Luckin Coffee, the Coffee Start-up that’s Changing China’s Coffee Culture

When you’re asked to picture a coffee shop, what do you envision – cosy wooden interiors piping acoustic tunes off Spotify’s “Your Favourite Coffeehouse” playlist? Customers seated in plush chairs busily typing away on their laptops or chatting with friends?

That’s the kind of coffeehouse we’ve grown used to, pioneered by none other than global coffee empire, Starbucks. However, there’s a plucky start-up based in China that’s determined to change the way we consume coffee.

Founded in late 2017 by Qian Zhiya, the former COO of UCAR, a chauffeured car service provider, Luckin Coffee has gotten quite a bit of buzz surrounding its rapid growth and unicorn status – much of which happened within a year from its launch. Here’s how it’s setting itself apart from other cafes.

Welcome to the coffee culture of the future

While many coffee houses have copied Starbucks’ successful business model, Luckin has gone and turned that on its head.

How? By capitalising on today’s mobile phone-centric lifestyle. Known as the “new retail” model, Luckin aims to seamlessly integrate its online and offline presence.

Rather than going up to the counter and ordering from your friendly neighbourhood barista, Luckin customers order and make payment on the company’s app, which generates a QR code. You pop into your nearest Luckin shop, scan the QR code and pick up your order when it’s ready.

There’s no long, snaking queue as you wait to order, no cash register – all transactions are made digitally. You could be in and out in minutes, without having to speak to anyone. It’s every introvert’s dream come true.

You can even order coffee to be delivered via the app, which is a godsend for harried office workers with no time to spare for coffee runs. Deliveries are guaranteed to arrive within 30 minutes, averaging at about 18 minutes, and customers with orders that are spilled or arrived late get a free drink – talk about good customer service!

How do you like your coffee?

If you’re looking to hang out and take your time with your coffee, you can still head to Luckin Coffee’s cafe stores. Photo from Alejandro Escamilla

Seemingly mushrooming overnight, you’re likely to see several Luckin shops if you were to take a stroll down the block in a Chinese city. But not all Luckin outlets are made the same.

In fact, the company operates three types of stores: cafes, pick-up stores and delivery kitchens. Each caters to a specific type of coffee drinker, from those who want to savour their cuppa while seated in the store to those who need their coffee on-the-go to those who would rather have their coffee to come to them with a few taps on their phone.

With about half of their stores dedicated to delivering coffee, it’s clear that Luckin has managed to tap into an underserved customer niche – one that was previously overlooked by Starbucks, which only recently announced an official delivery partnership with Alibaba. However, Luckin is not discounting a future focus on brick-and-mortar stores.

So is Luckin’s coffee worth a visit? According to numerous reviews, Luckin competes toe-to-toe with Starbucks when it comes to coffee, even besting the latter in some cases. Its deeper coffee flavour is said to come from high-quality Arabica beans sourced from Ethiopia, one of the top coffee bean producers in the world.

If the price is right…

In China, due to its position as a “luxury” brand, being able to afford Starbucks is considered a status symbol. And with many of its outlets occupying prime retail space, it’s not just a place to grab coffee – it’s a place to be seen.

Luckin, on the other hand, offers a similar menu but at lower prices, selling its coffee and snacks about 20 to 30 per cent cheaper compared to Starbucks. This is to target consumers who would rather save money by going with a cheaper alternative to a luxury product.

While Luckin’s heavy subsidies are friendlier on consumers’ wallets, it comes at a cost for its profit margins. In December last year, it reported losses of over US$123 million, so it remains to be seen whether the Beijing-based coffee purveyor will be able to grab enough market share to support its meteoric rise.

Go big or go home

Will Luckin succeed in toppling Starbucks’ dominance in coffee? Photo from Sticker Mule

Everyone loves the tale of the underdog challenging the mighty: David vs. Goliath, the Rebel Alliance vs. the Galactic Empire, the Starks vs. the Lannisters. There’s a certain sense of satisfaction in knowing that no company is invincible, and it’s the same with Luckin vs. Starbucks.

Valued at over US$2 billion with backing from investors such as Singapore’s sovereign wealth fund GIC and China International Capital Corp, Luckin has blown past unicorn status. But that’s not to say that the start-up hasn’t learned a valuable lesson or two from Starbucks – its aggressive expansion across China mirrors that of the Seattle-born coffee company’s rapid worldwide growth.

With over 3,000 outlets in China and a target to double that by 2022, Starbucks is the largest coffee retailer in China. But not for long, if Luckin has anything to say about it – it’s been steadily catching up, opening more than 2,000 locations in major cities as of January 2019. Its target is to have a total of over 4,500 stores by year-end, effectively outnumbering Starbucks.

On the cultural front, Luckin vs. Starbucks boils down to a battle of East vs. West. While Starbucks has the power of its international brand, Luckin Coffee has the home team advantage – something that may draw consumers with a strong sense of national pride and loyalty to local brands.

By leveraging convenience and affordability through technological innovations, Luckin is well-equipped to cater to the modern office workers that make up the bulk of coffee lovers in China, proving itself a formidable challenger for Starbucks’ crown. And if it conquers China… anything’s fair game.