Recently, Chinese instant coffee manufacturer Saturnbird Coffee (三顿半) consecutively completed Series A and Series A+ rounds of funding, led by Tiantu Capital (天图资本), securing tens of millions of yuan. FreesFund (峰瑞资本) invested in the preceding round of financing, which was valued at CNY 10 million.
According to the company, the latest infusion of money will be used to enrich the product mix according to customers’ needs under different scenarios, and to open offline stores to educate the consumer base about what the company has to offer.
Founded in 2015, the Changsha-based company cut into China's USD 150 billion coffee market by diving into a new category known as ‘Specialty Instant Coffee’ – this uses high-quality materials to improve the instant coffee experience. Its product line also includes drip coffee, as well as peripheral products like coffee makers and coffee mugs.
Though there is a 15% annual growth of coffee consumers in China, it is a typical red ocean category with a bunch of players distributed through the long tail, struggling to differentiate themselves.
“In China, coffee is evolving from a social experience to a basic need, ” said Huang Hai (黄海), director of FreesFund. “And coffee shops as a social space are no longer the biggest margin for growth.”
After the somewhat disappointing sales performance on its drip products, Saturnbird Coffee responded quickly and adjusted their strategies accordingly. Inspired by Starbucks' cold brew series, the Chinese coffee producer then launched its new product with the ‘Specialty Instant’ description, which let the business rapidly establish its unique brand image.
During this year’s ‘Singles Day,’ gross merchandise volume (GMV) of Saturnbird Coffee rose tenfold from the same period in 2018, surpassing its total sales of last year on just a single day. With this staggering performance, it overtook Nestlé (雀巢) to become the best-selling player in the coffee category on TMall. Between June 2019 till now, sales of the company broke through the CNY 10 million mark.
The success of its ‘Specialty Instant Coffee’ could possibly be attributed to the following reasons:
1. Innovative and nice-looking packaging
The coffee powder is stored in a coffee cup-shaped small jar with a Lego-like color palette, which is considered attractive to younger generations. This helps the brand to turn potential customers into actual users effectively.
Besides, also because of its eye-catching product appearance, a large proportion of users tend to post pictures and share product experiences on the social internet, which again creates extended referral traffic.
2. Decently preserved flavour
The company's patented 'zero loss' technology adopts cold extraction and an intelligent drying approach. This allows its flavor to get close to fresh ground coffee to a large extent, and to realize a10% baking difference across the six SKUs in the product line.
3. Excellent solubility
Targeting convenience, it takes only three seconds for the product to be dissolved in ice water, hot water, and/or milk, which is especially valued by people who place high value on convenience – for example, white-collar workers.
4. Effective marketing strategies
Promote its products on channels with a good fit, for example, Xiachufang (下厨房) – China's dominant online recipe-sharing community – and RED (小红书), China’s foremost fashion and luxury shopping platform. On the two, the company explored the feedback from Key Opinion Customers (KOC), and then cooperated with them to build up promotional content.
5. Continuously launching crossover items
Through cooperating with famous baristas around the world in launching limited flavors, Saturnbird Coffee improves its customer retention rate and customer lifetime value, and effectively attracts new users at the same time.
6. Smart pricing strategy
Priced at CNY 8 (3 grams capacity), the company brings its customers a taste of Arabica coffee beans with a price that far lower than that of chain cafés. This year, it also launched a small cup version (2 grams capacity), with a unit price of CNY 4.5, to meet the daily demand of high-frequency consumers.
Based on its successful image building, users are willing to pay a certain level of premium on Saturnbird – especially the younger generations – showing their preference for novel products with good design and decent quality.
“Saturnbird Coffee is in line with mass market demand in terms of pricing. Besides, when the vast majority of market insiders in the coffee category are paying attention to online to offline (O2O) and offline business, a 100% online business, is a blue ocean strategy instead,” said Mr.Huang, talking about FreesFund’s logic in investing in Saturnbird Coffee. “Furthermore, the product itself shows strong innovation in technology and packaging.”