Redian新闻
>
Luckin Sets Sights on China’s ‘Sinking Market’

Luckin Sets Sights on China’s ‘Sinking Market’

社会

The Chinese coffee giant has recovered spectacularly from bankruptcy with a new strategy of expanding in smaller, less affluent cities around the country. But it also faces competition from domestic rivals, including one launched by its co-founders.

By Luo Yahan and Gao Mingyue

Chinese coffee chain giant Luckin Coffee is set to reach 10,000 stores in the first half of this year, becoming the first coffee chain in China to do so, its CEO Guo Jinyi recently revealed.

Founded in 2017, Luckin has had a whirlwind few years. Its blockbuster IPO in the United States just 19 months after its founding made it an investor darling, but revelations of accounting fraud forced it to delist in disgrace and enter into bankruptcy just a year later.

After such huge twists and turns, many people are curious: How has Luckin brought about its latest reversal in fortune?

The answer: selling coffee in China’s smaller cities.

Since its launch, Luckin has been well-known for its frantic expansion of stores. Data shows that Luckin has had two periods of major expansion. The first period was from its launch in 2017 to March 2020, catching up in just a couple of years to its main competitor Starbucks, which has been in China for more than 20 years.

Luckin’s stores then saw a slight reduction in number during the accounting scandal. The company was fined hundreds of millions of dollars and underwent sweeping changes to its senior management.

Following this down period, Luckin then entered its second period of aggressive expansion. Luckin’s financial results for 2022 show the full extent of its recovery: Revenue exceeded $10 billion for the first time, and the company turned a profit for the first time in its history.

According to Luckin’s earnings report for the first quarter of 2023, net profits have increased 27 times year-on-year. It has opened a new store on average every two hours, including its first foray overseas in Singapore.

What’s powering Luckin’s recovery is its new strategy of targeting China’s so-called “sinking market” — mostly third- or fourth-tier cities in China. In fact, for the coffee industry, the “sinking market” basically covers second-tier cities and below.

The conventional strategy as championed by major foreign coffee brands like Starbucks, Tim Hortons, and McCafé is to target more affluent places where coffee is more popular. The distribution of all chain coffee stores nationwide shows that nearly 70% are located in first-tier and new first-tier cities, which include China’s four megacities and some capital cities of large provinces.

While reports show that coffee consumption nationally still lags far behind major markets such as the United States and Japan, consumption in first- and second-tier cities is not far behind at all.

These foreign brands operate the stores themselves instead of adopting a franchise model. Luckin, however, has been targeting smaller cities in recent years with a franchise model it calls “retail partnerships,” more commonly found in fast-food industries such as milk tea and fried chicken. This typically sees Luckin stores take up small spaces with lower operating costs and rent compared to its foreign competitors.

The business model is a good fit for smaller cities, where Luckin coffee can be sold from small storefronts in busy commercial streets and office buildings, attracting younger people who form the bulk of its customers.

Illustrating Luckin’s new strategy is a recent recruitment notice for retail partners, which specified 20 fifth-tier cities and four fourth-tier cities in provinces such as Gansu, Yunnan, and Heilongjiang. By the end of 2022, retail partnership stores represent more than 30% of Luckin’s stores nationwide, up from just 10% in March 2020.

But Luckin isn’t the only one pursuing this “sinking market” strategy. According to a Meituan report, the fastest increase in coffee stores is happening in third-tier cities.

One of the main drivers has been Cotti Coffee, founded in October 2022 by Luckin’s co-founders Lu Zhengyao and Qian Zhiya, who were ousted during the accounting scandal. Half of Cotti's core team are former Luckin employees, and pricing and products are also almost identical to Luckin’s.

If anything, Cotti is even more aggressive in its expansion. While Luckin took 11 months to reach 1,000 stores nationwide, Cotti did so in just five months. Starbucks took 16 years.

Another rival is Lucky Cup, the coffee brand of popular tea chain Mixue launched in 2017, known for its ultra-low pricing strategy: a latte for 10 yuan ($1.40) and an Americano for 5 yuan. Compared to Starbucks’ and Luckin’s average cost of 40 and 20 yuan, respectively, Lucky Cup’s prices are more attractive to younger people in less affluent cities.

