Even a large number of coffee shops closed: is it a wishful thinking to retreat into progress?

Professional coffee knowledge exchange More coffee bean information Please pay attention to coffee workshop (Weixin Official Accounts cafe_style)

Early spring in March, warm and cold. Even the news that 30% of coffee stores across the country were closed hit a particularly sensitive chord in the market.

In fact, coffee, an exotic product, was introduced into Taiwan by French missionaries in the early 20th century. In the process of gradual acceptance by the Chinese people, it also contains huge business opportunities. Last year, the industry experienced a capital boom. This year's Internet coffee trend is also particularly interesting, and as the forerunner of coffee delivery, even coffee this time is forced to adjust or active behavior?

I. Downward cycle, heavy quality rather than heavy potential

As the saying goes: bull market to see potential, bear market heavy quality. It is said that in a bull market, the criteria for stock selection are to see the company's future growth trend and whether there is new growth momentum, while in a bear market, the criteria become whether the performance is solid and whether the margin of safety is high enough.

Similarly, there is a similar truth in business operations. In the upward cycle, the focus is on business expansion, while in the downward cycle, it shifts to improving operational efficiency and focusing on profitability. The same is true for Internet projects. Compared with burning money for market share a few years ago, what we value more now is the ability of fine operation and continuous hematopoiesis.

In the cold winter of capital, enterprises actively adjust their business strategies, reduce costs and increase efficiency, and benefit early.

"2019 may be the worst year in a decade, but it may be the best year in the next decade." Wang Xing's teasing became a prophecy. According to the online disclosure at the end of last year, the organizational structure of Meituan's ordering technology line has been greatly adjusted, personnel and organization have been removed, the strategic position of wine travel business has been weakened, and "basic skills" have been practiced hard. Not only Meituan, BAT, Jingdong, Didi and other well-known Internet companies have actively made adjustments.

Compared with active adjustment, delayed response players face missed opportunities, capital chain break risk, ofo undoubtedly learned a painful lesson. It began to expand aggressively overseas since 2016, but after November 2018, the painting style suddenly changed, founder Dai Wei even issued an internal letter saying that the company was under great pressure to "break 1 yuan into 3 yuan." The reason for the huge cash flow pressure from no shortage of money to the top lies in that radical expansion did not form self-hematopoietic ability in time, failed to adjust strategy in time at the peak of valuation, missed the opportunity repeatedly, resulting in today's passive situation.

A lesson from the past is a teacher for the future. When the market is cold, even coffee actively adjusts stores, it is a good way to reduce costs and increase efficiency.

According to public sources, the latest financing of Lian Coffee took place in March 2018, totaling 158 million yuan. Before the new round of financing is clear, the rapid expansion to 400 stores for one year inevitably makes the cash on the company's account tight, affecting the pace of expansion. This store initiative adjustment, it can be seen that the company pays more attention to cash flow, makes good use of grain reserves for winter, and establishes positive cash flow urgently.

In addition, the closure of the store has limited impact on its services. The reason is that the offline coffee room carries the function of pre-warehouse, does not provide dining service and does not undertake the function of getting guests, and the service scope is the key point to consider, not the number of outlets. According to insiders, although Lian Coffee closed 30%, but the service scope only lost 5%, mainly concentrated in the same business circle overlapping stores and some suburban stores, urban areas and crowded core areas will not be affected by the closure of stores, nor will it have a negative impact on passenger flow. With fewer stores serving the same number of people, it can be seen that this adjustment will optimize the back-end performance model and realize cost reduction and efficiency increase.

II. Digital operation, cost reduction and efficiency enhancement

There is an interesting natural phenomenon in Israel. The Lake Galilee on the upper Jordan River is rich and beautiful, while the Dead Sea on the lower Jordan River is as dead and lifeless as its name suggests. The scenery at both ends of the same river basin is completely opposite, and the reason is that the water of Galilee has an inflow and outflow, while the water of the Dead Sea only has an inflow and no outflow. The same principle applies to business.

From the perspective of traditional restaurant chain industry, closing stores is a normal management measure to maintain benign development.

According to the data of "Interpretation of Risk and Market Opportunity of New Catering Store Opening in 2018," the monthly closing rate of Chinese catering in 2017 is 5.09%, the monthly opening rate is 4.42%, and the closing rate is higher than the opening rate. It can be seen that closing restaurants in the catering industry is a very common thing.

In addition, traditional catering does not have the ability to digitize, so it is difficult to accurately and quickly grasp the consumption information and business status, and realize reasonable store location and adjustment, resulting in a higher closing rate than the chain catering operated by Internet. In contrast, even coffee expanded at a rate of 400% last year and adjusted 30% offline online stores this year, which is still higher than the industry's 57.6% annual new store survival rate.

The reason why even coffee stores can maintain a high survival rate lies in their core competitiveness of digital operation, that is, based on the matching data of supply and demand, actively adjust the offline outlet layout in the dynamic balance of opening and closing stores to improve the operation efficiency.

Store dynamic adjustment is common in traditional restaurant chain industry. For example, in 2015, McDonald's experienced its largest wave of closures, reaching 700 stores worldwide. Among them, in the Chinese market, although 80 stores were closed, by the end of the year, the total number of stores had increased by 200. Therefore, it is a bit unwise to evaluate the development of a company only from the perspective of closing stores.

