Recently, Luckin Coffee, China based private coffee chain, in collaboration with Americana group (Food Company in Middle East) announced the launch of a new coffee retail business in the Greater Middle East and India. Both the parties have signed a Memorandum of Association (MoU) to bring this new retail business in a Joint Venture (JV). The papers were signed in Beijing with Americana Group CEO Kesri Kapur.
Origin and growth
Luckin Coffee Inc. which entered the Chinese market three years ago in 2017 is making waves in China (a country that loves tea) by giving a tough competition to the coffee giants like Starbucks. It was founded by an entrepreneur Jenny Qian Zhiya who was earlier into the ride hailing business in China. Currently, Luckin Coffee is valued at around $2.9 billion and has grown exponentially in just three years. It has some aggressive growth plans and has the ambition to take over the coffee Industry by its low cost and tech-driven business. Luckin got listed on Nasdaq last year and raised $561 million.
Key profitable features
Luckin Coffee stores are data-driven and involve minimal staff. The stores are smaller in size (Like booths) and therefore open up quickly. There is no concept of café like what Starbucks has as Luckin Coffee offers online and offline pickups and deliveries. Also, it does not operate on cash as the payments are done through its Luckin app only.
Another key feature is its pricing strategy. Besides its low staff costs, the coffee prices are kept on an affordable side, which helps the chain gather more market share.
Asset light Vending Machines
Earlier in January, Luckin announced its expansion through asset-light vending machines to cover bigger market share in China. Luckin’s founder said that this will allow them to get closer to the consumers and they will also be not restricted by the license approval, Reuters reported.
Luckin Coffee versus Starbucks
Meanwhile, Luckin Coffee’s store count has surged by 210% annually and has its stores at around 3,680 locations in China and has its core focus on growth strategies. It aims to outnumber the Starbucks stores, which is spread heavily across China. The Seattle based coffee chain has its stores at around 4100 locations in 168 cities in mainland China. Also note that Luckin, being a three year old brand is growing at a very fast pace as compared to the coffee giant Starbucks, which has been in the market for around two decades.
However, on the profitability side, Luckin is starkly lagging behind. While Starbucks, which is considered as a luxury brand, is maintaining a stable profit, Luckin is not profitably established. In its third quarter report, Luckin Coffee’s revenue increased 558% annually to 1.49 billion yuan but on the other hand its net loss widened from 484 million yuan to 491 million yuan due to its aggressive expansion strategies. Various analysts also believe that Luckin can narrow its losses by cutting down promotions and discounts it offers.