Cotti Coffee's Chief Strategy Officer Li Yingbo: Consuming 15 cups per year is just the beginning. There is room for millions of stores in the future. | WISE2024 King of Business

The environment is constantly changing, and the times are always evolving. The "Business Kings" follow the trend of the times, insist on creation, and seek new driving forces. Based on the current major transformation of the Chinese economy, the WISE2024 Business Kings Conference aims to discover the truly resilient "Business Kings" and explore the "right things" in the Chinese business wave.

From November 28 to 29, the two-day 36Kr WISE2024 Business Kings Conference was grandly held in Beijing. As an all-star event in the Chinese business field, the WISE Conference is now in its twelfth year, witnessing the resilience and potential of Chinese business in an ever-changing era.

2024 is a year that is somewhat ambiguous and has more changes than stability. Compared with the past ten years, people's pace is slowing down, and development is more rational. 2024 is also a year to seek new economic momentum, and the new industrial changes have put forward higher requirements for the adaptability of each subject. This year's WISE Conference takes Hard But Right Thing as the theme. In 2024, what is the right thing has become a topic we want to discuss more.

In the main venue on the morning of the 29th, Li Yingbo, the Chief Strategy Officer of Cotti Coffee, delivered a wonderful speech with the theme of "Making Good Coffee Accessible". Li Yingbo said that the mission of Cotti Coffee since its inception is to allow global consumers to easily enjoy coffee life. The core is still a cup of high-quality coffee, but when coffee becomes a necessity, two other conditions must be met: affordability and accessibility.

Li Yingbo, Chief Strategy Officer of Cotti Coffee

Li Yingbo said that the best coffee must be the best brand experience, the best product quality, and the best cost efficiency. This requires starting from the supply chain end, inputting more efficient Made in China into the global market, and reshaping the global coffee supply chain and technical system.

As of October 20 this year, Cotti Coffee has opened 10,000 stores in two years, covering 28 countries and regions around the world, and is the fourth-largest coffee chain brand in the world. However, in Li Yingbo's view, the Chinese coffee market is just starting.

Li Yingbo said that after the growth of the Chinese coffee market in the past seven years, the per capita annual coffee consumption has increased from 6 cups to the current 15 cups, but it is now 200 cups in Hong Kong and 400 - 600 cups per capita in Europe and the United States. In the future, the mainland Chinese market will definitely reach the level of 100 cups and 200 cups, and the corresponding number of stores supported must be in the millions. However, the total number of stores of the top ten coffee brands in China has not exceeded 50,000.

Li Yingbo said that in order to continuously promote the growth of the coffee market, Cotti Coffee is doing two things, the "Double Reduction" drive in the C-end and B-end. Among them, the C-end corresponds to lowering the consumption threshold, cultivating the market with the 9.9 yuan coffee strategy, and this will last for at least 3 years.

In terms of the B-end, it includes two dimensions. One is to reduce costs and build the supply chain. Only in this way "can we have the confidence to put up the sign of 9.9". It is worth mentioning that before the opening of the first store two years ago, Cotti began to plan the supply chain in order to "build the best cost efficiency from the beginning."

At present, Cotti has built a global supply chain base in Anhui, with a total construction area of more than 360,000 square meters, using fully automatic production equipment, which can meet the supply needs of all stores at home and abroad. It includes the largest coffee roasting factory in the country, with an annual output of 45,000 tons of coffee beans. Syrup, coconut milk, cups, cup lids, straws, and packaging bags are also produced by ourselves.

Cotti is also working hard to lower the threshold for opening stores. On the basis of the quick pick-up store and the standard store, it has launched a convenience store mainly in the store-in-store format, and in October, it formed a strategic alliance with 51 chain brands. In addition, Cotti has also adopted the equipment leasing method to further reduce the risks and investment thresholds for franchisees.

From the operational level, the 9.9 coffee also has a good operating efficiency. According to Li Yingbo, in the past 5 months, the proportion of positive cash flow in each month of Cotti's 10,000 stores is more than 95%, and the cumulative store closure rate since the opening in 2022 is 3.6%.

Li Yingbo said that this phased achievement is achieved by the efficiency of the supply chain cost to support the 9.9 price strategy, giving consumers the best cost performance and also giving partners the best cost efficiency.

The following is the verbatim record of the speech:

Li Yingbo: Good afternoon, dear guests!

