Whether it’s Starbucks’ premium spatial experience or Luckin Coffee’s rapid expansion model, investors have perennially been captivated by the vast potential of the coffee industry. It is,therefore, no surprise that, in recent years, they have taken an interest in Manner Coffee too.

About Manner Coffee

Established in Shanghai in 2015, Manner Coffee stands as an outlier among prominent coffee chains such as Starbucks, Luckin, or Cotti Coffee. It neither emphasizes a unique spatial experience nor attempts to allure consumers with highly discounted prices or overly ambitious product combinations, such as milk-tea infused coffee drinks. Manner is a seemingly fuss-free boutique coffee brand, offering classic coffee drinks that provide value for money, typically priced between RMB 15–20 (USD 2–2.7) per cup.

In October, Manner announced its imminent milestone of opening its 1,000th store, surpassing the target set for the end of the year.This achievement is noteworthy for three significant reasons.

First, Manner opened only three stores in its initial three years of operation, from 2015 to 2018—all situated in Shanghai.

Second, Manner’s growth from three stores to a thousand coincides with a period dominated by major players like Starbucks, Luckin, and Cotti in the coffee industry, particularly in China.

Third, and perhaps most importantly, Manner’s approach to boutique coffee appears to have found a viable middle ground, offering a balance between premium coffee experiences (like Starbucks) and cost-effective options (like Luckin).

Boutique Coffee as the Middle Ground

For context, prior to Manner, boutique coffee had never managed to contend with other coffee heavyweights due to its inherent lack of scalability.

Maintaining the essence of “boutique” poses a constant challenge for these brands, spanning various areas.

Concerning roasting methods, most coffee chains adopt a low-cost blend and employ a dark roast approach to meet quality benchmarks. In contrast, boutique coffee shops typically impose stricter requirements for bean quality. For instance, Starbucks sets its defect rate threshold for coffee beans purchased from Yunnan at 8%, while Manner insists on a defect rate below 3%.

Manner also employs semi-automatic coffee machines that require a higher skill level from baristas, whereas Starbucks, Luckin, and most other non-boutique chains generally use fully automatic machines. To accommodate this, until 2021, Manner exclusively hired experienced baristas trained to operate its machinery, with salaries exceeding those of their counterparts in other brands.

So, the looming question arises: if Manner doesn’t cut corners on ingredient and manpower costs, how has it achieved rapid growth and profitability? The answer is quite simple: Manner keeps its stores small and utilizes a direct sales model. Using this business model, an average Manner store can sell over 500 cups of coffee per day, with certain stores capable of selling up to 700 cups. The net profit per store can reach RMB 57,000 (USD 8,000), with a net profit margin of 23.75%.

While Luckin initially had a per-cup cost of around RMB 28 (USD 4), later lowering it to RMB 13.3 (USD 1.8) in 2019, it operated at a loss for five years before claiming to achieve profitability for every cup sold earlier this year. In contrast, Manner’s per-cup cost is around RMB 11 (USD 1.5), achieving profitability for every cup without compromising on bean quality.

In 2020, Manner’s revenue ranged between RMB 200–300 million (USD 28–42 million), with a net profit margin of over 10%. All of its Shanghai stores were found to be profitable. Claims even surfaced that the initial investment for a Manner store is only RMB 300,000 (USD 42,000), with the potential to break even in just over three months. In comparison, Luckin’s initial breakeven period was around two years.

Having proven to be a lucrative business, it is little wonder why Manner has become alluring to investors, catapulting its single-store valuation to USD 12 million, triple that of Starbucks and approximately 27 times that of Luckin.