Comments | Why is the Korean cafe that once expanded crazily collapsed?

Korean coffee brands partnered with Chinese investors in 2012 to enter China on the then popular Korean Wave and encroach on the Chinese coffee market in a frenzied expansion. Unfortunately, the target audience and position of Korean cafes are not in line with the situation in China, and they overestimate the domestic coffee demand, and the product and service system is not standardized as a result of joining the company. In addition, Starbucks, which is more deeply rooted in the hearts of the people in the same period, competed together, so Korean coffee brands failed.

This article was first published in the Curiosity Daily, by Park Chunlan

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When a typical investor is eager to enter the Chinese market, what factors will mess things up?

A large-scale cafe expansion is in the pipeline.

Seesaw announced last month that it had received 45 million yuan of A-round investment from Baifu Holdings of Hony Capital. The founder of another Shanghai boutique coffee brand, Yingji Coffee, said in a recent interview that it was preparing a 30 million yuan round of Pre-A financing. As for GREYBOX, which entered the Beijing International Trade Kerry Center at the end of last year, the parent company behind it is roseonly, which has completed 190 million yuan of C round financing.

This kind of popularity also appeared five years ago, but the protagonist is not these boutique coffee brands with the halo of "consumption upgrading", but cafes with Korean background.

"by 2015, there will be 5000 chain stores in China, and then they will be listed in Hong Kong."

"by 2015, there will be 1500 chain stores in China, and then they will be listed in Hong Kong."

"by 2015, there will be 1000 chain stores in China."

By 2015, it will become a world-famous coffee chain brand.

This is the process of Korean coffee brand "Coffee with you" from high-profile promotion to gradual decline in 2012.

It is also close to Hollis, Man Coffee, Zoo Coffee, MangoSix, Tushan Coffee and so on. Almost all of them entered China around 2012 and worked with Chinese investors to try to encroach on the Chinese coffee market in a frenzied expansion. These most representative Korean coffee shops have opened more than eight hundred stores in China in the 2014 or 15 years of the fastest expansion.

In China's attractive market, coffee consumption is indeed growing. Coffee consumption in China is growing at a rate of 15% a year, compared with a global average of 2%, according to the London International Coffee Organization. Starbucks, the most successful company in the market, has also accelerated its expansion at the rate of opening a new store every day over the past year or two and has sunk to more and more second-and third-tier cities.

There is also an increase in female consumers in first-tier cities. In the consumption of ground coffee, business consumption is the mainstream, and Starbucks, which accounts for about 40% of the market share, is mainly aimed at business groups. A huge advantage of Korean cafes was that Korean TV dramas were in vogue at that time.

In 2012, a "King of the House" won the popularity of Hollis Coffee, and then Hollis Coffee entered China in a high profile; then "you from the Stars" became a hit, and the coffee accompanied you to recruit Kim Soo-Hyun.

Five years later, Hollis is now being collected by the supplier, and Zoo Coffee has been completely taken over by Chinese investors, busy with "de-Hanization". The most radical coffee has gone missing with your headquarters. the headquarters of the Kaitai Building on the East fourth Ring Road in Beijing has been empty. there are links to branches such as the United States, Japan, the Philippines, Mongolia and Cambodia, but can not find any information about Chinese companies.

However, the franchisee is still in business, but that grand plan must be gone.

For China's ambitious new round of boutique coffee, the lessons of Korean cafes are noteworthy. This is a typical case of what factors can mess things up when investors are eager to break into the Chinese market.

Korean cafes want to attract new consumers, but they do not create new consumer demand.

If you have ever visited a Korean cafe, you will find that it is a completely different space from Starbucks. They are often very large, hundreds of square meters or even thousands of square meters, and most of the furniture is cloth sofas, and there may be floor-to-ceiling windows and lovely plush toys placed everywhere, creating a more casual and warm atmosphere.

So the target consumers of Korean cafes are couples, friends or families who meet and chat, and they want to use a larger and more comfortable space for consumers to stay in the store for as long as possible. Xin Zixiang, the founder of Man Coffee, once said that he believes that these consumers who stay in the store will certainly "call friends" and bring more consumers.

This is exactly the opposite of the strategy adopted by Starbucks, which focuses on the business customer base. Starbucks has a small store and few seats, and they encourage customers to take out rather than sit in the store. Korean cafes hope that people will stay longer and consume more products. So in addition to coffee, tea, cakes, sandwiches and other common categories in coffee shops, Korean coffee shops also have sweeter drinks such as fruit shakes, ice cream, muffins and waffles, as well as bread pastries baked on the spot, with an average of 76 products. the average number of commercial coffee shop brands is only 41.

