“This Spring Festival, you can also drink NOWWA at home.”
Today, it is common for “small town youth” to buy a cup of brand coffee when they go out. During the Spring Festival in 2023, NOWWA Coffee opened 110 stores nationwide. So far, its cumulative number of stores in China has exceeded 1800, covering more than 100 cities, and it has become one of the cheapest boutique coffee brands with the fastest opening speed in China.
According to its company’s Spring Festival “Battle Report”, during the Spring Festival, the daily average sales of its stores increased by 223% year-on-year, hitting a record high. Among them, the revenue of stores in the fourth and fifth tier cities is about twice that of daily stores, with some stores even as high as three times; 2、 Revenue growth in third tier cities exceeded 50%.
This is not the first highlight of NOWWA’s store expansion. In June and December 2022, it was announced that “100 stores will be opened together”. The main line of store growth this year is still “sinking the market”.
“The brand positioning and price strategy of NOWWA as an affordable premium coffee has never changed. As a brand born in Shanghai, we went down to the market to solve a problem, that is, the gap between the desire of young people in small towns for a better life and the reality they see when they open the door.”
Recently, Guo Xingjun, founder of NOWWA Nova Coffee, said in an exclusive conversation with Bright Company that although the coffee market is famous for its “roll”, with the change of coffee consumption habits, the domestic sinking market still has a lot of room for affordable coffee brands. “From the perspective of revenue, the profit margin of sinking market is significantly higher than that of first-tier and second-tier cities.”
Thanks to the “sinking” strategy in recent years, Guo Xingjun revealed that the revenue of NOWWA Coffee in 2022 had nearly tripled compared with that in 2021, and the number of signed franchise stores was close to 1000. “It is expected to continue to sign nearly 1000 new stores this year,” Guo Xingjun said. Among them, the 1.0 version of take-out stores and the 2.0 version of independent outlets will gradually “withdraw from the stage”. The new stores are franchise stores and direct stores, mainly franchise stores.
“The growth of NOWWA is due to takeout, but in order to enhance the potential of the brand and meet the needs of market changes, it is necessary to expand the store rapidly at this stage.”
When asked “how to look at the current fierce competition in the coffee market”, Guo Xingjun said frankly, “On the contrary, we hope that more partners will enter the coffee market and make the basic market bigger and stronger together. When cross-border enterprises set foot in the coffee category, we never regard them as competitors. On the contrary, this is cultivating consumer habits for the coffee market. We are happy to see its success.”
The following is the dialogue between Bright Company and Guo Xingjun (abridged):
Q: Bright Company
A: Guo Xingjun Founder of “NOWWA Nowa Coffee”
1、 Gradually replace takeout and independent outlets with outlets
The Northeast market is at the forefront of the development list of NOWWA Nova Coffee, and it is expected to have stores soon. In the future, version 1.0 stores represented by takeout stores and version 2.0 stores represented by independent stores will gradually “retire from the stage” and be replaced by version 3.0 stores represented by direct stores and franchise stores.
How much has the number of franchise stores increased since NOWWA opened last year?
In 2022, nearly 1000 franchise stores were signed. Affected by the epidemic, in December of last year and January of this year, there was a certain backlog of signed stores, and the construction and operation of some stores were hindered. The number of stores will grow rapidly in the future.
During the Spring Festival, we opened 110 stores throughout the country, and currently have signed nearly 1000 new stores. This year, we officially started full operation in February, so the business and revenue situation in March will be further improved.
How many stores are expected to reach by the end of this year?
After digesting nearly 1000 stores signed last year, the number of newly signed stores this year will remain around 1000. With the previous inventory of stores, it is expected that the number of officially opened stores will be around 2000 by the end of this year. However, there will also be some replacement volume, and the new stores will gradually replace the existing delivery stores.
What is the proportion between the total number of stores and franchise stores?
As far as the current store types are concerned, they include direct-sale stores, franchised stores, and previous 1.0 version take-out stores and 2.0 version independent outlet stores. All new stores are independent stores, with franchise stores accounting for more than 90%.
Up to now, most franchisees have come to seek cooperation on their own initiative. Recently, we are contacting some large channel companies, and the speed of opening stores is expected to increase significantly in the future.
Will the target area of the new storefront be mainly in the following cities?
