Seesaw wants 100 specialty coffee shops. How far off is it?

A specialty coffee chain has to make every store feel new and expand efficiently at the same time. How do you do both?

Seesaw opened its first store at the Jing'an Design Center in Shanghai in 2012. Over the next five years, the specialty coffee brand opened seven more.

This past June, word got out that Seesaw had taken a 45 million yuan Series A investment from Baifu Holdings, part of Hony Capital, and planned to open 20 stores by the end of the year.

That is more stores in one year than it opened in the previous five combined.

The coffee trade has a saying: of every ten cafés, six lose money, three break even, one makes a profit. "To open a café you have to run several sets of numbers. Rent, logistics costs and labor costs, and then foot traffic, table turnover and average spend," says Wang Juntao, founder of the Shanghai specialty coffee brand Yingji Coffee. He once worked for a Korean coffee brand consultancy and has traded coffee; before starting Yingji he was CEO of another domestic specialty coffee chain. "A lot of people open a café on passion and never do the arithmetic properly."

Two things are happening in specialty coffee at once: independent shops keep opening, and a handful of brands are chasing scale.

• Zheng Songmao, founder of Zhiguan Coffee, once said he would open 10,000 specialty coffee shops across China, with 1,000 franchises up and running by 2016. The brand signs franchisees and leans on O2O platforms like Hema Fresh to cut the cost of opening a store — though it still has only 10 shops in Shanghai;
• Mellower Coffee, which began in the coffee supply chain, started expanding in 2016 and now runs more than 20 company-owned stores nationwide, plus two in Singapore;
• Yingji, which opened only at the start of this year, is raising a 30 million yuan Pre-A round and plans to add a store on Nanjing West Road in Shanghai by year's end, on top of its one permanent shop and a 100-day pop-up.

Even worldwide, specialty coffee chains that have reached any real scale are rare. The brands coffee people talk about are more or less Blue Bottle, Stumptown and Intelligentsia, and only Blue Bottle has built a sizable chain: 38 stores worldwide since it was founded in 2002.

"Some brands are two years old and already have ten branches, one of them in Singapore. Coffee people in Taiwan can't imagine that kind of scale," says Lin Dongyuan, founder of Gabee. Taiwan's coffee culture goes back further, and many of its veteran baristas have been invited to the mainland as brand consultants. Lin is one of them. He has been coming to Shanghai to demonstrate and teach since 2005. Besides consulting for the brand Stay Real, he advises more than ten Shanghai cafés on their drinks.

Starbucks builds its shops around fully automatic espresso machines. Specialty coffee leaves far more to people: the emphasis on brewing by hand, on showing off what makes each bean different, on stores that each look like nowhere else.

Seesaw was one of the first in China to try it. Its founders, Zong Xinkuang and Wu Xiaomei, are a married couple with no background in coffee, but over five years they built a solid reputation. Almost all the revenue comes from coffee; desserts come from suppliers, and there is no food menu. To Baifu Holdings, the investor, that simplicity also makes the model easier to copy.

Over those five years Seesaw closed five stores whose locations or positioning didn't work, and gradually did more business with commercial landlords. It now has 11 stores. In interviews, the phrase "China's Starbucks" has started turning up in the way Zong Xinkuang describes the company.

Like the snack shops now moving upmarket, a café that sells on its beans and its independent spirit can only get investors' attention by becoming a chain.

Zong Xinkuang and Wu Xiaomei's original business plan said they intended to open 15 stores. They had just come back from the coffee-growing areas of Yunnan and had raised money from relatives and friends.

When Seesaw opened its first store on Yuyuan Road in Shanghai, it also rented a few unremarkable rooms in the back courtyard for a warehouse and a "coffee training academy." That room full of beans, espresso machines and odds and ends matched the shape Zong Xinkuang had in mind for the company: an "ecosystem" that earned money at every stage — growing coffee upstream in Yunnan, running stores downstream, and cultivating a coffee culture among customers along the way.

The complete "ecosystem," though, sounds more like a phrase sharpened over rounds of fundraising. By 2017 Zong Xinkuang was still telling QDaily he hoped to "use technology to connect every coffee lover, supply products to small specialty coffee shops, turn that into revenue, and share the commercial capability and information Seesaw has built up."

Zong Xinkuang came out of IT, and that kind of talk fit the moment's enthusiasm for "sharing" and "platforms." He also admitted he "doesn't know what form Seesaw will finally take."

Expansion is a live subject in specialty coffee everywhere. Just as media people bring up Monocle whenever ecosystems come up, Blue Bottle is specialty coffee's template — it came up again and again among the café operators we interviewed.

What makes the brand worth studying is that it grew from Oakland to 38 stores worldwide without losing quality or reputation. It has shown, through a kind of retail at scale, what specialty coffee can do: sell iced coffee the way you'd sell milk, develop new brewing methods and roll them out to every store, sell pour-over travel kits, pull in customers with digital content, and sell well-designed merchandise.

