More than just luck. The coffee unicorn brand that’s the talk of China.
China’s thirst for their own ‘new retail’ brands continues to fuel investor and consumer frenzy and coffee is the latest battleground.
Xiaomi, Huawei, Oppo, Vivo and Xiaomi now dominate over Apple in China. Li-Ning and Anta are taking on Nike and Adidas. Tencent’s Wechat owns the social market, and Baidu is the search giant, not google.
But even these success stories don’t compare to the hype that Luckin Coffee is creating in China right now.
Luckin Coffee has achieved phenomenal growth, even compared to the darlings of the Chinese new retail brands. In the past six months, since commencing operations, they’ve served more than 1.3 million customers, sold around five million cups and opened 500 outlets.
Feeding this growth is big money. Luckin Coffee recently reportedly raised $200-300M at a +$1B price, making them China’s first coffee unicorn. The strategy seems to be focused on growth at all costs. There is a race to dominate the market before others can. Profitability is not a major concern – yet.
The brand was set up to challenge and beat Starbucks and Luckin has revelled in the fight. However, given China’s huge population and growth in both wealth and aspiration of the masses, they don’t necessarily need to kill the competition. There is plenty of opportunity to grow the pie as well as their share of it.
Coffee consumption has nearly tripled in China in the past four years. However, it’s tiny compared to other markets. The average per capita coffee consumption in only 4-5 cups per year. That’s a little more than 0.5% of Europeans and around 1% of Americans. Investors are betting on Luckin feeding this massive potential.
While Luckin borrows some much from the global coffee chain brands is has also found some smart ways to be more locally relevant and valuable. The brand has shifted the retail model and rides the ‘clicks and mortar’ or ‘new retail’ trend. This seems to excite not only their customers but crucially their investors.
The brand prides itself on being digital first. Everything you order is done through their app. They don’t have cash registers and they don’t take cash or credit cards. Payment is through Wechat, Alipay or their own wallet function and they offer a 30-minute delivery.
Luckin has also taken a different approach to their store locations. Rather than relying on costly high traffic sites, they focus on attracting customers to them with timely marketing and promotions. They’ve created an online ecosystem that encourages ordering, sharing and delivery which enables them to take advantage of cheaper locations, often in backstreets.
Luckin is also cleverly tapping into China’s thirst for luxury at a cheaper price. For many in China, coffee is still seen as a lavish treat. Luckin is about 20% cheaper than Starbucks and they constantly drive value with lots of promotional offers. Despite being value conscious the brand still delivers a strong brand experience. Their ‘relax’ outlets are modelled on the Starbuck ‘3rd place’ concept but they take this to another level with places that are designed for lingering with free wifi, lots of powerpoints and even book kiosks.
If you’re looking to setup a brand in China, there are key learnings from Luckin Coffee. There are still huge opportunities in some of the most saturated markets. It’s still possible to take on even the most entrenched global brands. Brand growth can happen extremely quickly, but you need a powerful locally relevant brand, the right investment and smart integration of online and offline marketing and promotions in the new retail world.
Luckin Coffee was founded in November 2017 by Jenny Qian Zhiya, former COO of UCAR. As of July 2018, the chain has sold around 5 million cups of their beverages and served more than 1.3 million customers.
Michael Hughes
Michael is Managing Partner and Strategy Director at Truly Deeply, a brand agency with 25 years’ experience working with brands to position them for growth. His deep expertise is in unlocking the strategic power of your brand to create a differentiated, compelling and authentic brand proposition that will engage all your audiences. Michael has extensive experience working across Australia and the Middle East working with leading Australian and International organisations across just about every sector.