On January 8, Luckin coffee (Nasdaq:LK) CEO Jenny Zhiya Qian announced that by the end of 2019 the chain had successfully opened 4,507 stores, surpassing Starbucks’ 4,100 stores, making Luckin the largest coffee chain in terms of the number of stores in China. At the press conference in Beijing announcing the milestone, Luckin also announced the launch of two unmanned retail models, including luckin coffee EXPRESS and luckin pop MINI.
Luckin coffee EXPRESS is an unmanned self-service coffee machine brewing store-serving quality drinks. Customers can use the Luckin app to order their drink in advance as well as check in on the EXPRESS machine. Customers scan the pickup QR code from the app to instruct the machine to pour them a fresh, hot cup of their preferred drink. The machine can mix coffee, water, milk, and other ingredients including ice based on the order requirements. Customers can even use the machine without their smartphones thanks to its facial recognition function.
Ordering can be made in-person on the EXPRESS machine as well. The machines are programmed in a standard way to ensure the same taste and quality of drinks sold at the physical stores. Customers who need some caffeine after regular business hours can now walk to the nearest corner in the middle of the night and get themselves a fresh cup. It may even prove to be even faster than the current ordering experience in a regular Luckin outlet that makes delivery orders. Machines are connected to the cloud management system which can record inventory and send work orders for maintenance.
Customer scanning the pick up QR code at the luckin coffee EXPRESS machine
The luckin pop MINI is an unmanned vending machine that sells snacks, beverages, and quick bites. Customers can get a range of products, from nuts to instant noodles, directly from the machines. Products from the luckin pop MINI are cheaper than the products customers get from regular vending machines. By procuring from its global strategic partner suppliers, such as PepsiCo, CJ, COFCO, and Calbee at a large volume, Luckin is able to bring down the cost of the products to the low level found in other similar e-commerce sites such as Taobao. As with luckin EXPRESS, customers can order at the luckin pop MINI vending machine or directly on the Luckin app. As a Luckin customer, you can now lock the purchased products on the app in advance from a nearby vending machine.
In general, unmanned vending machines and stores have become increasingly popular in China over the past two years. In particular, the two unmanned chains BingoBox and Bianlifeng were able to raise billions of RMB from major investors such as GGV and Qiming, and have seen hundreds of their stores mushroom across China. More than that, Chinese e-commerce giants such as Alibaba and JD are also investing heavily, expanding their own unmanned stores.
The unmanned coffee machines and vending machines can be put in any corner of an office building, apartment or student dormitory without installment costs. The widely-used electronic payment system makes the unmanned equipment free from worries over cash stealing. Additionally, all the machines are monitored closely using AI technology to ensure that products are in stock and to estimate future sales.
With the development of EXPRESS and MINI machines, Luckin can penetrate more locations at a faster speed with lower upfront costs due to zero payroll expenses and minimal rental costs. Customers are also more likely to make repetitive purchases from the convenient machines. According to Luckin, they have cumulatively served more than 40 millions customers in China. The machines are also likely to reduce customer retention and acquisition costs.
Still, Luckin’s ambition stretches far beyond coffee. Qian, Luckin’s CEO, reiterated that the mission of the company is to “be part of everyone’s everyday life, starting with coffee”. With the growing awareness of the Luckin brand in China, its expanding network and product lines, and its enlarging customer pool, I see Luckin competing in a battle for a larger retail network with beverage stores, vending machines, convenience stores, and potentially even others in the near future.