They are more likely to attract female consumers. In fact, the beautiful food and sweet style design made the Korean cafe once a mecca for girls to take selfies. But that was when South Korean TV dramas were popular, and even now, some of your coffee stores still have portraits of Kim Soo-Hyun, who is clearly out of date in the eyes of Chinese consumers. As more Korean cafes carry Korean fashion and trend symbols, without the stimulation of continuous popular Korean dramas, there is no basis for a sense of existence.

Those young women who were initially attracted to the past are more of a kind of fresh consumption, and they are not typical coffee consumers in the first place. And China's main coffee consumers, that is, white-collar workers, are basically trained by Starbucks. It is also difficult for these people to be attracted to Korean cafes.

Their success in South Korea's home market has more to do with culture. In the 1930s, Korean "teahouse culture" prevailed, and such a teahouse could be found in almost every alley. Although it is called a teahouse, it mainly sells coffee and has become a leisure space for people to get together in the 1960s. In the 1980s, this old-fashioned teahouse injected some modern elements and appeared in universities, urban areas and residential areas. At this time, the teahouse already had a new name-"Coffee Shop", and it was no longer just selling coffee. The products became more and more abundant, such as black tea, shaved ice, plum tea and so on.

It is against this background that Hollis opened its first store in South Korea in 1998 and became the earliest chain brand. Although Starbucks entered South Korea as early as 1999, the coffee consumption market in South Korea was more mature at that time, and they also had a relatively stable customer base.

Although China's coffee consumption market has been growing rapidly, instant coffee still dominates, with bottles accounting for nearly 28%, while Starbucks, Costa, Pacific Coffee and Korean cafes, including the emerging boutique coffee, are competing for only 2% of the freshly ground coffee market, according to Euromonitor. In the freshly ground coffee market, the core consumer group is still white-collar workers.

Not only can not compete for the original coffee consumers, but also failed to retain new consumers, generally speaking, Korean cafes failed to create a new consumer demand, the final result may be "why go to a coffee shop to eat dessert" embarrassment.

The Great Leap forward expansion overestimated market demand.

At its peak, Coffee with you had more than 600 stores in China, expanding crazily under the banner of "catching up with Starbucks", setting a record of 200 stores a year. It once wrote on its website: "Coffee with you has a clear plan for the future. By the end of 2014, Coffee will try to open 1000 stores in China and will maintain this trend of rapid development in the future." The state at that time is that no matter where you are in China, whether it is a first-tier city or a third-and fourth-tier town, as long as you want to drink coffee, there will be a coffee house waiting for you. "

Now, in retrospect, it seems a little ridiculous. From a more rational point of view, coffee with you overestimates the market demand. Even in South Korea, which consumes an average of 140 cups per person per year in big cities (far more than China's current 20 cups), only more than 700 coffees have been opened with you in the more than nine years since its establishment.

More comparable is Starbucks. In the 10 years since it entered China in 1999, it has maintained the pace of opening only 30-50 new stores a year. The expansion of the Chinese market began to accelerate in 2012, the year Korean cafes entered the Chinese market, but that year Starbucks opened 204 new ones. By comparison, coffee does "catch up" with Starbucks in terms of your expansion speed. This is quite aggressive for a new brand that does not have any accumulation.

Korean cafes have not ignored second-and third-tier cities that are considered to have great potential, but demand in these low-tier cities is also overestimated. Since 2011, Starbucks has only begun to open more stores in second-tier cities than in first-tier cities, but it mainly focuses on more mature markets around Jiangsu, Zhejiang and Shanghai, such as more than 300 Starbucks stores in Suzhou, Ningbo and other second-tier cities. It was not until 2015 that Starbucks began to infiltrate some third-and fourth-tier cities, accounting for 5 and 18 of the 23 "new members" in 2015, respectively.

As Starbucks' second largest market in the world, if there is more space, Starbucks will not be "conservative" in this market. It is not that Starbucks takes all winners, but that as the most successful coffee brand in the Chinese market, its expansion strategy reflects the current market situation to a large extent.

There is no problem with the franchise system, but the lack of a standardized product and service system is a big problem.

