For years, semi-automatic coffee machines have dominated coffee retailing. A well-trained barista can easily present a brilliant cup of coffee, and as the coffee is being prepared, the aroma, sounds and wait time please consumers minutes before they start to enjoy their specialty coffee.
This spring, Dr. Coffee launches 7 highly competitive new models on the product release event in Suzhou, March 28. Riding on the wave, Dr. Coffee lands on HOTELEX Shanghai, which opened on March 29, to further expand and deepen brand impression. Taking this opportunity, we interviewed Wang Yanfei, GM of Dr. Coffee System Technology Co., Ltd.
The following content is based on and selected
from CTI’s interview with Mr. Wang Yanfei.
Labeling commercial coffee machines with “made in China”
Wang Yanfei majored mechanical engineering, and started as a mold designer. He is not a “coffee addict”, but an occasional consumer trying to stay awake when working overtime. On an international business trip in 2009, his friend recommended a fully automatic coffee machine as souvenir. The price was jaw-dropping – RMB 30,000+! Out of curiosity in its product design, he bought the machine, took it apart and decided that the cost of making one shouldn’t be high. At that time, there was no established coffee machine manufacturer nor proprietary design in China. In 2010, he started his career in fully automatic coffee machines as an engineer and salesman.
From 2010 to 2013, Wang developed his first generation product, then positioned as a home appliance, with performance and quality on par with the one he had bought from overseas but only half the price. He estimated an annual revenue of RMB 4 billion.
Without market research, the aspiration went south. It wasn’t as easy to develop a local equivalence of the machine he had bought, and the local market turned out to be quite different. Consumers either thought his product was too expensive, or did not have enough trust for a local brand. Later, a market research that lasted almost a year helped him see that the largest demand for fully automatic coffee machines in China at that time was not in homes, but hotels, high-end office buildings, and exporters.
He set out once again, and three years after, he developed a brand new understanding of products and market. By end of 2016 he started Dr. Coffee, with fresh insights and a solid foundation.
Q: As the strategy transitioned from home appliance to commercial equipment, what were the challenges and how did you cope?
A: There were tons of challenges. Grinding, brewing and IoT… It took completely different attributes to make a commercial machine. But we had no choice but to confront the problems, and to never give up. First thing to do was to recognize our insufficiencies, identify the gaps, analyze the problems, and find ways to narrow the gaps. We sourced so many sample machines for test purpose, disregarding costs. In the busiest months we used almost 4 tons of coffee beans.
From 2016 to 2018, we repositioned our marketing stand and products. We continuously improved our quality, and spared no efforts in expanding our market in hotels, offices and overseas. We sent free samples to every potential client and listened to their feedback. One of our German customers tried our product for half a year, and we are grateful because they helped Dr. Coffee grow. Price war can only get you so far. We want to differentiate by offering technological innovations and better products.
Q: What changes have you observed in the domestic fully automatic coffee machine market from 2010 onward?
A: When I started in 2010, almost 99% of fully automatic coffee machines in the market were imported. There was no premium Chinese brand. A decade after, as the market grows and matures, there will be more Chinese players in R&D, with more favorable supply chain and lower costs. Domestic brand will eventually dominate the market.
Planting seeds in each segment,
anticipating ramp-ups in the future
Over the last 3 years, Dr. Coffee released 13 highly competitive products and registered 100+ patents. Some of their core technologies were filed for patent protection simultaneously in the US and Europe.
In 2018, Dr. Coffee introduced F2 for chained convenience stores (CVS), F11 and F09 for office and hotels. In 2019, F2 was upgraded to F2H, and F12 and F7+11 were launched targeting office and hotels.
In 2020, Dr. Coffee added F3 to their CVS offerings, and for office and hotels, they launched F08/H08/F10/H10 and M12. In the same year, they expanded product lines to include the F&B and bakery segment with Mini Bar and Coffee Bar.
Dr. Coffee’s machines are slightly pricier than their domestic peers, but still enjoys a 50% price advantage over imported brands, offering great value for money. In the meantime, Dr. Coffee applies the toughest standards to quality. They once recalled all 600 machines sold overseas for an upgrade, regardless of the cost. For an emerging brand in its early stage, faults are unavoidable, but integrity and responsibility go a long way.
Q: What do you see in the next 5 years for fully automatic commercial coffee machines?
A: I expect an exponential growth. Coffee goes great with breakfasts, tea time, leisure activities and office hours; it is a high margin category in F&B; its accessibility fits well with the modern lifestyle and young people has a growing affinity towards coffee. The demand is there, and it will drive growth. Penetration of fully automatic coffee machines will continue to surge.
CVS is our fastest growing channel over the recent year. Key accounts like Lawson have adopted the Dr. Coffee F2. Most CVS are going through consumption upgrade. Bright, open space to go with coffee and hot food is the trend.
The modern tea beverage brand Yihetang has added coffee to their original menu and launched a new beverage: iced lemon coffee. They work with Dr. Coffee F11. TOUS les JOUR sources our new model, Mini Bar, which is fully automatic, very easy to use and rules out any human inconsistency. It comes with a steam wand for latte art, to further polish presentation. Tesla places Dr. Coffee F09 in their stores for hospitality.
Q: Would you tell us more about Dr. Coffee’s plan and vision for the office sector?
A: In China’s coffee market, the largest segment is home, followed by office and then hotels and chain F&B. The penetration pathway for coffee consumption is from commercial cafés to office, and from office to family.
By far, the office segment is quite fragmented. I believe in the future dominant brands will emerge as “office beverage solutions” providers.
Q: What are the key highlights of new products released at the event?
We position F4 as “coffee machine of the future”, for we believe the industry will evolve to be quality-oriented. F4 has an all-rounded Quality Control Monitoring System which curates the best quality by monitoring and auto-correcting extraction pressure, ground amount, water velocity, among other parameters. It works to address the pain points on stability and consistency for large franchise F&Bs.
Q: What is Dr. Coffee’s business mix, domestic vs. export? What is the future market positioning and what are the strategies to support that?
A: Dr. Coffee has always positioned for the global market. Our product has been distributed to 60+ countries and regions in the recent 3 years; Germany, Thailand and Korea are our leading markets. Due to COVID, our oversea business declined from 80% before 2020 to 60%. As vaccination rate picks up and markets stabilize, we plan to recover to our regular distribution ratio, which is 30% in China and 70% overseas.
For the next 5 years, Dr. Coffee will continue to make major investments in R&D and innovations, create new products, plant our seeds in each segment in anticipation of ramp-ups in the future.
Ending note
In a globalized age, Chinese products in emerging industries such as smart phones and new energy vehicles are leading in the frontier. As domestic manufacturing continues to evolve, investment and expertise in core technology R&D keeps building up, made-in-china brands will sure enjoy a bright future. Wang Yanfei believes the same for the coffee machine industry. He hopes that customers will prioritize local brands when making purchase decisions in the future.
He wants Dr. Coffee to be the most trusted and loved Chinese brand in the coffee machine segment, so that whenever anyone considers to buy one, they think of Dr. Coffee, as with Gree in air-conditioning, “I’d love for Dr. Coffee to become an iconic company. At least a company with highlights that truly impress.”
To materialize that vision, the brand diligently works on its R&D, and constantly iterate, innovate and expand their market, “It’s not just profits that we aim for. The goal is that when people speak of Dr. Coffee, they do with respect. That’s gonna be something.” As the brand name indicates, Wang Yanfei wants Dr. Coffee to earn people’s respect by high quality, professionalism and innovation.