Like Luckin, both Cotti and Lucky Cup have aggressively expanded in recent years, while foreign brands have expanded much slower. In just eight months since its founding, Cotti is already the fifth-largest coffee chain in China. It has even set the ambitious goal of opening 10,000 stores in just three years.

The data suggests that foreign chains have largely stuck to their strategies of targeting affluent cities. Both Starbucks and McCafé have more stores per million people in provinces with higher incomes, with Beijing and Shanghai far ahead.

Meanwhile, Lucky Cup and Cotti are much more focused on smaller, less affluent cities, with Beijing and Shanghai very much an afterthought.

As for Luckin, its distribution of stores still favors the affluent cities, but it is shifting towards the strategy favored by its domestic rivals. Starbucks has also hinted at opening more stores in smaller cities, but time will tell whether it can compete with the domestic chains, which already have established presences.

Contributions: Chen Liangxian and Ding Yining. Editor: Vincent Chow.


Download the new Sixth Tone app at the App Store or Google Play
APK file for Android:
https://image4.sixthtone.com/pkg/sixthtone.apk
(Copy URL and open in browser)

微信扫码关注该文公众号作者

戳这里提交新闻线索和高质量文章给我们。
相关阅读
不懂就问,最近很多back on market 的房子是咋回事What’s Missing From China’s Metro Buildup?升级版Chelsea Market!纽约新美食广场Market 57,食物更赞价格更低,还有无敌河景+草坪露台![Webinar] Navigating China's Asset Securitization MarketLet’s Make-It-3D!上交&微软最新开源2D转3D生成研究,Star超过1k星2033年:我们的世界 (下)China’s ‘Special Forces’ Savers Travel Far for Higher Interest道人笔记(三十一)辗转实习空奔赴,闲来无事悟传承Despite Slow China Start, ‘Barbie’ Sets a Benchmark — For DatingChina Floods: What’s the Cause, Why’s Rescue Been So Difficult?Lenovo yoga(i5-8250u/8gran/256gssd/touchscreen) slightly crack oMoney Market,会不会受到损失啊?What’s Keeping China From Moving Up the Value Chain?4h白嫖lululemon线上实习证书,这届Marketing留学生“抄近路”太爽了!A Beloved Chinese Classic Gets a Weightless AdaptationThe ‘Full-Time Kid’ Life Isn’t All It’s Cracked Up to BeOutrage as Chinese Man is Caught on Tape Butchering Wife’s Dog4h白嫖lululemon线上实习证书,Marketing留学生0门槛拿证![干货] 介绍个有趣的英国短语:fight or flight?Logitech G815 Lightsync RGB(one back foot missing)Lululemon开启线上实习, 4h拿下Marketing重量级证书!Agustín Hernández:中美洲建筑背景下的未来主义巨构一文搞懂TCP、HTTP、Socket、Socket连接池哈佛访校记七绝 孟郊 (通韵)Lights, Camera, Etiquette: China’s Film Fans Want a Silent ShowIn China’s Weight Loss Camps, a Dangerous Obsession With NumbersHow a Chinese Town Made a Fortune From the World’s Lockdown PetsWhat Chang An Gets Right About China's Greatest Dynasty第三届 冇(Mǎo)国际青年影像周 开始征片啦!Logitech G G512 CARBON LIGHTSYNC RGB Mechanical Gaming Keyboard 短时间内back to market 两次的房子能买吗?Hainan Airlines To Ground ‘Overweight’ Cabin Crew, Sparks OutcryBeyond Saving: In China, Young Shoppers Are Locked Out of LuxuryCan China’s Cat Cafés Build Awareness for Animal Rights?推荐|夜猫子的欢呼!Boston Night Market盛大来袭!Highlights | 香奈儿Connects艺术与文化播客更新,圣罗兰宣布成立电影制片公司...Fidelity 里面相当于 Savings, or Money Market account 的账户叫什么名字?Movie name: D33P WAT3Rmarket match 说,现在买50万的房子,家庭收入要14万才稳妥
logo
联系我们隐私协议©2024 redian.news
Redian新闻
Redian.news刊载任何文章,不代表同意其说法或描述,仅为提供更多信息,也不构成任何建议。文章信息的合法性及真实性由其作者负责,与Redian.news及其运营公司无关。欢迎投稿,如发现稿件侵权,或作者不愿在本网发表文章,请版权拥有者通知本网处理。