In order to achieve rapid expansion, coffee accompanies you to join the mode of single store from the very beginning. If the franchisee pays the full franchise fee at one time, he can directly own all the operation and management rights of the store. Take a 200m2 storefront in Beijing as an example, the franchise fee is about 3 million yuan, plus store decoration, equipment, etc., the total investment in the early stage is about 3 million-5 million yuan.

According to the "Research report on the Development trend of Korean Coffee Shop in China" released by RET Ruide in 2014, Korean coffee brands are mostly based on joining or co-operation as their main expansion model, of which 10% of coffee accompanies you and only 4% of Zoo coffee operates directly.

Starbucks previously implemented a regional franchise system in China, choosing Meida Starbucks, Unified Starbucks and Meixin Starbucks in Beijing, Shanghai and Guangzhou respectively, authorizing them to develop the local market. But then gradually withdrew the franchise of the franchisor. In 2003, Starbucks headquarters increased its stake in Shanghai Unified Starbucks to 50%, and its stake in Maxim Starbucks also increased to 51%. In 2006, it acquired 90% of Beijing Meida, which means full direct operation.

Costa and Pacific Coffee are also cautious in terms of expansion. Pacific Coffee uses a single city exclusive agent, and the requirement for urban agents is 10-15 stores per city. On the other hand, Costa adopts the expansion mode of regional agency by "bundling" large enterprises, and cooperates with Yueda Group and Hualian Group in the southern and northern markets respectively. Although it raises the entry threshold of the cooperative object, it gives the greatest protection to the brand image.

In fact, the franchise system is a common means to achieve rapid and large-scale expansion. McDonald's is the most adept at using this model in the catering industry, which accounts for 90% of its franchise in the domestic market in the United States. But the key is that it has a standardized product and service process system, and even so, McDonald's has been operating directly for quite a long time in China.

Korean cafes do not have a standardized system. When we visit the coffee shops that accompany you this time, we will find that the menu of each shop is a little different. Some stores sell Pizza, and some also have Fried Spareribs. This situation happened long before coffee accompanied you in China "lost contact". Coffee accompanies you for the lax management of joining stores, and many stores also act alone in terms of promotion, group buying and so on. In the later stage, most of the coffee franchisees with you are basically in a state of "self-control". Even the key links such as the purchase of coffee beans and food processing are taken care of by the stores themselves, and some stores have even sold food such as covered rice. Of course, the taste of coffee can not be guaranteed. "one hundred Coffee accompanies you with one hundred flavors" is a common evaluation of consumers. Many people in the industry attribute the rapid decline of Korean cafes to their joining model.

The mode of big store increases the difficulty of site selection, and the lack of sufficient passenger flow forms a vicious circle.

After China's commercial real estate began to accelerate in 2007, Starbucks and Costa, which follow commercial real estate, have more room for development. As a latecomer, Korean coffee is difficult to grab any good resources, coupled with the big store model, it is even more difficult.

However, shopping malls and office buildings in first-tier cities are not ideal sites for Korean cafes because they are too expensive. Pacific Coffee CEO Lanyi has said that from the average level of the industry, the coffee shop with an area of 150m2 is the best. For Korean cafes, which are often hundreds of square meters, the rental cost of commercial centers is too high, and they are mainly concentrated in residential areas, universities and parks. As a result, up to 69% of Korean cafes in first-tier cities are located in the suburbs. Second-and third-tier cities are more likely to settle in urban areas, accounting for 87% of the total urban location.

Coffee accompany you once called on the franchisee on the official website: "A prime location, the rent is frighteningly high, in fact, as long as it is managed properly, B and C lots can also make money." Why do you have to cling to a big tree? Entrepreneurs must put every penny on the cutting edge. Renting a store on the road costs tens of thousands of yuan a month, but if it is in a street only more than ten meters from the road, customers will not mind taking a few more steps, and the rent may be much lower. "

The coffee on Shanghai Hongquan Road is with you in a residential area. The shop has a total of two floors, which is spacious and does not face the street. Business in this coffee shop has always been good, and guests continue to come on weekday afternoons, and the waiter says there are sometimes no seats on weekends. But this is largely due to the special location of Hongquan Road.

Hongquan Road, where Korean restaurants and saunas are clustered together, is known as Korean Street, and many Koreans live here. "you from the Stars" is the place where people rush to "pull the grass" when it is hot, but now the street is not as hot as it used to be. Most of the guests in this store are Koreans, and although the coffee headquarters with you is now out of touch with the Chinese market, Koreans who live here are still willing to patronize this coffee shop.

