Cafes in fourth- and fifth-tier cities, walk to the fork in the road

By orchioo Mar1,2023


In Ma’anshan, Golden Eagle is like Sanlitun in Beijing.


This small town in eastern Anhui has a permanent population of less than 2.2 million, and the Golden Eagle business district has a passenger flow of more than 70,000 during holidays.


If you walk along the Golden Eagle Commercial Street in 2023, apart from fashion, the highest concentration here may also be caffeine.


Some coffee shop owners complained that more than half of the coffee shops in Maanshan are gathered in Golden Eagle. Since the outbreak, the number of Golden Eagle coffee shops has increased instead of falling, and there are now 16 or 17 coffee shops.


Those intertwined window coffee, specialty coffee, and mass chain brands indicate the awakening of coffee in a fourth-tier city, and the ensuing involution. There is raw coconut latte for 9.9 yuan a cup, which is one yuan cheaper than the lucky coffee in Michelle Ice City.


But people in Ma’anshan did not come into contact with coffee because of this young business district: as early as August 2014, Starbucks sank here and opened its first store. Earlier, the memory of Ma’anshan city was the time of Shangdao coffee and grinding.


2015 is the node of the explosion of courtyard cafes, with more than a dozen opened in a year. In 2017, window coffee shops represented by Manner had already begun to take off in Shanghai, and Ma’anshan heard about the opening of the first window coffee shop, which will explode in 2020. Today, there are 5 local brands ING COFFEE, 5 Lucky Coffee, 6 Starbucks, 10 Ruixing, and more than a dozen independent small restaurants in Ma’anshan.


The same coffee awakening happened in many fourth- and fifth-tier cities. According to the data from Zhiyan Consulting, the number of coffee shops in cities below the third-tier in China exceeds 4,000, accounting for a quarter of the country.


This trend has also made opening a coffee shop a dream for young people returning to their hometowns to start a business. For example, Wuhu, Anhui, a city that was previously called a “coffee desert” by entrepreneurs, had only two small private restaurants in 2019, and more than a dozen in 2021, and it has soared to 30 or 40 by 2022.


Is the coffee shop in the third- and fourth-tier cities that seem to be booming all the way really a good business? Is the survival status of independent cafes really as good as ideal? We conducted in-depth interviews with five cafe owners in Ma On Shan, and discovered several truths about coffee entrepreneurship in small cities.


1. Can’t make a lot of money
Almost all local coffee shop owners in Ma On Shan have a “formal” occupation.


The owner of Saye Coffee works for an Internet company, a partner of Third Railway Coffee runs an advertising company, and some coffee shop owners are interior designers.


“Now that I specialize in opening coffee shops, I’m afraid I’m going to starve to death.” Chen Qing, the owner of Third Railway Coffee, feels that he can earn several times more money than selling coffee in any business he does. In 2017, he and his friends opened the Third Railway Cafe next to the train tracks. With the carriage-shaped booths, retro decoration, warm yellow lighting, personalized graffiti walls, three sticky cats and trains whistling past the window from time to time, Become a unique check-in resort in the local area.


Over the past few years, they have reached the upper limit of store traffic, but still can’t make a lot of money. Third Railway’s gross profit is maintained at around 35% to 40%.


“If you don’t go to the capital market, the profit of the coffee shop is not high, which is equivalent to the money earned by working outside, and you can’t even earn the money from working.” The owner of Saye coffee took a sip of his latte and calmly gave us a piece of advice . The last interviewee who gave us similar advice was the owner of a bookstore.


Wanwan works in an Internet company and opened this store with his partner at the end of November last year. This is not the first time she sells coffee. Wanwan was forced to close the store 5 years ago due to multiple reasons such as the location of the store was remote and the market positioning was not clear.


With her previous experience, she spent nearly three months on site selection this time—finally she chose a civilian house near Golden Eagle Commercial Street. The rent in Jinying Commercial Street is 15,000 yuan/month, while the rent for civilian houses is less than 3,000 yuan/month, and the electricity is still for civilian use. In the initial stage, Saye Coffee sells 50-60 cups of coffee a day on average, which is quite ideal.


There are no employees in the store, and the partner also acts as a barista, and will come to help whenever he is free. Even if the extra labor costs are saved, the fixed expenditure of the coffee shop is 12,000 yuan a month. A cup of coffee in the store costs 18-30 yuan, and the gross profit rate does not exceed 40%. Including dessert income, a person earns about 4,000 yuan a month.


After the opening of Saye Coffee, it caught up with the peak consumption season at the end of the year. Many young people returned to the city to celebrate the New Year.


“NoNoise” interview found that in Ma’anshan, the gross profit margin of coffee in specialty coffee shops is 35% to 55%, which is less than the average of 60% in the catering industry.


