There is finally a response to the incident of Cudi forcing the store to sell alcohol. Recently, Kudi Coffee publicly responded that the orders for Moutai Bu Lao Liquor (Huazhijiu) and Maotai Liquor (Gu Zhihuan) are consistent with the store's daily orders. The first batch of orders will be one box each of the two wines, and the payment will not be deducted. The payment will be settled uniformly on April 30, and the company will recover the unsold portion. The debited store completed the refund to the store balance account on January 22.
In other words, Cudi admitted that he had distributed liquor to each store before, but said that this was not mandatory.
The cause of the incident is that some time ago, many associates made statements on social media, saying that Cudi Coffee "mandatory requires all associate stores to order wine" and "a large number of stores have received deduction information."
In fact, over the past year, franchisees have long had deep grudges against Cudi's various shady operations. In their view, Kudi's supply chain management and control capabilities are seriously insufficient. He cannot sell coffee well, and now he still sells liquor. It is completely unprofessional. Disappointed, many franchisees left.
It only took Cudi more than a year from frantically opening stores to stalling expansion. In 2024, stabilizing franchisees and truly doing a good job in the coffee business may become Cudi's top priority.
Sharpen your knife and start attacking franchisees
If Luckin sells sauce-flavored latte, it is still a cross-border joint brand within a reasonable range. Kudi's move to sell the exclusive Moutai health wine directly in the store is really a step too far.
According to the information exposed by franchisees on social media, the first batch of two boxes of wine ordered by Kudi, with 6 bottles in each box, totaled 3,360 yuan. This translates into a purchase price of 280 yuan for each bottle of wine. The current price of each bottle on the Kudi mini program is 599 yuan, which seems to have a good profit margin.
Screenshot of Xiaohongshu
But the question is, can a bottle be sold for 599 yuan? Not to mention that there are probably two groups of people who drink liquor and drink coffee. Looking at the liquor itself, the Moutai Health Liquor this time cooperated with Kudi, although it is under the banner of Kweichow Moutai Distillery, there has always been controversy over Moutai's "labelled liquor", and the market recognition is not too high.
Zinc Finance found that in the official flagship store of Moutai Health Liquor, the current best-selling product is Taiyuan Liquor priced at 156 yuan, with monthly sales of more than 600 units. Other liquors in the store priced at more than 400 yuan have monthly sales of 0 units. It also shows that consumers of this brand prefer products priced from 100 yuan to 200 yuan.
Now Kudi directly distributes wine with a price of up to 600 yuan, which is just passing on the sales pressure to the franchisees, allowing them to rely on their own abilities, making it even worse for stores that are already struggling to operate.
Screenshot of Kudi applet
Kudi still has many tricks up his sleeve. At the joint venture meeting a few days ago, Kudi also upgraded the operating rules. New product raw materials will be uniformly pushed out by the headquarters, and the stores will confirm or adjust them within two hours. This is to ensure the consistency of the products sold in the stores. However, the reality is that many franchisees reported online that Kudi strongly interfered in the distribution of goods, and franchisees lost their autonomy in financial expenditures, and losses increased.
Seeing more and more franchisees protesting, Cudi had to urgently withdraw the new rules and suspend their implementation in order to calm the public anger.
Unfortunately, the accelerated departure of franchisees seems to be an irreversible reality.
According to statistics from the "Catering Boss Internal Reference", Kudi's store growth began to slow down significantly since September last year. By November and December, it had dropped back to the brand's initial stage. While the number of newly opened stores is decreasing, the number of store closures is increasing. According to data from the official website of Jihai Brand Monitoring, Kudi Coffee only monitored the number of closed stores in the cycle from October 22 to November 30, reaching 242.
Given that the rent of most shops will be limited to half a year or one year, when the store lease expires, some franchisees who are losing money may choose to "close their doors", so there may be a new wave of store closures in the first half of 2024.
The capital chain is tight and the business form is deformed.
Cudi and its franchisees are in a "lose-lose" situation, which further exposes its tight cash flow problem.