I am very happy to have this opportunity to share with you through today's theme what we are going to do in the coffee industry, the "difficult but right thing". My theme today is actually the vision of the company, making good coffee accessible. First of all, let me introduce Cotti Coffee. Cotti Coffee is a very young brand. We opened our first store in Fuzhou on October 22, 2022. This year is the second year of our brand. So far, the company has carried out business in 28 countries and regions around the world and has more than 10,000 stores worldwide. In the coffee chain industry, we are the fourth largest in the world.

Opening 10,000 stores in the past two years is also a breakthrough in the entire industry. Here, I would also like to share with you how we achieved this and what we want to do in the future. As you may all know, Cotti Coffee is actually the second coffee brand founded by our team. Seven years ago, we founded another coffee brand. So when we entered the coffee track for the second time, in fact, we have a new understanding of the coffee business. On the company vision and mission of Cotti Coffee, we have made a very profound review and a new construction.

First of all, the part of our mission, because as we all know, coffee is a global business, so our mission from the beginning is to face the global market. What we hope to give to consumers is "to easily enjoy coffee life".

But how is it defined to easily enjoy coffee life? Because for each brand, coffee life has its own interpretation, it may be high-quality coffee, it may be a better coffee-making process, or it may be a coffee living space.

What exactly does it mean to easily enjoy coffee life in the view of Cotti Coffee? Our definition of it, the core is still a good cup of coffee, a high-quality coffee, but we don't think it's enough. When coffee becomes a necessity for people, two conditions must be met: affordability and accessibility. Only when we provide consumers with good coffee that they can afford and access, can the coffee life be truly established.

What ability is required behind this? We need to build extreme product power, cost efficiency, convenience, and dense network points within the entire enterprise. In the Chinese market, we believe that coffee has just started, so another very important task for us in the Chinese market is how to popularize coffee market education in China. This is the mission we want to complete. In order to complete this mission, what kind of company does our company need to become, that is, our vision. In Cotti Coffee, our vision is to become a global leading coffee supplier and technical solution provider.

What exactly is a good coffee? We believe that the best coffee must have the best brand experience, the best product quality, and the best cost efficiency. Only when these three are integrated can it be truly called the best cup of coffee, and these three capabilities are the product capabilities that our enterprise needs to provide to the society.

Therefore, when we were doing the second coffee brand, Cotti Coffee, it turned into reshaping the global coffee supply chain and technical system. The most solid foundation here is that we need to input more efficient Made in China into the global market to change the coffee pattern of the global market. This is our vision.

After clarifying our mission and vision, let's answer the third question, what kind of business are we doing? This question is obvious, isn't it the coffee business? But when we were established, we have always defined our products as the business of water and beverages. So coffee is the most important traffic driver, but not all. What we are looking at is all product lines including beverages, desserts, and meal replacements with coffee as the core.

You can see that in our coffee shop, in addition to the classic Americanos and lattes, innovative ones like Coconut Milk Latte, etc., there are also milk teas, snacks, and light meals, which constitute our product ecosystem. Based on such a product setting origin, is the coffee market competitive? When we step into this industry, we need to think about a question. Is the coffee track a white-hot track now? When we made coffee for the first time, the per capita annual coffee consumption was 6 cups at that time, of which 4 cups were instant coffee and 2 cups were freshly ground coffee. Today, it has reached 15 cups, 6 cups are instant coffee, and 9 cups are freshly ground coffee. Coffee itself is a global business format. So let's take a look at the situation of the mature coffee market. The annual per capita consumption in Europe and the United States is 400 - 600 cups. It is more than 300 cups in Japan and South Korea, and between 200 - 300 cups in Taiwan and Hong Kong. The 15 cups in the Chinese mainland is just in the initial state, and the market is far from being opened.

Speaking of the water and beverage business, the human body needs 9 cups of 300 milliliters of water every day. We are all young people. You can take a look at the consumption trend in our own perception. Now when young people have a water demand, they like to use beverages instead, whether it is coffee, milk tea, functional beverages, etc. Therefore, the entire market demand, whether it is the 15 cups of annual per capita coffee consumption to the 9 × 300 milliliters of drinking water demand that the body needs every day, represents our point of view. This market is not without demand, and the demand is very huge.

What are the obstacles we encounter? Our point of view is that this market has not really formed a real supply. Why after 7 years of cultivation, it has grown to 15 cups, but we still think that this market is completely not opened? Because the coffee products currently provided in the market do not really meet the needs of people as daily necessities.

