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Luckin Coffee, a Chinese Newcomer, Attracts Customers with Significant Discounts and High-Tech Services
When Starbucks arrived in China two decades ago, he promised to open a new store every 15 hours. Luckin Coffee, its local rival, plans to build a high-tech store every three and a half hours to dethrone the American giant.
The Chinese are starting to spend millions of dollars to attract customers with large discounts, defying Starbucks' dominance by targeting office workers and students who prefer to have their java at home or delivered to their homes.
While Starbucks and its British rival Costa Coffee offer relaxing spaces for people who want to work or meet friends, most Luckin stores are more like "delivery kitchens".
The shops are no bigger than a studio, with no tables, display counters or even cash registers, since all payments are made using a mobile phone.
Luckin's no-frills approach means that consumers pay about a third less for a cup compared to other global brands. A large latte costs 31 yuan (about 5 dollars) at Starbucks, but only 24 yuan at Luckin.
Customers who visit one of Luckin's blue-and-white outlets only need a few minutes to scan a code and pay for their pre-ordered coffee via the smartphone app. l & # 39; company.
"I like the convenience, there are no long queues, nor sitting alone while your coffee is being prepared," said Yu Qian, a financial badyst in Beijing. "The coffee itself is a little sweeter, more like the sweet milk tea that is popular in China."
Luckin's aggressive strategy reflects the tactics used by other Chinese startups that have dislodged Western brands from one of the world's largest consumer markets.
"The big advantage we have for pick-ups compared to department stores is that in terms of rental costs, we pay a lot less than our competitors," AFP Reinout Schakel told AFP. of Luckin's strategy.
After only one year of activity, the company announced its intention to open more than 2,500 outlets by the end of the year, which would bring the total number of its stores at 4,500. In comparison, Starbucks has approximately 3,600 stores across the country.
While Starbucks and Costa offer a space for relaxation, most Luckin stores are small, with no table or cash register.
Play catch-up
According to research group Euromonitor, the US giant owns 80% of the $ 3.4 billion Chinese coffee-restaurant market.
But Schakel sees a growth margin.
Chinese consumers currently drink only four to five cups of coffee a year, compared with around 300 cups in Japan or South Korea, neighboring countries, which were also traditionally markets for tea consumption, he said.
China is the second largest market of Starbucks and the second largest market after the United States.
Its Reserve Roastery in Shanghai, opened at the end of 2017, is the largest store of the company in the world.
But he was a latecomer in the huge food distribution sector in China.
The Seattle-based company has partnered with Alibaba's Chinese delivery service of Chinese e-commerce company Alibaba only after Luckin began to reduce its market share in July.
"Our delivery service today covers more than 2,000 stores in 30 cities, three months after its launch," AFP quoted Derek Ng, communication director of Starbucks China as saying.
The competition has also prompted Starbucks to focus on its more upscale Reserve coffee brand, made up of rare coffees from around the world, said Hu Yuwan, an badyst at Daxue Consulting in Shanghai.
Luckin raised about $ 400 million in two rounds of funding last year and says his value was valued at $ 2.2 billion.
But the US channel has recently started making cuts, Hu said, adding that the rivalry between coffee and beer has reminded him of the war of cuts between Uber and his local rival Didi Chuxing, who then dislodged the giant American market Chinese.
Schakel, who is also Luckin 's CFO, said the startup could afford to spend money to take over market share over the next few years.
"Are we in competition with Starbucks, probably to a certain extent, no matter whether the demand comes from new coffee drinkers or Starbucks coffee drinkers," he said.
The first coffee unicorn from China
The caffeine-fueled expansion of Luckin has been funded by investors including Centurium Capital, a private equity fund founded by former Chinese director of Warburg Pincus, and GIC, Singapore's sovereign wealth fund.
The company raised about $ 400 million in two rounds of financing last year and claims to have been valued at $ 2.2 billion, making it the first unicorn to be released from China.
Schakel declined to comment on rumors that Luckin wanted to be listed on the Hong Kong Stock Exchange.
But the Chinese landscape is littered with start-ups who have fallen asleep after blowing money on discounts and aggressive advertising.
"Am I worried about whether we will follow this path? Absolutely not," said Schakel.
"Even if we sell our products at a reduced price on the right scale, we can be profitable."
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