Before Excavating Luckin Coffee’s Underlying Logic, Drop the Luck Behind First
Observing from a broader strategic angle, Luckin Coffee has become the training field for Shunfeng and Ucar to construct their instant logistics. Instant logistics is the cornerstone infrastructure of new commerce: Meituan knocked the door of ridesharing business through its takeout service products; Didi got the entry tickets into takeout business through its ridesharing operation. Though it seems that Meituan and Didi are involved in an ugly fight, the truth is that the loser might be neither of them but the third party, Shunfeng and Ucar.
Some commented that Luckin Coffee’s competition strategy is heavily relied on VC, but this saying is not objective enough. However, what can be assured is that Luckin Coffee(瑞幸) would be in a great demand of series of funding. In a relatively long period, Luckin Coffee is destined to splurge money on its operation.
Luckin Coffee is born with slogan of Anti-Starbucks. Apparently, the benefit from such a high-profile catchphrase is that it could attract people’s attention quickly and gain some bargain chips when absorbing capitals. Yet, the logic behind Luckin Coffee’s market expansion is not competing for Starbucks customer stock but altering those who are not fans of coffee to turn into it.
The former is the stock and the stock battle is unquestionably a red ocean kill. From all perspectives, Luckin Coffee is not the stake holder in the game. Those who used to purchase Luckin coffee did not sense any uniqueness from the coffee’s taste but were attracted by its ads. Speaking of the truth, general customers do not care about Luckin Coffee’s taste comparing to Starbucks’. A few bucks less and delivery service are not stimulating enough for consumers and are not a powerful move to steal existing customer stock from Starbucks.
Luckin Coffee’s blue ocean strategy is attracting new customers. Revealed from current data, the pool of Chinese coffee consumer is yet to be expanded. Doubling, tripling, quintupling or even decupling current market size is definitely achievable. Occupying the blue ocean consumer pool, Luckin Coffee is seemed to compete with Starbucks-alike giants from the same starting line.
On Dec. 13 2017, Meituan Senior Vice CEO, WANG Huiwen, presented an interesting fact on EO Innovator Conference: Dated back in 2013, when Meituan initiated its take-out delivery business, the whole traditional takeout delivery market size just met 100 thousand deliveries per day. If Meituan were to compete for the pre-existed market, there would be nothing to be told now. Referring to Huiwen Wang, Meituan is not doing the business of “interneting” takeout delivery but the takeout delivery itself. Thus, the takeout delivery market has reached the million size, daily.
Similarly, if Luckin Coffee is doing the business of “interneting” or “deliverifying” coffee, what could be pictured is significantly constrained and limited, though current coffee consumer market is times larger than the one of 2013’s traditional takeout delivery. From the logic of incremental market, sizable actions that Luckin Coffee took is giving a lark to catch a kite in a long run.
The message that Luckin Coffee sent may not be how good its coffee is, but it is no doubt that Luckin Coffee is a marketing master, which most people want to learn lessons from. In fact, the team of Luckin Coffee that worships the theory of product orientation give itself an ambiguous product orientation. Ucar (almost the same team behind)’s ads, “Beat U”, distinguished itself from competitors by emphasizing safety. The strategy was proper and executable for a red ocean market at that time. But this time, “This cup, who doesn’t love”, is far from expectation.
A benefit of competing with Strabucks is substantially eye-catching, but that is not enough. Comparing with Starbucks, current Luckin Coffee’s products cannot be called “Better”, and lightyears away from being “Different” or “Change”. It would be better for Luckin Coffee to make changes onto its strategy. Otherwise, the new customers it attracted and cultured will finally turn into Starbucks’ arms.
Low price as a competing means is a paradox under the category of close-sociability commodity. Close-sociability commodity satisfies customer’s vanity and demand of social acceptance. However, low price leads to an opposite. For instance, you received Luckin coffee, while your friend got one from Starbucks (though Starbucks is not a high-end coffee, either), and you would tend to feel inferior than this Starbucks friend.
Considering from the angle of brand marketing, Xiaomi employed slogans of “The first smart phone for the young” and “The first smart TV for the young” associating with low price and let numerous less-affordable people obtain their first smart phones and smart TVs. Though, Xiaomi users gradually became more-affordable and then switched to Huawei and Apple cells, Xiaomi is upgrading its products with high quality matched with high price to win back consumers’ hearts. The road was filled with thorns, but Xiaomi carried on and now it is at a sound status. For Luckin Coffee, the way that Xiaomi played in its initial status is still worth learning.
Despite of product orientation and marketing, what Luckin Coffee needs to excavate is that what value improvements could be made onto Luckin Coffee, comparing with the traditional coffee market. Speed and on-time delivery could have been extremely valuable. However, these two has become standard requirements. Additionally, Luckin Coffee could not satisfy above two requirements on its own solely. The cooperator Shunfeng, who provides speedy and on-time delivery service, is definitely the winner in this game, while the profitability of Luckin Coffee is still a mystery.
At a broader strategic angle, Luckin Coffee has become the training field for Shunfeng and Ucar to construct their instant logistics. Instant logistics is the cornerstone infrastructure of new commerce: Meituan knocked the door of ridesharing business through its takeout service products; Didi got the entry tickets into takeout business through its ridesharing operation. Though it seems that Meituan and Didi are involved in an ugly fight, the truth is that the loser might be neither of them but the third party, Shunfeng and Ucar. Standing on above perception, Luckin Coffee’s front end is QIAN Zhiya, and the back end is LU Zhengyao.
Either define the new category, or the new methodology. So far, Luckin Coffee is the later. What it needs to do is to employ new strategy and find new customers. Luckin Coffee adopts a combination of “classified retail store locating + online and off-line connected for advertising + speedy and on-time delivery” as the new strategy. Comparing with traditional Starbucks, it is hard to predict that the customer experience would be improved and/or the cost of the combination would be less. Afterall, Starbucks has the pricing power and is at advantage in cost control. Capturing customers online might not be less costly than off-line. Or we could put it another way – only is marketing a means, the product and the value are the ultimate pursue.
New customers are the most critical part for Luckin Coffee to concern about. Beta and gamma cities will take over the alpha cities, or the otherwise. The selection is difficult to be made. Past group purchase and takeout market players were at great losses in alpha cities due to branding purpose but competed and made profitable gains in betta and gamma cities. Luckin should reflect on itself that if it is worthy to have an ugly alley fight with Starbucks in Shanghai, where it has opened more than 600 stores.
No matter the future is bright or dim in a long run, it is commonly acknowledged that the integral strength of Luckin Coffee is above average, which caught attentions widely; the market values would rise at all probabilities, and it has the potentials of becoming the unicorn-to-be. After series of funding, Luckin Coffee should optimistic. Leading and cultivating followers to open and develop the incremental market is the only chance for Luckin Coffee to grow and become a matched competitor in the game with Starbucks.
In the end, there are two free suggestions for Luckin Coffee. First, keep “Luckin” and drop “Coffee”. Since “Coffee” will be dropped in all probability, making it happen now does no harm. Second, swap the “Luckin”, with any other word, when LUCK is the least thing that could be counted on in doing business.
——Author: YuanPu; Editors: Yingwei. Write to YuanPu at YuanPu@EqualOcean.com