Both Gu Ming and Mixue Bingcheng are exerting efforts in the coffee business. | Exclusive

Text | Yang Yafei

Editor | Qiao Qian

The battle in the budget coffee market is far from over.

36Kr Future Consumption has learned from a well-informed source that Gu Ming's coffee products have been launched in more than 2,000 of its stores. In September this year, this number was only 500. For Gu Ming, which has nearly 9,000 stores, coffee is not just a tentative attempt, but is to be made into the second curve of its products.

Coincidentally, the number of stores of Mixue Bingcheng's coffee brand, Lucky Coffee, is also growing rapidly: On November 4, it opened its 1,000th store in Henan, while just two days ago, this number was only 981. In Luoyang alone, 101 stores were opened by the end of last month.

This growth rate is a microcosm of Lucky Coffee's recent store expansion. According to ZhaiMen CanYan, in the six months up to September, Lucky Coffee opened 648 stores, with an average of more than 100 new stores per month. Up to now, the number of Lucky Coffee's national stores has exceeded 4,000, which is approximately 1/10 of the number of Mixue Bingcheng's stores. The latter currently has about 38,000 stores, including about 4,000 overseas stores.

Neither Gu Ming nor Mixue Bingcheng originally started with coffee; they both focused on the tea beverage business in the lower-tier markets. Gu Ming is in the 15-yuan price range, while Mixue Bingcheng has priced its products within 10 yuan. This pricing strategy is also extended to the coffee business.

Judging from the menus of the launched stores, the pricing of Gu Ming's coffee products ranges from 8 to 17 yuan, with the majority in the 11 - 15 yuan range. The coffee machine used by Gu Ming is from the same manufacturer as Ruixing, both being Swiss Schaerer. Lucky Coffee also continues Mixue's affordable price range, with product prices ranging from 5 to 10 yuan.

If in the main battlefield of the coffee war, Ruixing and Cotti are in a head-on confrontation with 9.9 yuan offers, then Gu Ming and Mixue have chosen their respective flanking battlefields, expanding respectively above and below 9.9 yuan.

Lucky Coffee's early expansion strategy was centered on Henan and expanded to the eight central provinces, but later it gradually evolved into a national expansion, spreading the entire business out. Now that Henan has exceeded 1,000 stores, it shows that they not only want the number of stores, but also at least want to continue to densify in their base camp. According to ZhaiMen CanYan, as of October 7, the number of Ruixing stores in Henan is still 698.

Compared to other provinces and cities, another distinctive feature of Henan is that it is a "large economic and populous province". According to Hua Jing Intelligence Network, it ranks 6th in the provincial and municipal GDP rankings in 2023, but its provincial and municipal per capita GDP ranks only 25th. Despite the relatively limited purchasing power, the consumption of budget coffee is not inferior.

However, Lucky Coffee has once tasted the bitterness of expansion. According to ZhaiMen Catering, they opened a total of 2,858 stores in 2022 and 2023, and the number of stores rapidly rose to 3,000, but at the end of last year, it was exposed that there was a store closure turmoil.

An informed source close to Lucky Coffee told 36Kr that one of the reasons for the setback last year was the sudden emergence of Cotti, which rapidly expanded with a low-price strategy of 1 yuan and 8.8 yuan, directly affecting the turnover of Lucky Coffee stores. Coupled with the large influx of entrants in the coffee track at that time, and the entry into the off-season of the industry in November, the end of last year was the most difficult time for Lucky Coffee.

This situation gradually picked up after the Spring Festival this year and gradually returned to the expansion rhythm. The aforementioned informed source disclosed that in the middle of this year, Lucky Coffee planned to expand the number of stores to 4,500 by the end of the year. And at the fourth-quarter mobilization meeting of the operation department held in October, this target number was updated to 5,000.

Unlike Mixue Bingcheng, which decided to enter the coffee market early, Gu Ming did not originally have a clear intention to do coffee. Its focus was more on store expansion and it shouted out the 10,000-store plan last year. However, this plan was soon shelved, and later the founder responded externally that "they will not overly pursue the number of 10,000 stores".

This year, the gradual rollout of coffee products shows that Gu Ming is more clearly no longer obsessed with pursuing scale, but instead chooses to increase the turnover of existing stores on the basis of not increasing additional rental costs. Heytea also holds a cautious attitude. In an internal letter to partners in September this year, they stated that they will not pursue the short-term speed and quantity of store openings and will control the densification of stores.

The coffee and tea beverage markets are no longer two separate markets. The crossover of products such as milk tea and latte, as well as the intense direct price competition, are issues that all beverage brands cannot avoid. Coupled with the change in the market environment, this also makes the results of store expansion and new product launches full of uncertainties.

But coffee has obviously become a certain business, and two 10,000-store brands have been born. Ruixing reached 20,000 stores in July this year, and Cotti announced the opening of 10,000 stores in October, and the leading pattern is gradually becoming clear. However, for coffee brands with a thousand-store scale, the gap has not yet been opened, and Lucky Coffee and Gu Ming still have opportunities.

A coffee industry entrepreneur told 36Kr that the first bottleneck in his entrepreneurship was when the coffee machines were deployed to 400 units. "It was stuck for nearly half a year, and everything from management, supply chain, to research and development could not keep up." But when the scale was rapidly updated to 1,000 units, it was found that the previous problems were no longer problems.

In his view, Gu Ming previously only sold coffee in 500 stores, which would bind their business operations and prevent them from making a large amount of advertising investment because they could not ultimately transfer the traffic to the stores and lacked bargaining power with the upstream.

Going big might be a wise choice.