A day hardly passes by in China without some news about Luckin Coffee, the cafe chain startup that is barely one year’s old.
What has it done over the past year? 2500 stores, more than US$400 million raised from investors including Singapore’s GIC, and almost CNY1 billion (US$150 million) burnt so far.
It raises a lot of eyebrows for sure, but also draws a lot of criticism. Some are saying that its coffee tastes like c**p; some others liken it to the struggling bike sharing company ofo; while many also question whether it is possible for them to outcompete Starbucks’s decades of expertise in coffee brewing and cafe running.
Luckin’s Founder Qian Zhiya is obviously confident. Unlike ofo which is run by fresh university graduates, Luckin’s management team includes seasoned O2O executives. Qian herself was COO of listed company CAR inc.
Therefore, she does not only know how to run operations – large scale ones – but also understand how to leverage capital at different stages.
Therefore we think there must be something in the Luckin story that makes sense.
We do not believe that the taste of the coffee matters too much for this kind of business at this stage – money is being burnt to ‘educate’ the market. And ultimately, Starbucks is not known for the quality of its coffee.
Maybe coffee itself does not as much – Starbucks in China probably sells more sweetened alternatives to pure hardcore coffee variants.
Luckin is probably not competing against Starbucks on experience either. Most Luckin outlets are pure takeaway/delivery facilities, with barely any place to site.
Maybe the real value is its network of stores – note that these are their own stores, not run by franchisees – across the major cities. There are many things which can be built on top of this network.
A report in 2017 put the number of convenience stores in China to be around 100k – not a big number considering the amount of urban population in the country. (That works out to be one for every 8000 urban residents – comparing to Japan where 56k convenience stores means one every 1800 urban residents).
Maybe one day Luckin Coffee will drop Coffee from its name?
