Why Did Coffee Wing Accept a Loss to Build Its Coffee Machine Business?

Coffee Wing reported its first financial loss in 2016, and president Yin Feng said it was expected. She described the negative figure as a short-term sacrifice to open new business lines, and both the board and shareholders backed the plan. The company expanded from two business lines to four, adding the supply chain and urban smart coffee machine operations.

Yin Feng's one horizontal and one vertical strategy underpins the shift, and she has set a first target of two billion yuan in market value before aiming at ten billion on the strength of China's growing coffee market. Coffee Wing's board includes He Jiong, Yao Jinbo, Chen Ou and Li Zhujie, who sent messages of support after the annual report; the coffee machine features and supply chain work are meant to carry the business past the 2016 setback.

In 2016, Coffee Wing's financial report showed a negative figure for the first time, but President Yin Feng had anticipated it. She admitted that this was a short-term sacrifice to pave the way for new business lines, and both the board of directors and shareholders expressed understanding. Facing external doubts, Yin Feng chose to focus on deepening her efforts, expanding the main business from two to four lines, adding supply chain and urban smart coffee machine businesses, and launching the "one horizontal and one vertical" strategy. She firmly believes that the boom in China's coffee market has arrived, with the goal of first reaching a market value of two billion and then advancing towards ten billion. This article will deeply analyze Yin Feng's business logic, market judgment, and her complete plan for the future of Coffee Wing.

"In the seventeen years since starting the business, our financial report has shown such a negative figure for the first time. Both shareholders and employees understand that we are sacrificing short-term interests for better running in the future."

Facing the 2016 financial loss, Yin Feng, the president of Coffee Wing and known as "Fairy Sister," had anticipated it. In an exclusive interview with a reporter, she stated that in 2016, Coffee Wing made some preparations for paving the way and building new business lines, so the loss was expected. The board of directors had communicated about this matter, and the shareholders understood. Coffee Wing's board of directors has always been renowned for its star-studded lineup, including famous host He Jiong, 58.com CEO Yao Jinbo, Jumei Youpin Chairman Chen Ou, and Zhenshun Fund founder Li Zhujie. Yin Feng told the reporter that after the annual report was released, the directors sent messages expressing understanding and support, "Don't mind external doubts, focus on the business, lay a solid foundation, and what we value is the future."

So, what is the future?

Main Business Expands from Two to Four

Listing on the stock market and becoming a public company, in Yin Feng's view, is the first step to realizing her coffee dream. Therefore, although she knew it would sacrifice some short-term interests and encounter some setbacks, she still insisted on listing.

"Seventeen years, never forgetting the original intention, we still want to create a coffee brand in China's coffee industry that is widely loved and suitable for urban socializing with Chinese characteristics."

Before Coffee Wing went public, Yin Feng was also thinking about how to make the company more vibrant and give the enterprise more imaginative space for development. Her research subjects ranged from international catering giants like Starbucks, McDonald's, and KFC to nearby listed companies such as 58.com, Jumei Youpin, Tongling Jewelry, and Yongqing Environmental Protection. She said: "I often ponder their business models. For example, after 58.com went public, new businesses like Guazi, Zhuanzhuan, Daojia, and Recruitment continued to expand outward based on its original old business. So, once the strategic layout and business foundation are established, the enterprise can develop with accumulated strength."

Coffee Wing's 2016 financial report shows that the company had only two main business lines: one is revenue from offline direct-operated stores, and the second is revenue from franchise licensing. Both lines are traditional cash flow businesses with stable but limited growth space. "Only by making strategic layouts in advance can the company break through the original stable and reasonable growth. After studying and discussing for a long time, we decided to lay out two more business lines."

Yin Feng's plan for the company's new two wings of profit: first, the supply chain business, and second, urban smart coffee machines.

The supply chain business is a highly specialized field, requiring factory restoration for product development, continuous quality stability, factory inspection control, logistics system assurance, national warehousing layout... These all need professional team building and execution. From 2016 to the first half of 2017, Yin Feng and her team continued to optimize the team and business. Yin Feng stated that these will become very important subsequent productivity for Coffee Wing, growing into new sales growth and profit growth points.

Urban smart coffee machines are a project Yin Feng had been brewing for many years. She wants to use smart coffee machines as the starting point for retail terminal business, turning the coffee machine into an unmanned, lighter urban coffee shop. After the national layout of coffee machines is completed, not only can the machines sell freshly ground coffee, iced fruit drinks, milk cocoa, etc., but more importantly, with the 1.2 square meter point of the coffee machine, it will continuously expand and derive more related retail businesses, and will also be an important entry point for C-end traffic. "The coffee machine is actually our retail terminal business line laid out, matching the entire online strategy for the future."

In early 2016, Coffee Wing collaborated with an external professional technical team to independently develop a conceptual smart coffee machine. In addition to the professional functions of a freshly ground coffee machine, it also features highly entertaining game functions, with a sleek and cool streamlined design, and is applying for an application patent. The idea is to make the Apple of coffee machines. However, because Yin Feng believed that the stability of the smart concept machine had not yet met the requirements for widespread commercial application, its launch was delayed. Currently, a customized German technology coffee machine is being brought to market, with 70% of its components imported from Europe and America, offering higher stability and stronger marketability.

"One Horizontal, One Vertical" Layout for the Market

In Yin Feng's plan, Coffee Wing will officially begin wielding its new two wings in 2017, so she has shown great confidence in the future.