Internet genes are born with coffee, which is more intuitive and accurate in store dynamics. It has been deeply cultivating coffee delivery for many years and gradually building online and offline integrated operation capability. Now, relying on consumption order data, it will reasonably close inefficient outlets and continue to open new stores in areas in short supply, which will realize the optimal solution of cost income. According to media data, from 2019, it will open 50-60 image stores in East China to further enhance brand exposure. The rhythm of opening and closing stores also means that this is the normal state of digital operation of coffee.

III. Clean lead and return to commercial essence

No matter how far you go, you can't forget your first heart, just as the movie "No Questions West East" says: Love what you love, do what you do, listen to your heart, don't ask West East. Business, too, needs to return to business nature in the down cycle.

At first, Lian Coffee took Weixin Official Accounts as the entrance, provided delivery services for Starbucks, Costa and other coffee, entered the coffee market, and accumulated initial seed users. This strong online operation capability enables it to achieve low-cost customer acquisition and stimulate user activity through Mini programs matrix and user fission.

In terms of customer acquisition, even coffee is second to none in social fission based on WeChat ecosystem. At the beginning of the launch of Liancoffee Mini programs, it can buy a cup of hot latte at a low price of 5 yuan through 3 people. Without external promotion, nearly 100,000 people successfully completed the group after only 3 hours on line. On the first day of launch, it attracted nearly 200,000 consumer users for public accounts. In addition, through the way of "blessing bag","coffee library" and giving friends coffee coupons, it can complete the acquisition of customers at low cost in interpersonal word-of-mouth fission, which promotes users to re-purchase.

In addition, even coffee in-depth insight into user psychology, brain-opening planning to provide users with a gamification experience. It found that many young people have a dream of a cafe, but the cost of opening a cafe offline is too high, so in August last year, pocket cafes were launched to allow these people to open cafes online. According to official data, on the first day of Pocket Cafe launch, the PV of Mini programs exceeded 4.2 million, and more than 520,000 online cafes were opened. The launch of this function completes the in-depth operation of traffic and effectively improves user activity.

In addition, Hao Ge noticed that even coffee in the store closed at the same time also adopted a price-raising strategy, behind which actually implied two strategic considerations: one can screen out high-quality users, avoid wool collection behavior; second, can also generate enough gross profit to support back-end performance, and then provide better service, forming a benign operation.

Even the coffee's service number description has such a paragraph: "Where you are, coffee is there." Even coffee is your mobile cafe, it's a whole new way of life." This "new lifestyle" is not only convenient, but also needs to have quality to meet the user's requirements for coffee texture. For this reason, it began product iteration in the second half of last year, focusing on improving coffee quality. It would have entered the intensive product release and brand activity rhythm again in the peak season in March, moving towards the boutique road.

As the so-called "one cent, one share of goods," taking the road of fine products means paying a higher price on product input, and the cost of performance will naturally be higher. Price increase naturally becomes an inevitable choice for hedging costs. On the basis of higher gross profit, even coffee can invest more money in product iteration to form benign operation. At the same time, unlike the initial investment of a large amount of subsidies to encourage users to group and re-purchase, it also needs to select users willing to pay for high-quality service and quality through price increase among existing users, so as to realize benign interaction at both ends of the business chain.

From a series of active adjustments of Liancoffee, it is returning to commercial essence, paying more attention to self-hematopoietic ability, forming a positive development cycle.

Founded in 2008, Coffee Companion quickly became South Korea's largest coffee chain brand in a franchise mode, and entered the Chinese market in 2012, claiming to open 5000 stores in China, when Starbucks had fewer than 3000 stores in China. However, the mode of joining cooperation (semi-joining and semi-self-supporting) determines that the larger the number of coffee accompanying stores, the greater the capital consumption. What is more terrible is that rapid expansion not only does not bring profits, but exhausts cash flow and pushes the enterprise into the abyss. After a series of negatives, in July 2018, the founder of Coffee Companion was overwhelmed and committed suicide, and then the joint venture company in China declared bankruptcy.

The essence of business is to make money rather than burn money, and liquidity risk is the primary risk faced by enterprises when expanding rapidly. Coffee accompanies you with one heart and one mind, which brings great pressure to the capital chain, and the supplier's radical withdrawal has become the last straw to overwhelm the camel. In contrast, Lian Coffee now actively closes inefficient stores, strengthens cash flow management, and constantly improves basic skills such as quality and service in the dynamic balance of supply and demand, preventing crises in advance, just like wearing a cold coat in winter. Even coffee's return to profitability is worth looking forward to under the official announcement of returning to commercial nature and a series of rapid business adjustments.

IV. Conclusion

Warren Buffett said: "Only when the tide recedes, we know who is swimming naked." However, the tide receded faster than expected. Only by taking precautions and taking the initiative to prepare in advance would he not be driven away by the tide.

Even coffee "closed shop storm" in fact tells us that entrepreneurship is not faster than who goes, but who can go further.

Authors: Qian Hao, Fu Xuan

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