In fact, as early as June last year, there were media reports that Kudi's cash flow situation may not be optimistic, and it has begun to settle suppliers through bank acceptance bills. At that time, a person familiar with the matter revealed that Kudi’s billing cycle for suppliers was 45 days. If the acceptance bill was true, based on a six-month acceptance bill, the account period would be extended to 225 days.
During the same period, it was revealed that the wholly-owned subsidiary of Kudi Coffee was included in the list of abnormal operating operations. Lu Zhenyao was associated with four pieces of information on persons subject to execution, and the total amount of execution amount exceeded 2 billion. Some time ago, Lu Zhengyao added another piece of information about the person subject to execution, with an execution target of 7.8178 million yuan.
Screenshot of China Executive Information Disclosure Network
In essence, Cudi's business model is not healthy enough, and he is getting deeper and deeper into the quagmire of "burning money".
Kudi has always been obsessed with doing two things. One is to rely on low-price strategies and wage a subsidy war to win over consumers and create buzz; the other is to use the appearance of prosperity to attract more associates to join and maintain the speed of market development. According to a research report by China Merchants Securities, Kudi invested 400-600 million yuan in the first half of 2023 alone in marketing promotion and franchisee subsidies.
During this process, Cudi was not favored by capital, and so far, no financing has been completed. From the perspective of the investment environment, Cudi failed to catch up with Luckin's "good times". Unlike around 2019, when U.S. dollar capital poured into the consumer market, investment institutions around the world are tightening their purse strings, and investors are becoming increasingly cautious.
More importantly, although Kudi’s founding team calls itself the “former Luckin founding team,” Luckin’s current success has little to do with them. A more accurate title for Lu Zhengyao’s team should be the “Former Luckin Financial Fraud Team.” With a lot of black material dug up in the capital market, Cudi has little hope of gaining the favor of capital.
Screenshot of Cudi’s official website
To some extent, Cudi is caught in a dilemma.
On the one hand, Kudi, which lacks capital transfusion, has to absorb the funds of franchisees through store expansion to fill the hole in cash flow to support its continued subsidy war; but on the other hand, it is undoubtedly a drop in the bucket to supply the existing more than 7,000 stores with only the funds brought by the hundreds of new stores in recent months.
Refusing to practice basic skills, the supply chain has obvious shortcomings
Taking a long-term view, dissatisfaction among franchisees and high cash flow pressure are not actually Cudi's biggest crises. In the fierce competition on the coffee track, the ultimate competition is supply chain capabilities, and this is Cudi's current weakest link.
Since last year, "out of stock" has almost become the norm for Kudi. Not long ago, a Kudi franchisee posted "Another Letter to the Management of Kudi Coffee Company" on social media, which first mentioned the supply issue.
Screenshot of Xiaohongshu
The franchisee pointed out that Kudi's supply chain is seriously out of line. Both daily raw materials and materials have been in a state of irregular out-of-stock for a long time. "From the most demanded milk and coconut milk to some thick milk that is not used much, and even packaging materials, if you accidentally fail to stock up, you will not be able to order for a month in a row, and the arrival date of the materials is always one day later than the order date, forcing you to make urgent orders and add delivery fees."
It’s not that Cudi is unaware of the problems in the supply chain, it has also begun to map out the supply chain pie. In July last year, the Kudi Coffee East China Supply Chain Base was officially unveiled and settled in Dangtu County, Ma'anshan City, Anhui Province. What was said at the time was that it would be put into operation in the second half of last year, with an estimated annual production capacity of 45,000 tons, making it the largest single coffee roasting factory in the country.
Later, Li Yingbo, Chief Strategy Officer of Kudi, changed his tune and said that Dangtu East China Supply Chain Base will be put into operation in early 2024. But as of today, this supply chain base is still in a "difficult" state, and it is still unknown when it will be used.
The supply chain is closely related to product research and development. If the supply chain management is not in place, it will definitely affect the speed and taste of subsequent new product development. No wonder the franchisee pointed out in the letter that the Kudi R&D team was stretched thin and the speed of releasing new products was "impressive". It took a long time to release two new products that "replaced the soup without changing the medicine."
Since last year, Kudi Coffee has gained a strong presence in the market and exposed its existing problems. In 2024, Cudi’s challenge may be to seize the remaining ammunition and stay in the coffee market.