Recently, the coffee chain Kudi faced significant challenges as it confirmed the suspension of its convenience store franchise recruitmentThe company characterized this pause as merely a temporary setback, hinting at the possibility of a future restartHowever, for the franchisees who have been left in limbo, the uncertainty looms large, as they ponder whether their investments will ever bear fruit.

Many franchise owners took to social media platforms like Xiaohongshu, expressing their frustration and confusion regarding the ever-changing policiesOne disillusioned franchisee shared their experience of signing contracts, paying the necessary security deposits, and then abruptly being told by the company to either withdraw from the business or invest significantly more to upgrade to a faster service modelThis situation suggests that Kudi may not have a well-defined plan to adequately support its suspended franchisees.

In a twist of fate, another piece of bad news hit Kudi hard

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Luckin Coffee, its main competitor, made a bold move by announcing significant price reductions on a range of raw materials, including coffee beans and coconut milkThis reduction covered over 80 products and included a staggering 16.8% cut in the price of coffee beans, which have recently surged to their highest levels in nearly half a centuryThis price war potentially deepens the competitive pressure on Kudi, which has already struggled with its supply chain management and cost control.

The rising prices of coffee beans have created a storm in the coffee marketToday's consumers are no longer satisfied with just an energy boost from their caffeine fix; they increasingly seek high-quality products with unique flavors and experiencesThis shift in consumer expectations has intensified brand competition, making innovation in supply chains critical for survival in the marketCoffee beans are central to the supply chain, affecting profit models and product development

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As their prices skyrocket, Kudi's weak supply chain threatens to expose the company to the fluctuations in market demand, forcing it into a tough balancing act between costs and consumer satisfaction.

Kudi has famously relied on a low-price strategy to establish its presence in the market, offering drinks at an astonishingly cheap 9.9 yuanHowever, as the cost of coffee beans escalates, Kudi finds itself in a dilemma; maintaining its low-price model could necessitate cuts in the quality of raw materials and manufacturing processesSuch a compromise would likely damage its brand reputation, leading to long-term consequences that could be likened to drinking poison in times of thirst.

Recent policies from Kudi suggested a lean towards offering domestic rental coffee machines to new franchisees, many of which reportedly cost over 10,000 yuanWhile lower-cost domestic machines may seem appealing, they often lack the precise temperature and pressure control features found in high-quality imported machines

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This deficit can jeopardize coffee quality and operational reliability, exacerbating the existing complaints from consumers regarding Kudi's product standards.

This raises concerns that Kudi’s already beleaguered franchisees, who are struggling to remain solvent, may find their situation even more precarious if forced to adopt lower-quality equipmentReports abound of franchise owners surrendering their shops within months of opening due to the lack of profitability or even closing down entirely after just six months, with social media teeming with posts about store closures and transfersWith this new state of affairs, rising competition makes maintaining profitability increasingly challenging for Kudi.

Conversely, Luckin Coffee has managed to secure favorable procurement agreements, ensuring a steady supply of high-quality beans while also passing on cost savings to its franchisees

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The company’s recent announcement to lower raw material prices, particularly for coffee beans, clearly communicates its commitment to collaboration and mutual benefit with its franchise partnersThis further exacerbates Kudi's predicament, as its low-price strategy finds itself under additional scrutiny and pressure amidst Luckin's advantageous pricing model.

There are several interconnected issues putting Kudi at a clear disadvantageFirst, the aggressive expansion strategy of opening convenience outlets fails to align with the evolving consumer landscapeToday's young coffee drinkers prioritize more than just convenience; they desire immersive experiences that reflect their lifestyle aspirationsUnfortunately, many of Kudi's outlets are located in uninviting, noisy environments, rendering them unattractive to the very consumers Kudi aims to engage.

Kudi's unfortunate reputation for low-quality locations has led to widespread negative perceptions among users on social media

Concerns about hygiene, particularly regarding pest invasions in proximity to food establishments, have further tarnished the brand's imageAdditionally, Kudi's operating model has generated discontent among franchise partners, with complaints about a lack of market protection leading to over-saturation and competition within the same immediate areaIn one case, a franchisee reported a new store opening a measly 129 meters away from their outlet in a small campus, highlighting the insensitivity of Kudi to the practical realities faced by its partners.

Concerns about profitability have naturally encouraged some franchisees to reduce their investments or even exit entirely, undermining Kudi's expansion ambitionsOne franchisee mentioned that initial investments range from 300,000 to 400,000 yuan, and to recoup that in two years, the store must generate a monthly net profit of around 15,000 yuan, requiring sales of 400 cups daily given the high operating costs involved.

The competition is fierce, particularly in off-peak seasons, adding strain on Kudi's already beleaguered operations

Reports have noted that Kudi's average store sales have plummeted, with some locations barely managing to sell 150 cups daily during the harvest season.

Moreover, Kudi's failure to innovate pertinent new products has proven problematic as consumers continuously crave noveltyTheir lineup lacks standout offerings that can resonate in a crowded market, falling short compared to competitors like Luckin, which recently launched a wildly popular coconut latte that has captivated consumersFeedback from former Kudi employees even suggests that the company’s innovation strategy is virtually non-existent, primarily resorting to copying successful products from others instead of creating its own unique offerings.

This multitude of interrelated issues renders Kudi's current suspension of the convenience store model a necessary step towards risk mitigation and reputation restoration