Singapore as its first stop, Luckin Coffee made its second attempt to go global.
Earlier this April, Luckin Coffee has opened two outlets in Singapore as part of a trial operation which will see the coffee chain open 10 stores across the country by the end of April 2023.
(The above photo was taken by EqualOcean in Ngee Ann City, a shopping and commercial centre located on Orchard Road, Singapore.）
The pick-up stores, its first outside China, are located at the high footfall Marina Square shopping centre and outside the Ngee Ann City mall. As with Luckin Coffee’s Chinese sites, customers can place orders for pick and delivery via the coffee chain's app.
Guo Jinyi, Luckin Coffee's CEO, said the brand would "inject new vitality" into the Singaporean coffee shop market.
"The opening of our Singapore store is the first step for Luckin Coffee to expand overseas. Although we are still in the early stages of exploration and testing, we hope to cultivate the Singapore market in the long term, bring new consumer experiences, inject new vitality and development momentum into the local coffee market," he said.
Data shows that Luckin Coffee operates more than 8,400 outlets across China, making it the largest coffee chain in the country ahead of Starbucks’ nearly 6,100 stores. The coffee brand is nicknamed the “Starbucks of China”. Quality coffee at affordable prices, coupled with an uber-efficient ordering system, is always its selling point.
The pricing of Luckin coffee in China is between CNY 28 to CNY 32, and the customer unit price is generally CNY 15 to CNY 20 after full discount activities on various platforms. But that in Singapore reaches SGD 7 to SGD 8 (CNY 36 to CNY 41), which is about SGD 5.6 to SGD 6.4 (CNY 29 to CNY 33) after the newcomer coupon offer. In terms of site selection and positioning, the future customer unit price overseas is likely to remain at SGD 7 and above.
High pricing in overseas outlets is particularly rare in the overseas mode of domestic restaurant brands. Aiming at Singapore's mid- to high-end market, a smart move for Luckin Coffee?
Singapore Coffee Market is no longer a Blue Sea
According to Euromonitor International, retail coffee sales in six Southeast Asian countries - Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam - reached USD 6.5 billion in 2019, growing at a compound annual growth rate of 6% from 2014 to 2019, higher than the global 5% for the same period average for the same period. This shows that Southeast Asia is also one of the fastest growing regions in the world for coffee consumption.
Singapore, which is traditionally a tea-drinking nation, has seen its coffee industry flourish in the last few years. Between 2021 and 2022, coffee consumption grew nearly 6% to 95,000 60kg bags, with growth driven by a combination of international and domestic brands, according to Statista.
Unlike other Southeast Asia countries, which are mostly both coffee producing and consuming countries, there is a far more exponential increase in coffee consumption year on year – a factor that attracts coffee companies like Luckin to set up operations in Singapore.
For Luckin, time appears to be ripe, as a growing cohort of coffee consumers look for new places to top up their caffeine levels.
(The above photo was taken by EqualOcean in Ngee Ann City, a shopping and commercial centre located on Orchard Road, Singapore.）
However, the competition Luckin Coffee facing is already fierce. The chain brands that have already stepped in the game include Starbucks, Huggs, Zus Coffee from Malaysia, Tanamera from Indonesia, and Dal.komm with a Korean background. Other players are also eager. Tomoro Coffee, a coffee brand incubated by Polar Rabbit, plans to open 50 stores in Singapore this year, and Tim Hortons is also considering entering the market.
The brand will also face competitors sharing the same model. Flash Coffee founded in 2020, known as " Singapore Luckin", also focuses on the small store model, online ordering, creating pop-up coffee drinks, and on-the-go buy. And with the strong backing of Rocket Internet, it has achieved a price of SGD 3 for each Americano.
Singapore also has a large number of local coffee brands, such as Fun Toast, Toast Box and Ya Kun Kaya Toast, as well as a large number of coffee stalls in food courts, with low priced products concentrated in the range of CNY 6 to CNY 10.
As its first stop, Singapore seems to be a tough nut to crack.
Luckin Coffee is making a comeback - but will consumers accept it?
Having opened 2,190 net new stores across China in 2022, Luckin Coffee reportedly opened 478 new stores in January 2023 alone as part of growth plans to expand its franchise operations to 41 third and fourth-tier cities across the country this year. Revenues from franchised stores in Luckin Coffee's third quarter reached CNY 899 million, an increase of 116% in the same quarter of 2021. Overall revenues for the quarter were CNY 3.9 billion.
Two years ago, the company was eclipsed in the U.S. stock market due to financial fraud and a major management shuffle. After a series of major corporate changes such as financial fraud, delisting, senior management replacement, and heavy fines, it made a comeback with its Coconut Latte and set a new sales record of over 10 million cups sold in a single month.
While Luckin is making a grand comeback at home, China's coffee market is also attracting foreign players. In Shanghai alone, foreign companies now make up nearly 65 percent of the city’s retail coffee outlets, including Hokkaido Letao Café, Japan’s Arabica, Canada’s Tim Hortons, and Italy’s Illy brands.
Apart from the traditional rivals in the game, with the success of brands such as Family Mart Coffee, 7/11 Coffee, Convenience Bee Coffee, and KFC Coffee (K-Coffee), purchasing coffee from local convenience stores has become a new habit.
Rewards and promotional activities used in Luckin’s strategy were crucial in raising consumer awareness around coffee culture. We have to admit it. However, the domestic coffee market has gone through the fastest growing dividend period, and the potential of domestic consumers is becoming thinner. Today's market landscape is already too complex, winning forever is impossible.
In the future, perhaps it will face not only the surprise attack on domestic coffee brands, but also the challenge of overseas global coffee brands. Take the opportunity of going global and extending global layout to find a new growth dimension and reshape the brand's strengths and values seems to be wise and inevitable.
Bottom Line
Obviously, not everyone believes Luckin's second attempt at overseas expansion will be as seamless as the company probably hopes. Joel Lee, who worked as managing director of a Singaporean specialty chain, says brand loyalty plays a strong role in Singapore's coffee market – and Luckin will have to prove itself first.
"Singapore is probably just a strategic starting point for their expansion to Southeast Asia."he says.
Like mentioned before, Singapore owns a diverse coffee market that serves various customers with different kinds of coffee chains, from high end to cheap shots. A good product is the cornerstone of brand influence, and it is difficult for a cup of Coconut Latte alone to compete with established coffee brands.
The lack of localization investigation makes Luckin's first Singapore challenge a bit abrupt. Making the most common and plain coffee in the most expensive location, will it appeal to consumers there? The answer is doubtful.