Global Lords: I Have Information System

It is reported that Zhihu is also developing a coffee brewing cup, expected to be launched in 1-2 months.

In the knowledge-sharing community, surprisingly starting a coffee business, it inevitably seems a bit ”off-topic” at first. However, upon reflection, the business logic is also reasonable. Firstly, this highly overlaps with Zhihu’s target customer group. According to official Zhihu data, 52.6% and 21.2% of users are located in China’s top-tier, new top-tier, and second-tier cities, with a clear trend towards youthfulness.

Having been in the coffee industry for many years, Zhihu’s deep user ”Peppermint’s Coffee World” participated in this coffee mass testing event. She believes that compared to other types of coffee products, drip coffee retains the highest degree of coffee flavor restoration, which seems to also align to some extent with the tone of the Zhihu platform. ”Whether Zhihu coffee can stand out depends on the positioning and presentation of the product, whether it can highlight Zhihu’s platform attributes, to create a deeper connection with users.”

In the past, several coffee brands have co-branded with Zhihu to break through to the young demographic. This May, KFC’s K COFFEE launched a Zhihu co-branded version centered on marketing the ”various dilemmas faced by young people.”

This time, Zhihu Zhishang launched drip coffee, which is Zhihu’s own consumer brand, focusing on developing good quality daily necessities. As seen from its WeChat official account, they have also attempted to venture into the flower business. Therefore, coffee might be another starting point. In the future, Zhihu may launch more own brands, completing a closed-loop within the platform’s ecosystem.

Cui Lili, director of the E-commerce Research Institute at Shanghai University of Finance and Economics, believes that as the traffic value of Zhihu as a content platform is gradually being excavated, the customer group attributes are quite compatible for coffee; it’s the scenario that isn’t. However, it doesn’t exclude the possibility that some heavy users of Zhihu rely on the community platform’s tone in selecting products.

The hot coffee track isn’t short of surprising cross-border players. After the ”Double Reduction” policy was implemented, some educational training institutions transitioned into the coffee business. Recently, there is market news saying that Xueda Education has established a new business division under which there is a coffee catering center. Currently, Xueda Education has registered the related company ”Zhuoqi Coffee.”

02

Why does Zhihu launch coffee?

At present, specialty coffee is at the forefront, transitioning from niche to mass consumption, and shifting from social attributes to functional attributes. Zhihu also wants a piece of this market action.

Data from IT Juzi shows that from 2020 to July 2021, there were nearly 50 financings in the coffee domain. In terms of investment amount, in just the first seven months of this year, capital financing totaled over 6.3 billion, far exceeding the amount for the entire year 2020, and also surpassing the previous financing boom. Notably, Manner received five rounds of financing this year, with a valuation exceeding ten billion, sparking a capital frenzy.

The rapid development of specialty coffee relies not only on innovations in production technology but also on these companies’ strong internet genes, their marketing prowess, and ability to close the distance with young consumers.

Chen Mixel, Managing Director of Han Energy Investment, told Hunting Cloud Net that as domestic consumers develop coffee habits, their coffee consumption is gradually extending from office scenarios, social scenarios to home scenarios, which is a natural upgrading process. The popularity of specialty coffee also represents consumers’ need for new coffee experiences.

She believes that the market prospects for coffee are vast. Whether it’s drip coffee or cold brew coffee, each sub-category has significant opportunities and their respective fixed customer groups to meet their personalized needs. Compared to tea, coffee has a shorter history of being introduced to China. In the future, which emerging brand can run faster remains to be observed by the market.

Data from the April 2021 ”China Freshly Brewed Coffee Industry White Paper” shows that in China, coffee culture mainly penetrates first- and second-tier cities. However, coffee has gradually shifted from being a ”trendy beverage” to a ”daily beverage,” prompting more and more coffee brands to emerge in recent years, seizing the consumer market.

The reality attracting players to keep entering is that the coffee track still has great potential waiting to be excavated. On a global scale, China’s per capita coffee consumption lags significantly compared to foreign countries. In the U.S. and Canada, per capita consumption is about 300-400 cups, while in China’s North, Shanghai, and Guangzhou regions, it’s 15 cups, with a nationwide annual per capita coffee consumption of only 6 cups.

Currently, the size of China’s coffee consumption market is about 100 billion yuan, with instant coffee accounting for 72%, freshly brewed coffee for 18%, and ready-to-drink coffee for 10%. Compared with developed countries like the U.S. and Japan, China’s coffee consumption is still in the early stages.

Wu Shichun from Meihua Venture Capital once stated that in the next ten years, the coffee market is still a particularly worthy investment business. Based on the current penetration rate and per capita coffee consumption, China actually has a considerable gap with Europe and the U.S., as well as with neighboring Korea and Japan. This is a huge space that can be filled. Coffee, as a universal brand, will certainly become the new essential beverage of choice for young people. Currently, there is still a large space for penetration rate and consumption volume to grow.

From Zhihu’s own ecosystem, by relying on newly launched sections such as product recommendations, it can achieve self-marketing and publicity.

In Zhihu’s coffee mass testing activity, it was stipulated that users receiving the product must, within the specified time, select and publish a qualified experience report from any of the questions below the page. The answers must first acknowledge participation in the @Zhihu Zhishang mass testing activity; and insert specified product recommendation cards in the content.

These questions include ”What are some good and affordable coffees,” ”Which drip coffees are worth recommending,” ”What does coffee addiction feel like,” covering various discussions in the Zhihu community on the topic of coffee.

It can be said that through the evaluations of excellent respondents, Zhihu has already conducted a round of self-marketing and publicity.

The ”Product Recommendation” feature was launched by Zhihu last year, aiming to encourage creators to insert product purchase links within quality answers to earn revenue through commission. Before this, if creators conducted such operations, it would hint at advertorial content.

Since its launch, product recommendations have increasingly contributed to Zhihu’s revenue, becoming a new growth curve. During this year’s 618 shopping festival, Zhihu users opened nearly 2 million stores with their answers, with the view count of content shared reaching over 1.1 billion times, order volume increasing by 124% year-on-year, and GMV increasing by 125% year-on-year, with an average order price of nearly 700 yuan.

03

Zhihu expands its commercialization map further

At the end of March this year, Zhihu, after ten years of establishment, finally rang the bell at the New York Stock Exchange. Struggling between commercialization and maintaining the community atmosphere, Zhihu now faces increased pressure to monetize, continuously pursuing more diverse commercial explorations.

Entering the coffee track also provides more possibilities for Zhihu’s commercialization. From the commercialization process, Zhihu began offering online advertisements in 2016, launched paid content in 2018, introduced paid membership in the first half of 2019, and rolled out content business solutions at the beginning of 2020. In 2020, Zhihu began offering online education and e-commerce related services.

Zhihu also admits that it is still in the primary stage of commercialization. Currently, Zhihu’s revenue is composed of four parts: online advertising, paid membership, content marketing solutions, and others (online education, e-commerce), contributing 843 million, 321 million, 136 million, and 52.63 million respectively to the 2020 revenue.

Zhihu is gradually shedding its single reliance on online advertising. The latest Q1 financial report shows that non-online advertising revenue accounts for more than half, with income from paid membership, commercial content solutions, and other businesses rising to 55%.

As a form of content-based commercial monetization, Zhihu’s online education and e-commerce services earned 52.63 million in revenue in 2020, a year-over-year increase of 1083%, belonging to the other income segment of Zhihu. In the Q1 financial report this year, Zhihu stated that the revenue from online education and e-commerce has also shown initial results, and this part