What is driving the coffee industry reshuffle?
China's coffee shop count reached roughly 191,600 as of October 29, 2023, per Red Meal Big Data, with about 95,000 new stores opening that year and around 44,000 closing. Many new shops, especially independent ones, shut within two to three months. Price wars and near-identical menus are the main pressures, and low-price strategies from large chains squeeze smaller operators hardest.
The low barrier explains the churn: one barista can run a shop, with rent, coffee beans and coffee machines as the main costs. That ease pulls in a steady flow of founders. For independents, the question is how to hold both price and a distinct identity; for franchisees, it is how to avoid the same trap rather than buy into a crowded format.
The coffee market is undergoing a new round of reshuffling, with the number of coffee shops nationwide approaching 200,000, but the survival period of newly opened stores is worrying. A large number of entrepreneurs are pouring into the coffee track, including both independent coffee shops and chain brand franchise stores. However, price wars and homogeneous competition have caused many stores to bow out sadly in just two to three months. Under the squeeze of giants' low-price strategies, how can independent cafes balance price and distinctiveness? How should franchisees avoid pitfalls? This article deeply analyzes the reasons behind the wave of coffee shop closures and, combined with brand cases such as Front Street Coffee, explores ways to break through.
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The coffee market is undoubtedly ushering in a new round of structural adjustment.
According to statistics from Red Meal Big Data, as of October 29, 2023, the total number of coffee shops nationwide was approximately 191,600, while about 95,000 new coffee shops opened this year, and about 44,000 stores closed at the same time.
Among the more than 40,000 closure figures, there are both independent cafes and chain coffee brand franchise stores.
In recent years, a large number of entrepreneurs have poured into the coffee industry. Everyone wants to be a boss, and for today's young people, opening a cafe may be the most idealistic way to start a business. After all, who wouldn't want to own a store of their own, decorated to their liking, carrying a passion for "poetry and distant places." From a realistic perspective, a coffee shop is also a lower-threshold entrepreneurial option. In the most streamlined case, one barista doubling as a clerk is enough to open for business, and the remaining costs are nothing more than basic materials such as coffee machines and coffee beans, plus rent.
Precisely because the difficulty is not great, coffee shops keep opening in growing numbers. However, the survival period of newly opened stores is astonishingly short. According to relevant media reports, many newly opened stores, especially individual stores, often close and leave after operating for only a short 2 to 3 months.
The reason may well come down to one saying: when giants fight, ordinary people suffer.
After Luckin Coffee kicked off the price war with a low price of 9.9 yuan, Cotti Coffee, which replicated the low-price route, closely followed, and together with the former rampaged through the coffee market. In order to compete for customers, many independent coffee shops were forced to join the price war. From 9.9 yuan a cup, all the way down to 3.9 yuan a cup... There is no lowest coffee price, only lower.
An industry insider calculated: taking the simplest iced Americano as an example, the cost of beans is 2 yuan, and when equipment depreciation and packaging costs are included, the cost of a cup of coffee is 5 to 6 yuan. Add rent and labor, and the gross margin of a cup of coffee must be at least above 60% to make money. The 8.8 yuan and 9.9 yuan approach is "suicidal operation" for individual coffee shops.
In addition to price involution, severe homogenization is also one of the reasons leading specialty coffee shops toward demise. After many cafes choose one style among Instagram-style, artistic, or Japanese-style, they have no distinctive features of their own. Similar decor, similar menus, similar flavors, unable to give consumers a reason that "it has to be you," naturally lose their competitive advantage in the face of lower prices. Therefore, some netizens advised: "Without a love for coffee, without good skills, without your own understanding of coffee, how can you run your own store well..."
In addition to independent coffee shops with insufficient competitiveness, among the 44,000 closed coffee shops, many are franchise stores of chain coffee brands.
Some stores closed because of chaotic internal franchise management by the coffee brand owners, which led entrepreneurs to continue losing money and, unable to be profitable, to shut down. According to media reports, one brand's number of closures reached more than 39%, equivalent to one out of every three closed chain brand stores being from that brand. Many people joined popular coffee shops with the dream of "cutting leeks and getting rich quick," only to encounter problems such as poor site selection, chaotic franchise management, and daily sales falling short of expectations, leaving them with no choice but to transfer the stores in tears.
Another group of entrepreneurs fell into the trap of counterfeit brands and, after being defrauded of money, could not operate normally. This kind of fake franchise chaos has also become one of the important reasons for the closure of a large number of coffee shops.
That said, since the common reasons for coffee shop closures on these two tracks have been identified, is it possible to work hard in these areas and create a competitive advantage?
For independent coffee shops, against the backdrop of chain coffee shops' "low-price money-burning marketing," breaking through requires finding a balance — price and distinctiveness. It is necessary both to optimize price settings to a certain extent and make up for "shortcomings"; and also to choose a good niche track: with so many choices available to consumers, distinctive features must be created to "lock in" the target group. For example, for stores positioned as community cafes, their consumers seek high-cost-performance "neighbor coffee" — good to drink and not expensive, convenient to drink anytime and as they please.
For chain brand franchisees, it is necessary to have a discerning eye, accurately identify the brand to join and the right location, and withdraw in time when wrong signs appear, cutting losses promptly.
Overall, although the road is not smooth, only those coffee shops that can adapt to market changes and continuously innovate and improve can establish themselves in this market.
Image source: Internet
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The above content is compiled by CoffeeHunters, a coffee news website.
