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Caution: Vigorous Expansion Ahead - Luckin Coffee's 2019 Plan
COVID-19 and China
Luckin Coffee. PHOTO: iyiou.com

Iyiou.com believes Luckin, which already received considerable recognition, will continue to expand its traffic through cooperation with other enterprises, and enlarge available coffee type options to possess more application scenarios.

On Jan 3rd, Luckin Coffee (瑞幸咖啡) held a press conference in Beijing, released sales data for 2018 and the development plans for 2019, and also responded to questioning voices emerged recently. Luckin Coffee CEO QIAN Zhiya (钱治亚) made an explosive announcement that the company plans to surpass Starbucks in store numbers and coffee sales, to become China's No.1 coffee chain brand, also, to provide coffee enthusiasts with high class, and delectable coffee under a fairly low budget, with the ultimate convenience. 

The rapid growth rate attracted enormous attention for Luckin Coffee. Luckin Coffee disclosed a USD 125.1 million loss in the first nine months of the year at the end of December 2018, which once put Luckin Coffee on Weibo hot search list and was suspicious of being the next OFO (See more on "Luckin coffee the next OFO, MEI Tuan Dian Ping would be the final winner") . In the press conference held on January 3, 2019, founder and CEO QIAN Zhiya of Luckin Coffee clarified that the current status quo is in line with expectations. "A large amount of money spent in marketing is extremely beneficial for rapid acquisition of customers, this is our strategy of winning recognition and market share, and we believe it is more than worthwhile to do so". At the same time, QIAN said that the strategy would be in effect also in the next three to five years. Luckin Coffee has just completed Series B financing; sufficient funds received will be mainly used for opening new stores, new product R&D, digital technology strengthening, and subsidizing users to increase its market share.

Increase in Store Numbers and Coffee Sales

QIAN mentioned Luckin Coffee plans to open 2500 new stores nation-wide in 2019, the number of stores in total exceeds 4500. It hopes to surpass Starbucks in terms of store numbers and coffee sales, and become the No.1 Chain Coffee brand in China. Also, continuously indulge its customers with cost-effective, high convenience and quality coffee.

According to data from Luckin Coffee, by the end of 2018, it has opened 2073 stores. Among them, stores with complex decorations, offer eat-in space and delivery services are called You Xiang (悠享, means enjoy the coffee slowly) Store; While the ones with minimum decorations and do not offer eat-in space are called Kuai Qu (快取, means fast pickup) Store. The number of these two types of stores adds up together is 1897; There is also another type, the number of stores mainly serve as kitchens for delivery guys to pick up coffee and send them off to people ordered them is 176. The first two types of stores accounted for more than 90% of the total store numbers.

Luckin Coffee stated all the core commercial areas are covered. Consumers placed the orders and 61% of them show up in the stores and pick them up by themselves. The CMO of Luckin Coffee, YANG Fei (杨飞) told iyiou Food & Drinks "most of the stores now located in office buildings, mainly in first-tier cities." He believes there is still ample room to play in these population intensive cities. Furthermore, customers yearn for convenience in this brisk-paced life, hence high convenience would be a great advantage of Luckin Coffee when competing with its rivals. He also mentioned reducing the price per cup of coffee to subsidy the consumers more.

Subsidies will Continue for 3 to 5 Years More

Subsidies are continuously boosting customer volume. According to QIAN, a whopping 89,680,000 cups of Luckin Coffee were sold by the end of 2018, customer numbers totaled 12,540,000 while repeat purchase rate under 3 months exceeded 50%. The outcome is possibly due to the cooperation partnerships with Meituan (美团) and Tencent (腾讯). Also according to data from Luckin Coffee, in September, 2019, right after the partnership being established between Tencent and Luckin, the latter earned approximately 50,000 orders per day. QIAN proudly added up, this number is the highest in the industry, and Meituan, being an app platform for food and drinks delivery, will be their exclusive partner in that aspect.

Entering into the second year after Luckin Coffee's born, the company's subsidy policy is changing. Since 1st of Jan 2019, the previous benefits of "Buy two get one for free" and "Buy five get five for free" had been reduced to only retaining the former. The free delivery barrier rose up to every order higher than 55 yuan. The 50% discounts on all snacks announced on 1st August till the end of the year now has changed into 33%.

Currently, according to YANG, the juice and snacks are also contributing to the company's balance book. It is picturing a future of an open platform bridging more well-recognized bakeries, such as Tous Les Jours and snack suppliers to offer more varied combinations of coffee and snack.

YANG also mentioned a large portion of the marketing effort made previously benefited from the exchange of resources, not through heavy investment as people believe. Luckin Coffee will not focus too much on introducing more flavors or offer more cup sizes in 2019, but to switch their attention to snacks offered as sides.

 

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