Generally speaking, the location of coffee accompany you seems to be relatively casual, for those wholly-owned stores, coffee accompany you will not even be involved in the location process. Starbucks, by contrast, has a comprehensive system of site considerations, which measures average local education, average family size, average income, the number of cars passed within an one-to-eight-mile range, the proportion of people during the day and night, security information, business composition and many other data.

Patrick O'Hangen, the global market planning manager, also revealed at the Esri user conference held in San Diego that Starbucks now uses an internal mapping and business intelligence platform called Atlas to decide where to open new stores and comprehensively analyze the population, flow of people, competition, transportation, business and other information around the business circle.

In the large shop model of Korean cafes, it is difficult to find a suitable property itself, but there is not enough passenger flow, which leads to a vicious circle.

In the end, the Korean cafe was like a gust of wind, leaving a mess. Coffee accompanies you, Zoo Coffee, Hollis have frequently run away from franchisees, and there are also franchisees who have been "cheated" by the company. Among the "people who break their promises" on the website of the Supreme people's Court of China, there are 28 records related to coffee accompanying you in China, among which the performance of the person subject to execution is "all unfulfilled".

Some people think that the expansion of Korean cafes is just a means of "circling money". There is even a saying that coffee accompanying you in China is not really trying to do business, but to go public. There is also a saying that the money that coffee accompanies you in China has been sent to South Korea headquarters. However, the development of coffee company in South Korea is not satisfactory. According to the data of Korea Fair Trade Commission, the closing rate of coffee company reached 14.6%(140) in 2015, which is the first in the industry.

Conflicts with partners also persist. As early as the end of 2014, there were rumors of infighting between Chinese and Korean high-level officials. Zoo Coffee was also fully taken over by China, and an unnamed insider confirmed this to Curiosity Daily. Zoo Coffee is actively promoting "de-Koreanization."

Korean coffee shops in China is not completely wiped out, slightly heavy diffuse coffee performance is OK. It has no stores in South Korea. It is a Korean brand established by Korean Xin Zixiang in China. Man Coffee is cautious in the choice of partners and stores, generally requiring each other to have at least 10 stores. The management mode of "direct sales + cooperative operation" ensures the quality of store management to a certain extent. Xin Zixiang has also issued a "10 years to open 3000 stores" rhetoric, and said it will expand at the rate of 100 stores per year. However, with the collective decline of Korean coffee in the market trend, the development of diffuse coffee has also changed from "seeking fast" to "seeking stability".

A new round of boutique coffee brands with a halo of "consumption upgrade" will say that they are completely different from those Korean coffees, and practitioners will always offer this set of data to cheer themselves up: Beijing, Shanghai, Guangzhou and other first-tier cities consume an average of 20 cups per person per year, Japan 200 cups, South Korea 140 cups. Moreover, China's freshly ground coffee market has grown rapidly in recent years, averaging more than 20%.

According to the "China Catering Report (White Paper 2017)" released by Meituan Review, 14807 Chinese cafes closed in 2016, and 90% of the closures occurred in the second half of the year. In terms of quantity, Shanghai is the city with the largest number of cafes in China, accounting for 16.4% of the total number of coffee shops in China. Shanghai fell 6 per cent last year and Beijing fell 20 per cent.

According to the report,"the opening speed of personalized cafes has exceeded the growth rate of customers, the price of fine coffee is high, the popularization threshold is high, and the coffee customer base is small... Now most of the people entering the market are individual entrepreneurs, and there is a common lack of basic business skills in store management, talent cultivation, standard construction and other aspects." New entrants need to be wary that there may be more problems with revenue and expansion.

The iapm mall on shanghai's huaihai middle road looks like a microcosm of china's coffee market. Starbucks has opened three stores here, holding cinemas, subway stations and office buildings respectively;Costa is located on the second floor of the basement, opposite Starbucks, boutique coffee Seesaw is located on the third floor opposite the elevator, also located in the access to the office building, Mayday Axin opened stayreal cafe next to Costa.

Starbucks plans to nearly double the number of stores in mainland China to 5000 by 2021. How much opportunity does it leave for Seesaw, which is brewing?

On the basis of upgrading and diversification of coffee consumption, Starbucks may not win all, Costa has become weak, convenience stores have joined the competition, and McCoffee relies on McDonald's stores. What will happen to China's market in the future?