Starbucks beware: luckin coffee may triumph in the Chinese market

Whether luckin coffee (luckin) might take Starbucks’ leading position in the Chinese coffee market remains a hot topic of conversation. Recently Kevin Johnson, CEO of Starbucks, responded to the question, saying that it is unlikely that luckin overtakes Starbucks in China. But luckin has continued to grab more and more market share. Qian Zhiya, founder and CEO of luckin, announced its ambitious plan: to become the largest coffee chain in China by the end of the year.

Johnson said that even though luckin has expanded quickly, luckin’s operations and stores are not yet equivalent to those of Starbucks. According to Johnson, “many luckin units are much smaller ‘points of presence’ and not comparable to full-service Starbucks cafes.” He said that Starbucks has firstmover advantage and that it might be hard for a new brand to replace it.

However, Starbucks’ recent financial report suggests that it is facing challenges in the Chinese market. According to the company’s Q1 fiscal 2019 results, Starbucks saw the number of transactions in comparable store sales drop by 2% in the Chinese market, while stores that had been open more than a year increased sales by only 1%. This growth rate remains at the conservative end of the company’s long-term projections and is significantly lower than that of last year.

Luckin, the “new retail” coffee chain, is headquartered in Xiamen and started its pilot launch in January, 2018. By the end of the year, it had opened 2,073 stores in 22 major cities across China, including Beijing, Shanghai, Guangzhou and Shenzhen.

According to luckin’s CEO, the company will open 2,500 new stores in 2019, with the total number reaching 4,500. She stressed that “luckin has transformed the traditional coffee chain to a new retail model”, and what they are trying to achieve is to strike an excellent balance between quality, price and convenience through big data integration.

While Starbucks offers customers a comfortable public space for business and casual meetings, there are four distinct types of luckin shops that offer different services. The classifications include ELITE, RELAX, PICKUP, and KITCHEN, and all have greatly enhanced customer experiences.

In general,  luckin’s drinks are 20% to 30% cheaper than comparable drinks at Starbucks. Reinout Schakel, luckin’s Chief Strategy Officer (CSO) pointed out that the big advantage for them “is having pickup stores versus the big stores is that in terms of rental costs, we pay significantly less than our competitors.”

In addition, these numbers can be noted. For instance,  Luckin’s app features a rush-delivery service with wait times averaging just 16 minutes and 43 seconds, according to the company. Luckin has achieved its “500-meters coverage” layout in downtown Beijing and Shanghai, meaning customers can now walk to Luckin’s stores within five minutes. By the end of 2018, the coffee chain has served 12.5 million customers and sold 89.7 million cups of coffee.

Meanwhile, luckin stresses the high quality of its coffee. With selected Arabica coffee beans and skillful barista teams, luckin has committed to providing a freshly roasted and ground coffee consumption experience for Chinese customers. In December of 2018, the brand’s coffee blend was awarded the gold medal at the International Coffee Tasting 2018, organized by the International Institute of Coffee Tasters (Iiac) in Italy.

In 2019, luckin will further penetrate the Chinese market. On February 12, it announced plans to enter 18 additional Chinese cities by the end of April. Counting the 22 cities in which luckin opened coffee shops last year, the coffee chain is expected to operate in a total of 40 cities nationwide this year.

“China is Starbucks’s best and most profitable market now, but it took them nine years of making huge losses,’’ said luckin’s CSO Schakel in an interview with Bloomberg. “We will be faster than that.’’

China’s coffee wars are heating up, and luckin’s competition with Starbucks is definitely becoming more fierce.

 

(Photo from luckin coffee)

Lena Zhang
Lena Zhang

Lena is our columnist. She is a Beijing-based educator who has previously worked as a finance reporter. Lena is passionate about the social sciences and curious about how technology impacts our lives. She holds a master's degree in Social Anthropology from the London School of Economics and Political Science, and a master’s degree in Communications from Jinan University.

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