How can this demand be activated? First of all, there must be a brand experience, and the quality and price of the product are also very important. How to use the price to attract Chinese people who do not drink coffee to try the first cup of coffee and the second cup of coffee, so as to gradually get used to the drink of coffee. Behind this is the cost efficiency, and very importantly, the convenience. Usually, we rarely go a long way to buy a cup of coffee. If there is a coffee shop downstairs in the office building, I will not go to the coffee shop across the street to buy it. This convenience difference is the biggest difference between coffee and other beverage industries.

The purchasing psychology of customers, within 250 meters within reach, is a very hard condition for coffee to become a daily necessity. This is from the perspective of market demand. Everyone says that there seem to be many coffee shops now. The top brands have 20,000, 10,000, and 7,000 stores. It sounds like a very large number. But how many coffee shops can the Chinese market accommodate? Let's take a look from the supply side. At present, Cotti Coffee has two store types, one is the convenience store, which is more in the form of a store-in-store, and the other is the regular store. From the perspective of the best customer experience, the convenience store provides between 120 - 150 cups per day, and the regular store is between 300 - 450 cups. The average is about 250 cups. If the current annual per capita consumption is 10 cups, the average daily consumption is 38.5 million cups. According to the 250 cups per store with the best customer experience, 160,000 stores can be accommodated. But this is only the current number of 10 cups. What we just saw is that it is now 200 cups in Hong Kong. So in the future, the mainland Chinese market will definitely reach the level of 100 and 200 cups. At that time, the number of stores that the Chinese market can support must be in the millions. But at present, the total number of stores of the top ten coffee brands in China has not exceeded 50,000. This is a market with great demand, but the supply is far from reaching the market environment of convenience that people need.

This is our judgment on the number of coffee shops that the market can accommodate. Our current task is how to really stimulate consumers to get used to the drink of coffee. Because as we all know, coffee is an imported product, and it is in the initial stage in the Chinese market. Many people are unfamiliar with coffee and resist the taste of coffee. What kind of way can we really expand the imagined annual per capita consumption of 10 and 15 cups to a volume of 200 and 300 cups. Then we think we need to do two things, for us, it is the double reduction drive, the C-end and B-end drive.

First of all, the C-end drive is to thoroughly lower the consumption threshold. That is to say, we must provide consumers with the best quality products, and at the same time, we must attract them with the best price. This is the most important starting point to trigger or stimulate the new demand of the market. We need to use this thing to let many people who are unfamiliar with coffee contact coffee for the first time, enjoy the coffee products, and use the functionality of coffee to make them gradually become daily necessities. At the same time, a very important thing is convenience, how to make stores everywhere around. The first two things for us are the same thing, product quality and product cost.

Before our first store opened two years ago, we began to build our supply chain system. So after two years of preparation, we have now built our global supply chain base in Anhui. Dangtu is the domestic supply chain base, and there is also the international supply chain base located in the Wuhu Comprehensive Bonded Zone. There are a total of four parks with a construction area of more than 360,000 square meters, and all of them are fully automatic production equipment, which can meet the supply needs of all stores at home and abroad. This is in terms of the entire scale. In terms of the capacity of the entire industrial park, there is the largest coffee roasting factory in the country, with an annual output of 45,000 tons of coffee beans. At the same time, you can see that this cup of Cotti Coffee, from coffee beans to syrup, coconut milk, cups, cup lids, straws, and packaging bags, are all produced by ourselves in the global supply chain base.

Why do we do this? Why do we spend so much effort to start planning the supply chain when we don't have stores yet? We must build the best cost efficiency from the beginning to help us ensure the quality. We control the source of all products, so for the juice and syrup part, we will directly explore the origin of the fruit and finally supply it to the stores.

The second is cost efficiency. What does cost efficiency bring? What I have been talking about is the 9.9 yuan thing. The price is very important. So in our point of view, we think the 9.9 yuan thing should last for at least 3 years. After more than 3 years of market cultivation, the Chinese coffee market can definitely leap from the current 15 cups to 50 cups and 200 cups. Only in this way can this market be really opened. To achieve the 9.9 yuan thing is definitely not that we are bleeding ourselves. The premise is our global supply chain base. This cup of coffee, from the contents to the packaging, is produced by ourselves, controlling the quality and cost. Only in this way can we have the confidence to put up the sign of 9.9.

What is the store revenue efficiency under the 9.9 situation? In the past 5 months of this year, in all our stores, the proportion of