The biggest difference between Chinese specialty coffee brands and Blue Bottle is how much weight the former put on foot traffic and location.

Blue Bottle founder James Freeman told The Washington Post that the company does not use demographics or market research to pick sites. He thinks his instincts, and those of CEO Bryan Meehan, are sharper than an analyst's.

Of Blue Bottle's six stores in Japan, only the Nakameguro and Shinjuku shops sit anywhere near central Tokyo. The other four look, at first glance, out of the way.

That is the cunning of it. Sites like Kiyosumi-Shirakawa in Tokyo line up closely with the people Blue Bottle wants: a creative class that values independence and aesthetics, and the followers who radiate out from it. The same sites let the company dodge the rents of high-traffic districts and keep costs down.

Being "independent and hidden away" is now something a lot of people want, but copying it blindly will kill you. Blue Bottle's siting depends on a mature coffee culture — independent cafés in Tokyo and San Francisco already compete hard — and its confidence rests on being able to make itself a destination rather than an impulse buy.

Seesaw thinks it faces an entirely different crowd. Wu Xiaomei told QDaily: "For Seesaw, our customers are young Chinese people. A bit younger, not quite the same as theirs" — Blue Bottle's.

From its third store on, Seesaw moved toward busy shopping malls and office buildings, breaking with specialty coffee's habit of keeping shops small. Its stores run west to east along Shanghai's horizontal axis: from Réel Mall by Jing'an Temple east to Huaihai Middle Road, and on to Kerry Parkside in Pudong.

Yingji opens stores much the same way. "Yingji's route has to run through the Huangpu River, Huaihai Road, Jing'an Temple — along Shanghai's central axis," Wang Juntao says. Rent on Yingji's Xintiandi store runs 600,000 yuan a month, and the next one it is preparing will be on Nanjing West Road, another crowded, top-tier shopping district.

Siting like this treats the store as an advertisement too; brand promotion is still the point. Much of Seesaw's site selection follows Starbucks's careful calculations — or, put another way, anywhere Starbucks might turn up, Seesaw might consider.

Which also means meeting Starbucks head on, and mostly losing.

"Honestly, we can't get the same spots Starbucks gets right now, especially in Shanghai. In other cities we might still land them as a new brand," Zong Xinkuang says.

Their third store opened on the fifth floor of Réel Mall in Shanghai, one of the most contested café locations in the city. Three Starbucks sit at the base of and inside the building; two more cafés are tucked into bookstores downstairs; and next door to Seesaw is another chain, Cafe de Paris.

Picking sites by Starbucks's rules is largely a contest of connections and money.

Malls looking to set themselves apart are the opening — they put more value on a specialty coffee chain. Seesaw's ground-floor spot at Shui On Plaza in Shanghai's Xintiandi is even better than Starbucks's: it has almost no competition and the whole building's coffee business to itself.

Specialty coffee's expansion is usually read as an answer to demand for "consumption upgrading."

The accepted definition of specialty coffee is narrow enough — beans that score above 80 in a national coffee organization's cupping assessment. But the chains all say they sell more than the cup: they sell a way of living, and they need content to draw people in.

The most direct form that "content" takes: beyond beans scoring 80, or 85 and up, a café may also offer purpose-made brewing vessels, teach customers new ways to taste and brew, and play up barista culture, store design and the value of the brand itself.

Over the past year both Seesaw and Yingji have done a good deal of cross-brand work. Yingji opened a 100-day pop-up beside an Audrey Hepburn exhibition; Seesaw has invited designers in for talks in its stores and worked with the sportswear brand Adidas Originals and the boutique Dong Liang.

Both companies say Chinese specialty coffee is no worse than what's abroad. What separates Chinese cafés from foreign ones, they say, is people.

"They" — baristas overseas — "have real personality, they express themselves, and they understand the business side. We want to put that out there so more people know about it," is how Wu Xiaomei sums up the difference between Chinese and American baristas.

Mainland China has no steady pipeline into the job; early on, the main supply of baristas was bartenders who had worked a counter. Learning to make a cup of coffee is not hard, but one thing that sets the third wave apart from the first two is its promotion of growing-region culture, which asks a barista to carry a sprawling body of knowledge and explain it plainly. Plenty of cafés hire baristas roughly the way they would hire a waiter, with modest expectations of schooling or ability.

"When they try to move into management or the technical side, they struggle. That's where we fall behind foreign specialty coffee brands," Wang Juntao says.

Pay that can't compete also keeps baristas moving. Monthly salaries of roughly 3,000 to 6,000 yuan make good staff hard to keep. At that level, barista is one of dozens of service jobs alongside estate agent or restaurant server. Without a proper ladder to climb, the job is likely to be a stopgap for people drifting through an unsettled stretch of life.

For that reason, Zhiguan Coffee went with the same grade of fully automatic machines Starbucks uses, removing "people," the largest unknown, from the equation.