There are three reasons: First, the cost of raw materials such as coffee beans is generally higher than that of chain brands such as Ruixing, which have a large volume and have more say in the supply chain. Some coffee shop owners have calculated that the price of green beans has increased by about 50% in the past three years.


The second is the limitation of turnover rate. Independent small restaurants all have a concept of “space” similar to Starbucks. In addition to the taste and characteristics of the coffee itself, what keeps customers lingering in the store is the unique environment and decoration in the store. However, the longer the customer lingers, the lower the turnover rate of the store. The turnover rate determines that the ceiling of this industry is very low.


Therefore, the representative of the old-school coffee——Shangdao Coffee, sells stewed pork rice, and opens up consumption spaces with different prices, trying to make additions in a limited space; but this road is something that many specialty coffee owners disdain to do. Many people are pursuing a tonality, or are obsessed with the professionalism of only selling coffee.


The third is that the market capacity of small cities is limited. When there are more coffee shops, the involution is bound to intensify. Jiang Chuan, the owner of 61coffee, is one of the first group of stall-style coffee shops in Ma’anshan. When Golden Eagle opened its store in 2019, 61coffee could sell up to 150 cups a day, but when Jiang Chuan decided to close the store at the beginning of this year, the average daily sales volume in the store had dropped to forty or fifty cups.


Along with this, the number of coffee shops in this city has surged, and price wars have begun. Some coffee shops have even reduced the gross profit of group buying to 3 points.


If Manner and other similar coffee brands enter Ma’anshan in the future, the situation will only become more complicated. Jiang Chuan said that when Manner was expanding wildly in the past two years, he seriously considered the issue of competition. “If Manner is willing to sink, it must be because the coffee market has changed, and more people will drink coffee accordingly; In fourth-tier cities, chain brands may not have an advantage.”


2. Those self-employed who order a cup of coffee every day are slowly disappearing
During the in-depth interviews, we found that there is a little deviation from the media’s perception—the main force of coffee consumption in fourth- and fifth-tier cities is not young people.


The consumer portraits of Maanshan coffee shop owners are almost uniform – 30+, mostly women.


Drop coffee, which is opened in a remote residential building, is priced at 25 to 40 yuan for a cup of coffee. It can sell 20 to 30 cups a day, and more than 100 cups when it is busy. The boss, Lin Xin, observed that most of his customers are people in the city in their 30s and 40s. They are economically stable, have more free time, and pay more attention to the quality of coffee.


Coffee quality is one of the selling points of Drop coffee. In order to ensure a stable taste and quality control, Lin Xin roasts the beans himself.


When he was studying in Shanghai, he fell in love with visiting cafes. After graduating, he worked in Shanghai for a period of time, but the pace of the big city was fast, housing prices and various living costs were high, and the young man could not bear the pressure and returned to his hometown and opened a medieval-style coffee shop.


61coffee, which targets people who just need coffee, adopts the “cash shop” model, and the price is more affordable in comparison-if customers have their own cups, American style is 10 yuan, and latte is 15 yuan. The customers corresponding to this price are people in their 30s and stable jobs. They have included coffee as part of their daily expenses and order a cup every day.


The boss Jiang Chuan discovered in the background that a gentleman has ordered a cup of American style almost every morning in the past two years, and he has ordered more than 500 orders so far. “There used to be a lot of customers like this. They included coffee as part of their daily expenses, but in the past two years, there have been many fewer customers.”


Especially after the Shanghai epidemic last year, Jiang Chuan clearly felt that some takeaway customers who often ordered orders disappeared. “For example, the takeaway orders of some flower shops, nail salons, and clothing stores almost disappeared after the second half of last year.” The chill is transmitted layer by layer, and the coffee shop in Jiangchuan is far from the last link.


In addition to the follow-up impact of the epidemic, many people are worried that Ruixing’s menacing attack will have an impact on localized brands in the sinking market. The five interviewees in Ma’anshan were relatively indifferent.


ING coffee, the largest local brand in Ma’anshan, also operates a “cache store”, and has opened 5 chain stores in two years. Its founder Tang Ning believes that there is not much overlap between her own customer base and Ruixing. ING’s customers are mainly people in their 35s and more women. .”


Another interviewee believes, “Ruixing attracts more people who used to drink milk tea. The raw coconut latte and thick coconut milk made by his family are still similar to milk tea in style.”


But the onslaught of competition is pouring in from other levels. ING coffee originally planned to open more than a hundred stores within three years, but now that coffee brands with stronger financial chains have taken the lead in occupying the surrounding market, they have to admit that they are a step behind.


The awakening of coffee in low-tier cities is like a violent crustal movement. However, compared with first- and second-tier big cities, the low-tier market is still immature, and the level of coffee consumption needs to be raised. For example, in Ma’anshan, almost no one cares about hand-made coffee.


