Chinese Nasdaq-listed coffee chain luckin (Nasdaq: LK) on July 8 rolled out a series of tea-based beverages in about 3,000 stores across 40 Chinese cities. The company created Luckin Tea (the Xiaolu tea in Chinese) drinks in a bid to grab a slice of the growing market for tea beverages. Liu Haoran, a young internet celebrity, is the new poster boy.
Luckin grew rapidly as a China-based coffee chain, and some question whether its expansion into tea beverages is a step away from its primary business. Guo Jinyi, co-founder and senior vice president of luckin, responded that getting into the tea market is a visionary strategy that aligns with the consumption habits of young Chinese white-collar workers who favor both tea and coffee. He added that launching the new tea drinks was also a response to customers’ demands to increase the variety of luckin’s offerings.
Guo, however, said that China’s tea beverage market faces many challenges. First, he said that unlike luckin’s cafes, most tea stores are run on the franchise model, which makes it difficult to control the quality of each store’s offerings and supply chains. Moreover, Chinese customers often have to wait for over fifteen minutes for their tea beverages at competing tea shops.
Acutely aware of the challenges of the tea beverage market, luckin has used its technology-driven platform and densely located pick-up stores to its advantage. Luckin’s pre-order service via its mobile app lowers the time customers wait for drinks, improving their overall experience. On the other hand, luckin’s broad store coverage has increased the availability of Xiaolu tea. Luckin had opened 2,370 stores as of March 2019, and it plans to expand to 4,500 by the end of this year and to 10,000 shops by 2021.
To ensure success in this competitive market, luckin is emphasizing the high quality of its tea-based beverages. The company has hired two tea masters from Fujian and Taiwan to handpick different kinds of tea and do quality control. It has also established partnerships with recognized companies like Anchor to provide ingredients for the beverages.
Luckin intends to make its tea drinks attractive to office workers and students who look for refreshing afternoon beverages. To that end, luckin has located its pick-up stores around office buildings and universities.
China is a nation of tea lovers. As of 2017, around 500 million people reported drinking tea-based beverages, according to the China Tea Marketing Association. China’s ready-to-drink tea market was worth USD11.7 billion by the end of 2015. Besides luckin, tea beverage brands such as HEYTEA, Lelecha, and Nayuki are also competing for market share.
Zhu Danpeng, a food industry analyst, said luckin’s technological innovations allowed it to expand quickly and become a leading coffee brand. Luckin’s vast shop network and innovative business model will revolutionize the tea market in China, providing customers with more choices than ever before and giving it a leg up on the competition.
