Why Did Coffee Wings Expand Into Coffee Machines?

Coffee Wings reported its first loss in 2016, seventeen years after founding, and president Yin Feng called it expected. The company moved from two traditional business lines to four, adding supply chain and urban smart coffee machines. It had already listed on the New Third Board and proposed a horizontal and vertical strategy, aiming at a market value of two billion to ten billion.

The board, including He Jiong, Yao Jinbo, and Chen Ou, backed the plan, telling Yin Feng to ignore outside doubt and build the business. The bet rests on China's coffee market growing about 15 percent a year while per capita consumption is only four cups, leaving wide room for new formats like smart coffee machines.

In 2016, Coffee Wings handed over its first loss-making financial report since its founding seventeen years ago, but President Yin Feng claimed it was within expectations. From expanding two traditional business lines to supply chain and urban smart coffee machines, from listing on the New Third Board to proposing the "one horizontal, one vertical" strategy, she is building strength for the future. Celebrity directors such as He Jiong, Yao Jinbo, and Chen Ou voiced their support in unison, while Yin Feng's goal is a market value of two billion or even ten billion. Faced with China's coffee market growing at 15% annually and per capita consumption of only 4 cups, how is she positioning herself? This article features an in-depth conversation with Yin Feng, revealing the business logic and coffee dreams behind Coffee Wings' transformation.

"After seventeen years of entrepreneurship, our financial report showed negative numbers for the first time. Shareholders and employees understand that we are sacrificing short-term interests for a better run in the future."

Facing the 2016 financial loss, Coffee Wings President Yin Feng, known as "Fairy Sister," had anticipated it early on. In an exclusive interview with reporters, she explained that in 2016 the company made some preparations for paving the way and building new business lines, so the loss was within expectations. The board of directors had communicated about this, and all shareholders expressed understanding. Coffee Wings' board of directors has always been star-studded, including famous host He Jiong, 58.com CEO Yao Jinbo, Jumei Youpin Chairman Chen Ou, and Zhenshun Fund founder Li Zhujie. Yin Feng revealed that after the annual report came out, the directors sent messages expressing understanding and support: "Don't pay too much attention to outside doubts. Keep your head down and focus on the business, lay a solid foundation. What we value is the future."

So, what is the future?

Main Business Goes from Two to Four

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

"Seventeen years, and we haven't forgotten our original aspiration. We still want to create, within China's coffee industry, a coffee brand that everyone loves and that suits urban socializing with Chinese characteristics."

Before Coffee Wings went public, Yin Feng was already thinking about how to make the company more vibrant and its development more imaginative. Her research subjects ranged from international food and beverage giants like Starbucks, McDonald's, and KFC, to listed companies around her 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 grow, continuously extending outward from the original old businesses. So, once strategic layout and business foundations are built, a company can accumulate strength and then burst forth."

Coffee Wings' 2016 financial report showed that the company had only two main business lines: offline directly-operated store revenue and franchise authorization revenue. Both lines were traditional cash-flow businesses with stable but limited growth space. "Only by planning strategically in advance can the company break through its original stable and reasonable growth. After long research and discussion, we decided to lay out two more business lines."

The two new wings of the company's profits planned by Yin Feng are, first, the supply chain business, and second, urban smart coffee machines.

The supply chain business is a highly specialized field. Factory restoration for product development, continuous quality stability, factory audit control, logistics system assurance, nationwide warehousing layout... all of these require professional team building and execution. From 2016 to the first half of 2017, Yin Feng and her team continuously optimized the team and business. Yin Feng stated that these will become very important follow-up productivity for Coffee Wings and will grow into new sales growth and profit growth points.

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

In early 2016, Coffee Wings and an external professional technical team independently developed a conceptual smart coffee machine. In addition to professional freshly ground coffee functions, it also has highly entertaining game features, with a cool streamlined appearance design. It is also applying for an application patent, and the idea is to make the Apple of coffee machines. However, because Yin Feng believed the stability of the smart concept machine had not yet reached the requirements for broad commercial application, its launch was postponed. Currently, a customized German-technology coffee machine is being introduced to the market, with 70% of components imported from Europe and America, offering higher stability and stronger market suitability.

"One Horizontal, One Vertical" Market Layout

In Yin Feng's plan, 2017 is when Coffee Wings officially begins to spread its new two wings, so she expressed great confidence in the future.

