Coffee Shop or Convenient Store? 10,000 Luckin Coffee Outlets Yet to Come
By the end of 2021, the goal of Luckin Coffee is to have 10,000 chain stores in China.
Luckin Coffee, China’s second-largest coffee brand, held its Global Partner Conference and Global Coffee Industry Development Forum in Xiamen, a city in southeastern China’s Fujian Province, on May 29.
QIAN Zhiya (钱治亚), CEO of the company, announced that 2,500 more stores are yet to open in China by the end this year. “We will become the biggest coffee chain by both the number of stores and cup of coffee being sold,” said QIAN.
She added that by the end of 2021, the goal of the company’s expansion strategy is to bring its chain stores to 10,000, up more than 300% from the about 2,370 establishments currently operating under its brand.
Before QIAN founded Luckin Coffee, she was the COO of CAR Inc. (神州租车). Her boss, LU Zhengyao (陆正耀), is the first investor and the president of Luckin Coffee.
“The media describe our business model as running about madly with eyes shut,” LU said at the forum, “But it’s half the truth, we are running about wildly, but not blindly. Every decision is deliberately considered and every step is precisely calculated.”
Before Luckin Coffee’s first store opened in October 2017, it took nearly two years for more than one hundred engineers to design the company’s information system. “We now have 2,370 stores in China; all are directly operated. All this can be credited to the well-built system,” QIAN added.
On May 17, under the ticker symbol of “LK,” the company made its debut on Nasdaq with its shares closing 19.88% higher than the opening price. On May 22, Luckin Coffee’s stock dropped below its Initial Public Offering price and has since been on a falling streak after a first-day surge. As of this writing, its shares traded at USD 16.77, capping the company’s market capitalization at USD 3.75 billion.
Although it has experienced some setbacks, Luckin Coffee still has been a favorite for investors worldwide. Its investors include almost all the top long-term investors and many national sovereign funds.
When talking about the company’s business model, QIAN said tersely that “it’s never a coffee delivery business.” “The delivery service is an important part of Luckin’s initial strategy. It can quickly realize full coverage of a certain area,” she was quoted as saying in media reports. Now, with the increase in store density, the importance of delivery service is decreasing, and the threshold for free distribution is higher.
Instead, the emphasis on pick-up store has become the new hallmark of Luckin Coffee’s expansion. And this shift in strategy will likely turn up the heat on main competitor Starbucks to come with similar marketing blitz in China. On May 21, the Seattle-based coffee and beverage giant launched a rival operation called StarbucksNow(啡快, also a pick-up service) to meet the challenges from its fast-expanding competitor.
The problem with delivery service is the high cost, at CNY 9 to CNY 10 per order. To directly build stores in Central Business District or nearby can still provide customers with the same convenience of the service but at a lower cost. Unlike Starbucks whose average store area is around 100 square meters, Luckin Coffee concentrate on pick-up store that is no larger than 50 square meters. In addition, there are few seats and no free wifi provided in the store. Therefore, more costs are saved from the delivery service and pick-up store strategy.
In addition, the store management, Customer Relationship Management (CRM) and logistics management systems that Luckin Coffee has established provide the extra ammunition for the new coffee heavyweight to tap China’s fast-growing coffee scene.