This practitioner said categorically: now the competition is getting more and more fierce, it is difficult to become the first or even the second in the industry, unless the first and second merge. Can Kudi become the first in the industry in a short period of time? I am afraid not.
This friend gave his reasons:It doesn’t mean that the second person cannot join, but there must be a “redundancy rule” to give yourself room for error.The fierce competition in the industry actually proves that this business is feasible. Otherwise, there wouldn’t be so much competition and capital wouldn’t be invested, so the first one will definitely survive.
Moreover, under the Matthew effect, while the second, third and fourth ones are fighting each other, the competition for the first one is actually not that fierce. Just like the current automobile track, in the new energy vehicle market, BYD is the only one in the market. No matter how bad the market is, it will not affect BYD’s sales at all. This is because consumers are afraid that other manufacturers will go bankrupt, so they buy BYD. Moreover, BYD has a large number of shares, is cheap to repair, and has better value retention.
The same is true in the coffee industry.Lucky Coffee was also very popular in the past two years, but what about now?
According to data disclosed by the media: From 2021 to 2022, the number of new Lucky Coffee stores soared from 289 to 1,558. However, by 2023, Lucky Coffee had only 1,285 new stores, while the number of closed stores increased significantly during the same period, jumping from 14 in 2021 to 359 in 2023. In 2024, this situation has not eased. According to media reports, this year, Lucky Coffee’s number of closed stores exceeded the number of new stores opened for the first time. As of May 5, Lucky Coffee closed 330 stores, opened 250 new stores, and had 2,695 existing stores.
You know, Lucky Ka, as the son of the milk tea giant Mixue Ice City, couldn’t hold on. Lucky Ka couldn’t hold on, who’s next? Will it be Cudi?
It’s hard to say. But one thing is certain.According to Kudi’s current strategy, it cannot fight a “protracted war”. C-end consumer awareness is not advantageous, and brand stickiness is poor. Some of the users who repurchase at Luckin stores go there for the delicious taste. How many of the repurchase orders at Kudi’s stores are probably for the price? A considerable part of them are still attracted by the price.
Therefore, with the current market being so competitive, either don’t enter this fiercely competitive track, or choose the leader.
Although coffee seems to be an offline business, it is a physical business, but it is a typical Internet strategy. The Internet strategy emphasizes uniqueness and absolute concentration of the top players. Although there may be more than one company in the industry, as a joint operator, it is certain to choose the one with a larger market share and the greatest influence, so that at least there is a brand safe haven.
This may also be the biggest weakness of Kudi’s franchise expansion. The brand and channel strength are quite lacking, so the risk shared with franchisees and associated merchants will naturally be higher.
2 It is best to find a listed company.
The essence of many businesses is information asymmetry, especially the franchise business. The reason why many people are disgusted with franchising and call it “cutting leeks” is because of information asymmetry.
When joining, the brand side painted a rosy picture that could make people full of themselves, but once the money was paid, all kinds of tricks were used. The many posts on Xiaohongshu about the transfer of Kudi seem to illustrate these problems from the side.
The advantage of listed companies is that their data is open and transparent, and there is a strict audit mechanism. Listed companies are relatively more standardized, and of course fraud is not ruled out. For example, when Lu Zhengyao was in charge of Luckin Coffee, a financial scandal occurred. However, from a probability perspective, the probability of fraud in listed companies is definitely lower than that of non-listed companies.
In addition, it is actually a good thing for Luckin Coffee now, because it is more cautious and more compliant, which means the data is more accurate.
3 Choose the successful type, not the aggressive type
Although coffee is a small business, you need to assess the situation.
From this perspective, joining a new player in the industry like Kudi at this time may be a more radical strategy. When the external environment is good, choose aggressive companies because there are many opportunities and low risks. It is easy to get money and the desire for expansion is strong, which means more opportunities.
When the external environment is sluggish, choose successful and well-established companies because they have a stable foundation and backing; at the very least, the top 1 companies themselves are very stable and will not be seriously damaged in the face of competition.
In conclusion:Life is not easy, especially in the current environment. If you can work, don’t quit. If you can avoid starting a business, don’t do it. But if you want to start a business, put risk awareness first and leave yourself enough safety space.
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