"We must continue to work hard, first let the market value reach two billion, and then advance towards a hundred billion market value."

Yin Feng's ambition is also based on her long-term commitment to and optimism about the Chinese coffee market.

According to statistics from the London International Coffee Organization, Americans drink an average of 400 cups of coffee per person per year, while China's neighboring country Japan reaches 200 cups, and South Korea 140 cups. However, currently, the average coffee consumption per Chinese person per year is only 4 cups, and in major cities like Beijing, Shanghai, and Guangzhou, the average per person per year is only 20 cups.

On the other hand, compared to the global average growth rate of 2%, China's coffee consumption is growing at an astonishing rate of 15% per year. From a development perspective, if by 2020 every Chinese person drinks one cup of coffee per day, the coffee bean market alone will reach 50 billion USD annually, and the entire industry chain will generate a market of hundreds of billions of USD. China is expected to become the world's most potential coffee consumption country, with huge development space for the Chinese coffee industry in the future.

Yin Feng believes that as the post-90s and post-95s enter society, the development of China's coffee market will accelerate. The post-85s, post-90s, and post-00s are a generation that grew up in the internet era, with flattened and internationalized information. Their consumption habits are also very different from those of the post-60s and post-70s, with less regionalism. The rise of this demographic will give a great development opportunity to the young coffee culture.

"All these data indicate that the boom in this field has arrived, and we will seriously deepen our efforts in this market."

If Coffee Wing was slightly conservative in the past, now it has finally ushered in the boom of transformation, and it is time to make a grand appearance.

This year, Coffee Wing proposed the "one horizontal and one vertical" development strategy—

"Vertical" is to open up the coffee product chain, with a three-tier layout: the first tier is offline coffee chain stores, the second tier is lighter urban smart coffee machine mobile retail terminals, and the third tier is coffee retail products entering supermarket channels and e-commerce channels in the future.

"Horizontal" refers to Coffee Wing's brand management output. In seventeen years of operation, Coffee Wing has developed a comprehensive brand management system, with eight major operating systems, five management manuals that meet international chain standards, and a mature, professional, and highly professionalized operations management team. Especially the big data-driven intelligent management SaaS system that Yin Feng is very proud of, which has achieved remote information management of stores nationwide. These mature management experiences will not only be provided to franchise partners in the future but can also be output to other light-operation coffee and light meal sub-brands in the market, incubating more trendy and fashionable coffee and light meal sub-brands.

A Tiger in the Heart, Smelling the Rose

"I want to build a great, inheritable brand, spreading an international, fashionable yet accessible lifestyle concept. It can be a culture, a lifestyle passed down for decades or even hundreds of years."

In the face of grand business dreams, Yin Feng always adheres to a steady approach. She has "a sense of crisis every day" and makes every decision "as if treading on thin ice."

Whether it is the research and analysis of supply chain infrastructure or the persistent pursuit of the stability of smart coffee machines, every market decision she makes gives people a sense of confidence. In the interview, there is almost no "I feel," only rational judgments like "research," "fine study," and "data." But when talking about the future, she shows a kind of persistence and idealism.

In Yin Feng's heart, she is far from successful.

She considers herself a dream seeker who works hard and sticks to her dreams. When talking about entrepreneurship, she is very humble, believing that what she surpasses others in might be "foolishly" persisting. Her special affection for the coffee industry has always been about adhering to the arrival and explosion of the Chinese market, never intending to give up. No matter what difficulties and obstacles along the way, she opens roads when encountering mountains and builds bridges when encountering water, resolutely crossing them. Because she has persisted in this field for so long and accumulated for so many years, using the ten-thousand-hour expert theory to deduce, the Coffee Wing brand cannot fail to accumulate strength for the future.

She has a very clear understanding of Coffee Wing's advantages.

"Compared to international brands, we understand Chinese users better and respond faster to the market."

International brand coffee shops mainly focus on first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen. Yin Feng believes that these first-tier cities have commonalities in international business, high acceptance of foreign cultures, and a cup of coffee time can meet most business social needs.

Coffee Wing started in Changsha, Hunan, with stores mostly distributed in China's second, third, and fourth-tier cities. This is because in long-term observation and research, Yin Feng found that residents in second, third, and fourth-tier cities have more ample time for socializing and enjoyment, which brings coffee value-added projects: coffee dining. Yin Feng believes that every city needs a urban social center, that is, a third space outside of work and home. Coffee Wing's model undoubtedly caters to this need.

In addition, she also has operating models suitable for first-tier cities, such as the light-operation Coffee Wing High Energy series, Little Wing series, and smart coffee machine Free Wing series, which will be more deployed in first-tier cities. She jokingly calls this development path a Chinese characteristic "encircling the cities from the countryside."

In many interviews, Yin Feng mentioned Starbucks. In her heart, Starbucks is a great company, her role model, and her pursuit. She said: "Coffee experts always love to say that Starbucks is not the best-tasting coffee, but Starbucks has spread and promoted the young coffee culture and a urban white-collar lifestyle to the world." She motivates herself with Starbucks as the goal, "Perhaps one day, there will be a company in China's coffee industry as great as Starbucks, able to compete friendly with it to drive the market, create the third space outside home and office that Chinese people truly love most, and make urban life better. This is not ambition but pursuit!" she said with a smile.

The above content is compiled by CoffeeHunters, a coffee news website.