Bat­tle Grounds


The World of Chinese - - Tea Leaves - – HAN RUBO (韩儒博)

Four months ago, it barely ex­isted—to­day, it is brag­ging about tak­ing over Star­bucks’s busi­ness in China, and pub­licly threat­en­ing a law­suit against the Seat­tle-based chain over “mo­nop­o­lis­tic” busi­ness prac­tices.

The re­mark­able rise of Luckin (Ruix­ing) Cof­fee is backed by deep VC pock­ets—over one bil­lion RMB, ac­cord­ing to CEO Jenny Qian—and an ag­gres­sive mar­ket­ing and sales cam­paign straight out of Sil­i­con Val­ley’s play­book.

Over the last four months, Luckin has opened nearly 500 stores across China, from Tian­jin and Beijing to Shang­hai and Shen­zhen. A re­cent Wechat es­say de­scribed how 20 stores had sprung up in Shen­zhen “al­most overnight,” com­pared with bub­ble-tea brand Hey Tea’s “tor­toise-like speed” of 10 stores per year. “As far as I know, no other brand has ex­panded their off­line stores this fast,” the writer con­cluded.

Count­ing it­self as part of China’s “new re­tail” trend— think smart­phones, au­to­ma­tion, and data—many Luckin branches are de­liv­ery-only, ac­ces­si­ble via its app and third-party food de­liv­ery ser­vices. It ex­pands by rapidly tak­ing over and re­brand­ing non-chain bev­er­age shops, then be­lat­edly bringing them up to code. The chain is also in­vest­ing in take­out kiosks in of­fice lob­bies, and sev­eral flag­ship and dine-in out­lets, to build a di­verse cus­tomer base—re­port­edly around at 1.3 mil­lion at the time of writ­ing. By com­par­i­son, Star­bucks serve six mil­lion

cus­tomers a week from around 3,200 main­land shops, found in malls or com­mer­cial av­enues.

Luckin’s overnight ubiq­uity is mainly due to an ag­gres­sive guerilla mar­ket­ing strat­egy. Chances are, if you’ve used an of­fice el­e­va­tor, strolled the streets of a ma­jor Chi­nese city, or browse Wechat or Weibo lately, you have seen an ad for Luckin Cof­fee. To reach new cus­tomers, Luckin is of­fer­ing free and dis­counted or­ders, and se­cured Chi­nese megas­tars Tang Wei and Zhang Zhen as brand am­bas­sadors.

The com­pany claims its cus­tomers are mostly young, in­ter­net-savvy ur­ban­ites at­tracted its ad­ver­tis­ing, cheaper prices, and fla­vors sup­pos­edly adapted to “Chi­nese tastes.” It also claims to use only fresh Ara­bica beans, blended by World Barista Cham­pi­ons, at an at­trac­tive price point: 20 to 30 RMB, 10 RMB less than at Star­bucks and the Bri­tish chain Costa Cof­fee. With 400 Chi­nese shops, Costa had planned to be China’s sec­ond-largest cof­fee chain un­til Luckin ar­rived.

Although dis­missed by Star­bucks as an­other part of its “pro­mo­tion hype,” Luckin also threat­ened a law­suit against the cof­fee gi­ant in a vi­ral open let­ter in May, fur­ther rais­ing both the stakes of the competition and Luckin’s pro­file. The re­cent “gig” wars —be­tween Didi and Uber (ride-shar­ing); Mo­bike and ofo (bike-shar­ing); and Waimai and Meituan (food de­liv­ery)—have fol­lowed fa­mil­iar pat­terns: VC cash chas­ing a zero-sum vic­tory to the ex­clu­sion of profit, in or­der to win mar­ket share.

In the short-term, it is a ma­jor win for cus­tomers, and even em­ploy­ees: Luckin has ap­par­ently been of­fer­ing baris­tas and other Star­bucks staff sev­eral times their cur­rent pay to de­fect. It has also raised ques­tions about Star­bucks’ con­duct in the Chi­nese mar­ket, from sign­ing exclusive rights with prop­erty de­vel­op­ers and store­own­ers to pres­sur­ing lo­cal sup­pli­ers of in­gre­di­ents and equipment to work only with them.

In the long-term, though, a mo­nop­o­lis­tic hold on any mar­ket can be risky. Last year, Didi chased Uber off its turf with a bil­lion-dol­lar deal. Now, the com­pany is em­broiled in nu­mer­ous scan­dals in­volv­ing pas­sen­ger safety, par­tic­u­larly since the rape and mur­der of a flight at­ten­dant by her driver on Didi’s “Hitch” ride-share ser­vice in May.

Chi­nese brands like Luckin rely on home-grown ad­van­tages, but risk suf­fer­ing from a do­mes­tic busi­ness en­vi­ron­ment that can em­pha­size cor­ner-cut­ting, and non­com­pli­ance over cus­tomer care. If Luckin wins the brand bat­tle over Star­bucks, ex­pect plenty of tri­umphal­ism—and not much men­tion of costs to con­sumers.

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