"We must continue to work hard, first letting market value reach two billion, and then advancing toward a market value of ten billion."

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

According to statistics from the London International Coffee Organization, the average American drinks 400 cups of coffee per year, while China's neighbor Japan reaches 200 cups, and South Korea 140 cups. But currently the average Chinese person consumes only 4 cups of coffee per year, and in major cities like Beijing, Shanghai, and Guangzhou, the average annual consumption is only 20 cups per person.

On the other hand, compared with 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 the average Chinese person drinks one cup of coffee per day, the coffee bean market alone will reach 50 billion USD annually, and the entire industrial chain will generate a market worth hundreds of billions of USD. China is expected to become the world's most promising major coffee-consuming country, and the future development space for China's coffee industry is enormous.

Yin Feng believes that as the post-90s and post-95s generations enter society, China's coffee market will develop faster and faster. 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, and they no longer have strong regional characteristics. The rise of this group will give young coffee culture a great development opportunity.

"All these data show that the outlet for this field has already arrived, and we will seriously cultivate this market in depth."

If Coffee Wings seemed slightly conservative in the past, then now it has finally reached the outlet for transformation, and it is time to make a grand entrance.

Coffee Wings proposed this year the development strategy of "one horizontal, one vertical"—

The "vertical" is to connect the entire coffee product chain, laid out in three layers: the first layer is offline coffee chain stores, the second layer is lighter urban smart coffee machine mobile retail terminals, and the third layer is coffee retail products that will enter supermarket channels and e-commerce channels in the future.

The "horizontal" refers to Coffee Wings' brand management output. During seventeen years of operation, Coffee Wings has developed a complete brand management system, with eight major operating systems and five management manuals that meet international chain standards, as well as a mature, professional, and highly professionalized operations management team. In particular, the big-data-driven intelligent management SaaS system, of which Yin Feng is very proud, has already achieved remote informatized management of stores nationwide. These mature management experiences will not only be provided to franchise partners in the future, but can also be exported 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 Roses

"I want to build a great, inheritable brand that spreads an international, fashionable yet accessible lifestyle philosophy. It can inherit a culture, a way of life, for decades or even centuries."

In the face of grand business dreams, what Yin Feng has always adhered to is a steady approach. She "feels a sense of crisis every day," and every decision feels "like walking on thin ice."

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

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

She considers herself simply a dream seeker who works hard and holds fast to her dreams. When talking about entrepreneurship, she is very humble, believing that what perhaps makes her better than others is her "foolish" persistence. She has a special affection for the coffee industry and has always held fast to the coming and explosion of the Chinese market, never intending to give up. Along the way, no matter what difficulties and obstacles arise, she opens roads when encountering mountains and builds bridges when encountering water, resolutely crossing over. Because she has persisted in this field for so long and accumulated for so many years, using the ten-thousand-hour expert theory to infer, the Coffee Wings brand cannot fail to accumulate strength and burst forth in the future.

She has a very clear understanding of Coffee Wings' advantages.

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

Cafes of international brands mainly focus on first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. Yin Feng believes that these first-tier cities share international business commonalities, have a high acceptance of foreign cultures, and that the time of one cup of coffee is enough to satisfy most business social needs.

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

In addition, she also has operating models suitable for first-tier cities, such as the light-operation Coffee Wings High Energy series, Little Wings series, and Smart Coffee Machine Free Wings series, which will be laid out more in first-tier cities. She joked that this development path is a Chinese-style "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 professionals often like to say that Starbucks does not make the best-tasting coffee, but Starbucks spread and promoted young coffee culture and an urban white-collar lifestyle to the whole world. She motivates herself with Starbucks as her goal: "Maybe one day, China's coffee industry will also have a company as great as Starbucks, able to compete with it amicably to drive the market, and create the third space outside home and office that Chinese people truly love most, making urban life better. This is not ambition, it is pursuit!" she said with a smile.

For coffee lovers, choosing a good cup of coffee is equally important. Front Street Coffee has always been committed to providing consumers with freshly roasted, high-quality coffee beans. Whether through the in-store experience or online purchases, one can feel its commitment to quality. While Coffee Wings lays out smart coffee machines and the supply chain, Front Street Coffee is also promoting the development of Chinese coffee culture in its own way, letting more people easily enjoy a good cup of coffee.

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