Luckin Coffee is looking to diversify revenue streams and find new growth as according to the Q2 financial report the company's losses have swelled.
A new trend of various styles of tea drinks has become increasingly famous among young Chinese consumers. Taking advantage of the trend NASDAQ listed Luckin Coffee (Nasdaq: LK) announced the launch of its independent tea serving brand “Luckin Tea.” The new brand was launched just two months after the company introduced its range of tea beverages.
Founded in Oct 2017, it took less than two years for Luckin Coffee to file for an IPO. It raised a total of USD 550 million in funding over four rounds. According to KrAsia the company is spread over 40 Chinese cities with 3000 stores.
For now Luckin tea products are sold on the main Luckin Coffee app and prepared at its stores but it plans to launch an independent app and mini program on wechat and separate bricks-and-mortar stores for Luckin Tea.
It plans to target tier two and lower tier cities where as Luckin Coffee will still be concentrating on tier one cities. The parent company will also roll out a partnership plan, calling individuals to open Luckin Tea franchises in different cites over China.
The launch of an independent tea brand makes sense for Luckin Cofffee, as according to KrAsia average Chinese consumer drinks 317 cups of non-coffee drinks per year and only seven cups of coffee per year for the same pool of people. Overall, China’s tea beverage market value soared to CNY 53.7 billion last year. It is a competitive market with leading players such as Heytea and Nayuki.
With that being said the move puts Luckin Tea in direct competition with Meituan-backed Heytea which has over 100 shops across 13 cities in China selling 2,000 to 3,000 cups daily. The brand is very famous as consumers tend to spend hours in line to receive their order. The advantage Luckin Tea might have over such brands is their quick service. It takes around 5-10 minutes to pick up a Luckin tea whereas the average waiting time for a cup of tea of Heytea can reach up to one hour.
According to the firms second quarter report, it booked CNY 681.3 million in net losses, more than 100% from CNY 333 million in the second quarter of 2018. It has been spending heavily on sales and marketing, which reached CNY 390.1 million, up 119.1% year-on-year.