Seesaw and Yingji pay slightly above the going rate and have built reasonably complete promotion tracks for their baristas.

Wang Juntao likes to lay out the seven grades Yingji has set for baristas: junior, intermediate and senior, then supervisor, store manager and regional manager, each grade tied to its own pay. A senior barista can go two ways — specialize, enter competitions, move into training; or go into management, helping open stores, run operations, or consult.

Wu Xiaomei thinks Seesaw's efficient training is itself the draw for talent, which is why the company pays more attention to a barista's background than to experience.

"Our baristas come from all sorts of backgrounds — design, a few used to teach English, all kinds of things, but they all got interested in coffee early. That's one of our advantages at the moment," Zong Xinkuang says, adding that the baristas they hire are better than the average food-service worker, in schooling and in bearing.

Seesaw's 100-plus employees come mainly from three places: Starbucks staff at store-manager level, people from small specialty coffee shops, and new graduates — "mostly from art schools, or students who studied tourism or hotel management."

Wu Xiaomei says the company has planned for going from 100 people to 300. Of the 45 million yuan investment, beyond what goes to opening stores, Seesaw will spend part of the rest hiring a consulting firm to work out what talent the expansion plan requires.

The second obstacle to scale is store design and construction.

Seesaw's stores were never designed with scale in mind. They are what came of Zong Xinkuang asking friends for help.

Zong Xinkuang once ran an architecture firm and knows how to judge a style. Tom Yu, a friend who used to head Heatherwick Studio's Asia projects, designed the first store. No two Seesaw stores share a designer, and no two look alike.

That refusal to repeat itself takes the fatigue out of a chain, but the slow, collaborative way it happens turns design into a costly, time-consuming unknown.

Preparing a Seesaw store takes three or four months, two if rushed — already faster than it used to be. At ten stores a year, the old rhythm plainly will not do.

Zong Xinkuang likes to bring up the design of Intelligentsia and Stumptown, both strongly artistic: "very natural, very approachable, nothing forced about it." Seesaw, he thinks, "tries a bit too hard, adding things you can take selfies with just to please customers."

Seesaw reckons its selling point is the bar — "customers can see the whole process of making coffee and talk to the staff whenever they like" — and that "customers can sit and watch the barista perform, like watching a show."

That layout has been standard since the first store, but fast expansion has to follow the rhythm of the malls Seesaw moves into, and their property managers do not always keep to Seesaw's schedule. Several of the 20 stores Seesaw plans to open this year have already slipped because a mall's own opening was delayed.

To manage the team, handle the spatial design and widen the product line, Seesaw is making the company bigger.

Few specialty coffee shops bother with a marketing department of their own. But the cafés preparing for large-scale expansion all have PR and communications teams with designers, copywriters and planners in them.

That is a heavy test of the founders' stamina. Several meetings a day, hunting for dessert and food suppliers, fitting out eight stores at once — this is now ordinary life for Zong Xinkuang and Wu Xiaomei. Capital, events and brand reach are all on the list every day.

"Most of the time I'm thinking about our structure, our direction," Zong Xinkuang says. He studies American coffee brands and looks for ideas in other industries too. He doesn't know how to pronounce "Supreme," but the streetwear brand so many young people are fixated on is one he wants to understand and eventually work with.

To lift revenue, Seesaw needs food to make up more of what it sells, and the right supplier remains a constraint.

Other changes are easy to see. Seesaw's first store drew expats who knew coffee culture and enthusiasts who loved it; moving into malls has turned those coffee lovers into white-collar workers with a hard need for caffeine.

Meanwhile Starbucks has built a network that gets everywhere, selling "standardization" and "convenience" while using enormous flagship stores to stir up brand loyalty. And since 2017 foreign brands have kept arriving: Peet's, an older brand than Starbucks, is coming to Shanghai, and even illy, which long cared mostly about wholesale, has opened a shop in Hangzhou.

Money from investors can help Seesaw get better people and better locations — something Zong Xinkuang and Wu Xiaomei have been chasing since they opened. Individuals and investment firms approached Seesaw along the way, but none of those conversations came to anything.

At the end of 2016, Jack Ma put forward the idea of "new retail" at the Yunqi Conference, and offline opportunities became a subject again. Hony Capital, which says it intends to put 10 billion yuan into food and beverage, made its approach to Seesaw against that backdrop. The firm is also the controlling shareholder of PizzaExpress and of the Beijing fast-food brands Hehegu, Xishaoye and Meinai Xiaoguan.

Hony hasn't handed Seesaw a specific number yet, but it wants Seesaw to be the top brand in specialty coffee and to open 100 stores across the country — a figure no one in this industry has ever reached.

Zong Xinkuang has said it more than once: "How do you scale to a certain size at this stage without losing what makes you small and good? That, to me, is the hardest part."

Cover image from: Unsplash