There are indeed many sinking markets, such as prefecture-level cities and second and third tier cities in various provinces, including Foshan, Huai’an, Xuzhou, Zhenjiang, Nantong, Jining, Suzhou, etc. Worth mentioning
The university market is also a positive development scenario for us. We have opened four new stores in Beijing, two at Peking University, one at Communication University of China, and one at Beijing Normal University.
Only the northeast, northwest, and southwest regions of the country are not covered. The main reason is that the supply chain system that previously supported the southern region is relatively large, and other regions have not yet further expanded.
What is the demand for coffee in the Northeast region?
It is very large. There are already coffee brands that have achieved the performance of “selling 500 cups a day” in Tieling.
China’s coffee market has grown so fast, I think there are two core variables. First of all, the price is no longer high, and the cost of the first and second purchase of consumers is getting lower; Secondly, the taste of coffee products is generally upgraded, and it is no longer bitter taste. It is easier for domestic consumers to like and accept.
In terms of the current situation of franchisees, what are the reasons why franchisees choose NOWWA?
First of all, the theme of “County Coffee” has been on the rise, and we have great support for our joining strategy in the market situation, because we are mainly positioned in the second, third and fourth tier cities in China.
Secondly, from the current situation of NOWWA, the mentality of franchisees is also very interesting. A franchisee who has successfully started a business in succession once gave feedback on why he chose NOWWA, saying that opening a coffee shop is “more decent” than other snack restaurants, and it will not be too hard, and the profit is also higher. Because of this, he did not choose a more sinking coffee brand. In his view, the “inside” as revenue is as important as the “face” as brand.
NOWWA Coffee Store
NOWWA Coffee Store
Is it due to brand strategy considerations or to adapt to current market changes?
The first is based on the strategic and brand level considerations of NOWWA. The previous store format was profitable at the business level and operated well. However, from the perspective of establishing a brand image and creating a brand mind, it still relies on stores composed of direct stores and franchise stores.
Secondly, the transfer from the online market (in the form of takeout) to the offline market is also one of the core strategies of NOWWA at the operational level. Compared to first-tier and second-tier cities, the location of stores in the sinking market will be better, and labor and rent will also be more advantageous.
After the number of franchise stores increases, do you need a more effective digital system?
For franchisees, first of all, we will conduct training through the operation system, from site selection, planning, to on-site supervision and acceptance, so as to unify standards; Secondly, the store will be given some marketing tools to improve revenue. Each new franchise store will automatically join our system trunk, and the order and supply chain can be connected online to facilitate data exchange at any time.
As far as the system is concerned, the increase of stores will not cause a burden, because the same services are called. On the contrary, the more stores, the higher the management efficiency.
In fact, I think this way is more appropriate to be called informatization. Digitalization may prefer intelligent management, such as precise push. But at present, we pay more attention to the informatization of the system. We hope that all losses will be included in the system in the future, so that there will be fewer and fewer offline links.
Therefore, our investment in informatization will also increase in the future. The logical bottom of the Internet is data, and the feedback from data will make our decision basis more reliable.
2、 Differential opportunities in “small town youth”
According to your observation, is the current demand for coffee in the sinking market enough to support more brands?
We visited many prefecture-level cities and counties across the country and found that the local coffee supply was extremely inadequate. These regions can be understood as Shanghai 20 years ago. The demand for coffee exists and continues to grow, but supply is almost non-existent.
During the Spring Festival this year, the theme of “County Coffee” was very popular, partly because many people working in first-tier cities returned to create prosperity. Our income during the Spring Festival is nearly three times that of normal times. Although this is just a Spring Festival phenomenon, overall, there must be a demand. Although not as dense as first-tier cities such as Beijing and Shanghai, the density of coffee brands is not as high as that of first-tier and second-tier cities, so the space is still large. As far as our store is concerned, the sales volume is also very good.
In addition, after a period of sinking market expansion, we finally understand why the label “Shanghai Brand” has a positive impact on us.
Speaking of the change of taste, is there a trend of “milk tea” in coffee?
There are some similarities, but not all. In fact, the milk tea itself is also changing. For example, many of the popular single products are practicing the logic of fruit, such as adding a whole grape, a whole lemon, and so on. Instead, tea has become a matching role, even many have no milk.
The essence of this change lies in how consumers define coffee, whether they need caffeine or the lifestyle brought by coffee, whether it is a simple bitter taste or a better taste experience. The logic of NOWWA is to focus on the experience of consumers. Since coffee and milk has been proved to be the right direction by history, let’s take another step forward on the basis of this half step to make more people feel “good”.
