LUCKIN BREWS UP COMPETITION
COMPANY TAKES ON STARBUCKS IN CHINA
Qian Zhiya may be Starbucks’ worst nightmare. The 42-year-old Chinese entrepreneur says she is betting that her fledgling Luckin Coffee brand will eventually have more cafés in China than Starbucks, and she has Singapore’s sovereign wealth fund and other investors bankrolling her plan.
Luckin, which only officially launched in January, has opened more than 660 outlets in 13 Chinese cities thanks to a supercharged growth plan based on cheap delivery, online ordering, big discounts and premium pay for its staff.
Its assault comes at a crucial time for Starbucks, which has 3,400 stores in China — its second biggest market after the U.S. — and plans to almost double that number by 2022.
And the speed of the attack is a warning to other established consumer brands in China that they, too, could be vulnerable to a startup’s attempt to reinvent a market, brand consultants say.
Starbucks’ shares were pummeled in June after it warned same store sales growth in China had plunged to zero or worse last quarter, against seven per cent growth a year earlier. Starbucks said some new café openings were cannibalizing customer visits at nearby stores and it also blamed a drop-off in orders through delivery firms.
While it did not mention increased competition, investors and analysts said it is clear that Luckin does represent a threat.
However, they also point out that Starbucks’ brand has been very resilient to challenges from rivals around the world over the years, largely because of the ambience of its stores, its service and the consistent quality of the coffee served.
There is also no sign that Chinese consumers have turned against such a very American brand as a protest over U.S. President Donald Trump’s imposition of punitive tariffs on Chinese exports.
Reuters spoke to 30 consumers in Beijing Yintai Center, a shopping mall that has a Starbucks, Costa Coffee and Luckin outlet, among others. Half of those polled said they had tried Luckin; most said they liked it, though more than twothirds said their top choice remained Starbucks.
The majority drank coffee in-store or bought to take away, with only a small number saying they had coffee delivered, a potential challenge for Luckin’s deliveryfocused strategy. Taste, convenience and environment were their top three priorities, more than price.
Luckin’s customers can order coffee via an app, watch a livestream of their coffee being made, and have it delivered to their door in an average of 18 minutes, the company says. A regular latte, roughly the size of a Starbucks grande, costs 24 yuan plus 6 yuan for delivery (free delivery for orders of more than 35 yuan), but can be half price after promotions. A grande latte at Starbucks costs 31 yuan.
More than half of Luckin’s stores are larger “relax” outlets or pickup stores with some seating. The rest are delivery kitchens.
The speed of Luckin’s growth is extraordinary — it took Starbucks about 12 years to open as many stores. In many ways it echoes the way in which some major Chinese technology firms, such as ride hailing platform Didi Chuxing, have burned through cash to grab market share and been valued highly as a result.
Qian, who was previously chief operating officer at Chinese ride hailing firm Ucar, says Luckin’s focus now is all about increasing customers.
“I don’t have a timeline for profit,” Qian told Reuters at the firm’s Beijing headquarters as she sipped her third Luckin coffee of the day. “For us, what we care about now is the number of users and if they are coming back to us, whether they recognize us, whether we can take market share.”
WHAT WE CARE ABOUT NOW IS THE NUMBER OF USERS.