Photo/Shetuwang

Mar. 12 (NBD) -- Coffee Box, a local rival to new retail coffee startup Luckin, was reported to have shuttered 30-40 percent of its stores nationwide.

The company was downsizing in major cities including Shanghai and Beijing. Only 70 Coffee Box outlets now open as usual in Shanghai, compared with the previous 120.

In response, the coffee brand stated that it was adjusting and optimizing the unprofitable storefronts and those that failed to meet certain brand requirements, in order to regain profitability and get prepared for a cooling capital market.

This is a far different picture from one year earlier. Last March when Coffee Box secured Series B+ funding round of 158 million yuan (23.5 million U.S. dollars), it ramped up expansion and announced the plan to increase the number of storefronts to 500 by the end of 2018.

Unfortunately, before it saw any increment in profit, the company was confronted with surging cost due to the aggressive expansion, which was believed to be the root cause for this round of retraction and the alleged cash crunch clouding the company.

While busy with expanding footprint, Coffee Box also paid through the nose for developing a wide variety of cocktails and beverages. The coffee brand started to label itself as "virtual bar" or "tea house".

New product research and development does help improve competitive edge of brands provided that the company is fully funded. But R&D cost for cross-border players will be doubled, and emerging brands, most of the time, aren't well prepared. Evidently, Coffee Box hit the same wall and later refocused on coffee products.

The company also blew hot and cold about not only the product line but also its business strategy, asset-light V.S. asset-heavy.

Previously a WeChat-based third-party delivery platform for Starbucks, Costa and other coffee chains, Coffee Box launched its own coffee brand in 2014. At the time, the newcomer adopted an asset-light strategy, abandoning all kinds of online channels except WeChat.

But later in 2018, the company was reported to build 50-60 exclusive shops in early 2019 that differ from current storefronts, more accurately, workshops to make coffee.

The coffee brand born online eventually chose to spend money on tapping the offline coffee market, which is a transition from an asset-light strategy to an asset-heavy one.

The move is partly aimed to cope with pressure brought by well-funded Luckin. The arrival of deep-pocketed Luckin stepped up the competition. Luckin, while still loss-making, announced in early January its goal to open more than 2,500 new shops, pushing the total number of storefronts to 4,500 by the end of this year.

Despite handsome capital influx into the Internet-based coffee sector, the money-losing situation is being questioned a lot.

Coffee Box now seems anxious to shake off the loss-making label. The company expected to return to profitability in the second quarter this year and claimed that a new financing round will be announced by April.

Email: gaohan@nbd.com.cn