Taking a complete step can open up the entire coffee market.
In my previous interview, I mentioned the difficulties in developing fruit and coffee products. Is there a breakthrough at present?
Now this problem has been solved. Through technical means, we can integrate the flavor of coffee with the flavor of fruit. This summer, fruit coffee will have an upgraded product line.
Currently, on average, we launch 2-4 new products every month, including some returning products, such as the Cherry Blossom series, which are launched as exclusive products every year during the Cherry Blossom season.
What is the best selling model so far since the Spring Festival?
Semi-ripe cheese latte. During the Spring Festival, the sales of semi-cooked cheese latte, raw coconut latte and 0 caramel strawberry light milk latte accounted for nearly 50%.
Semi-ripe cheese latte
Semi-ripe cheese latte
How does the epidemic affect the coffee industry and consumer preferences?
In terms of the whole coffee consumption, the consumption of young people is the first to recover, and this part of consumers is exactly the same as our target group. Our business sense is that the epidemic has a very small impact on young people’s consumption concepts and behavior, and the number of people coming to the store has increased significantly.
The increase in the proportion of in-store consumption coincides with our strategy of reducing the proportion of take-out and increasing the number of stores. Previously, the ratio of take-out to store consumption was about 4:6. At present, this ratio is slowly changing, and the number of stores has shown a steady growth trend.
Although NOWWA initially benefited from takeout, when the consumption line changes, we will firmly move towards “more stores and stimulate more in-store consumption” in terms of active strategy or passive choice. From the perspective of operation, the cost of opening a store is higher than that of taking out, so we have opened the franchise strategy.
Currently, more and more coffee brands are entering the sinking market, such as Ruixing, Ruixing Coffee, Coodie, etc. How do you view the upcoming “sinking war”?
First, NOWWA’s strategy is not to provoke active competition. Currently, the same type of coffee brands have their respective positions in the vast coffee market. We believe that we will find a way forward, and we hope to work together to make the basic sector of coffee bigger and more stable. In this way, we can enjoy ourselves to the fullest.
In addition, the offline situation is different from the online “blade to blade” phenomenon, with a stronger sense of online competition. Because consumers’ comparative behavior is more convenient, the platform will also deepen this tension off the field. Users to improve efficiency. However, offline competition awareness will be weaker, and consumers entering the store will rarely be lost due to comparison.
At the same time, in terms of location selection, it is natural for different brands of coffee to settle in the same mall, resulting in less obvious competition. For example, in Wanda, NOWWA is on the first floor, and other brands are on the second floor. There is no conflict at all. Opening another 10 milk tea shops is also very harmonious.
3、 “I hope more partners will enter the coffee market”
In 2022, at a time when most people considered it “quite difficult”, NOWWA’s revenue nearly tripled year-on-year. NOWWA has never considered the increase in the “volume” of the coffee market as an obstacle or pressure. On the contrary, more brands and cross-border enterprises enter the coffee market and jointly expand the basic market, which is beneficial for new brands.
2022 is a difficult year for the consumer sector. Can you disclose some of NOWWA’s income?
Looking back through 2022, we found that the truly effective working time was only about 5 months. But last year, NOWWA’s revenue tripled from 2021, an increase of approximately 267%. So far, we have sold over ten million cups of coffee.
The revenue increment mainly comes from new stores. Under the condition of average profit of all stores, the revenue is linear with the number of stores, and the increase of the latter will inevitably lead to the growth of the former. On the other hand, the revenue of the same store is also growing continuously, and the growth rate of the single store is at least 10% each quarter.
In terms of revenue, the profit margin of the sinking market is generally good, as the cost is relatively low when the sales volume is stable. In the revenue list of all NOWWA stores, 234 local stores performed well in terms of profitability. For example, the rent for a store in a 234 tier city is only 5000 yuan per month. According to the estimation of four shop assistants, if the quantity of coffee sold is the same, it can earn 400000 yuan more per year than the same store in a first-tier city.
What is the revenue target for this year?
I hope that maintaining this growth rate will be much easier than last year. The impact of the epidemic has been basically alleviated.
How does NOWWA create a brand mentality in the sinking market?
“This Spring Festival, you can also drink NOWWA at home.”