Jiang Chuan, the owner of 61coffee, offers hand-dripped coffee in the store, but the price of hundreds of yuan has dissuaded most of the coffee lovers in this city. The beans used for brewing coffee generally have a shelf life of more than 20 days, and they must be thrown away if they cannot be sold.


Jiang Chuan couldn’t remember how many coffee beans he threw.

Cafes in fourth- and fifth-tier cities, walk to the fork in the road

3. Fork in the road
The competition in the industry is superimposed on the epidemic in the past two years, and the coffee circle in Maanshan is also undergoing great changes.


Regarding whether to embrace change and how to embrace change, local brands have taken three types of routes: radical transformation, craftsmen, and suppliers.


The first category is represented by ING coffee and 61coffee. Both stores opt for a cache store like Manner’s. ING coffee has invested “blood” from the very beginning: as the main investment of the coffee shop, Tang Ning chose the ceiling of the coffee industry – the black eagle three-headed coffee machine. The unit price of each machine is about 180,000 yuan.


ING coffee went to extremes at the time, renting a 10-square-meter shop near Golden Eagle, and only doing takeaway. In the shop where only two people can stand side by side, they achieved the No. 1 takeaway sales in Anhui Province. “We were stupid at the time. The sales volume was the first in half a year, 300 cups a day, and the coffee machine was about to break down.” Tang Ning remembered the day when the most orders were received, and they took 200 orders. One of her and her partners makes coffee, and the other is in charge of multi-layer packaging. The two of them stand until their legs are weak, and when they relax, their calves will shake unconsciously.


This transformation looks like “from one extreme to the other extreme”. They started operating a boutique coffee shop 8 years ago, focusing on private space and slow atmosphere.


At that time, Tang Ning and her partner had just finished their money-losing photo studio business. The two knew little about coffee, and went to a coffee bean factory in Yunnan to “steal a teacher” and worked as workers for half a year. By drying, roasting, and grinding beans every day, and repeatedly adjusting the data, they made Shi Nian one of the most famous cafes in Ma’anshan.


However, the economy has been down in the past two years due to the epidemic, and the occupancy rate in the store has dropped repeatedly. They regard fast-moving coffee as a new way out. However, with the saturation of coffee shops around Golden Eagle, ING coffee’s single-day record is difficult to continue.


After going around, the two found out that there was still a dine-in. Especially under the current competitive situation, selling coffee still needs a sense of atmosphere. This is obviously different from the first- and second-tier cities.


More realistically, the gross profit of takeaway is only about 30%, which cannot be compared with dine-in. If the order volume is not large enough, it is prone to losses.


Tang Ning is thinking about opening a new store with a small number of seats and adding baked products to give customers more choices. “My partner and I are people who keep going forward. We want to keep opening stores. It doesn’t mean how much money we have to make, but every store will bring us a hope.”


The second store of Third Railway Coffee, which also focuses on takeaways, is still at a loss. But Chen Qing was not very worried about this issue. In the business model he designed, the main function of the takeaway store is not to make money, but to increase the use of raw materials such as beans, because only when the quantity increases can the price be lowered.


However, in the coffee industry chain, Chen Qing is more interested in being a coffee bean supplier and store operation solution provider, and they are also transforming in this direction.


Jiang Chuan, who loves to toss around, is planning to close another store with poor performance this year, and only two stores will be kept in the end. When the economy improves, he plans to open a new store in Nanjing, “Since there are rolls everywhere, why not go to a place with a higher ceiling.”


As for Lin Xin from Drop coffee, he prefers to call himself a “craftsman” rather than a businessman. Regardless of business operations and expansion, roasting beans, selling beans, and selling coffee in a space of 60 square meters, only thinking about how to make a cup of coffee is what Chen Qing yearns for the most. “I think doing one thing well, Naturally, some people will recognize you.”


There are not many things that can bother him: the coffee shop is only open at noon every day, and the store is only one door away from the residence. It can be said that it only takes three seconds to get to work and three seconds to get off work. He has no shortage of customers, and most of them come here because of the reputation. “Some people say that this is an online celebrity shop, but I don’t really want to hear such comments.”


Lin Xin believes that the quality of coffee itself is the focus of coffee shops. Most of the time, he is stuck between lazy jazz and middle-aged and old objects. The relaxation brought by this job has surpassed many young people who move bricks in first- and second-tier cities.


When Sa Ye Coffee, who just entered the store, was still doing the first step of maintaining the store – carefully retaining customers, Lin Xin no longer needed to please anyone.


If he wants to travel, he will post a notice in Moments, It can be regarded as an explanation to the old customers, and then the store is closed, and the people leave.


The freedom of body and mind from the inside out is probably one of the reasons why third- and fourth-tier cafes continue to attract young people to join.

By orchioo

Related Post