“We are actively evaluating opportunities in the United States and other markets”Guo Jinyi, president and CEO of Luckin Coffee, reported during a press conference.
He maintained that although his priority continues to be China, “the international market is full of opportunitiesalthough it presents important challenges that require patience, time and investment continue.”
“We remain patient and confident in our ability to succeed”he added.
Luckin has 21,340 stores distributed mainly in China and some in Singapore, where the company opened its first location in 2023.
Guo Jinyi announced the goal of the chain. But he avoided giving further details. However, the company let it be known through unofficial spokespersons that The landing would take place at the beginning of 2025 and that the expansion plan aims to settle in cities that have large Chinese communities, including Chinese students and tourists. New York and San Francisco are two cities that meet those characteristics that the chain seeks to open its stores.
On the other hand, its expansion plan will be based on the same strategy it developed in China to take customers away from Starbucks: offer a cup of medium quality coffee, at cheap prices that do not exceed 2 or 3 dollars per unit.
“Given the maturity, saturation and competitiveness of the US coffee market, we intend to approach our expansion strategy there with careful consideration and a disciplined execution plan,” explained Guo Jinyi.
As part of this gradual positioning strategy, the company was publishing some advertisements to generate brand recognition during NBA basketball league games.
Marketing experts appreciate Luckin Coffee’s audacity in trying to bite into a slice of the U.S. market. But they warn that there are some factors that can work against it.
“With the fierce competition In the Chinese coffee sector, overseas expansion and the possibility of regaining the trust of the capital market could be strategic options for Luckin. However, reputation tarnished by its previous scandal in the capital market could affect Luckin’s brand image in the United States,” said Jason Yu, an analyst at Kantar Worldpanel China.
The founding and rise of the Chinese version of Starbucks
In 2017, two Chinese entrepreneurs named Jenny Qian Zhiya and Charles Lu Zhengyao founded the company Luckin Coffee, with the aim of capturing some of the coffee consumption market that had begun to develop in China, a country where the traditional infusion is tea.
The American chain Starbucks was the one that paved the way and generated new markets with the opening of its first location in 1999. Since then, coffee consumption among the Chinese has not stopped growing.
The Luckin Coffee business model was based on two concepts: the application of technology and low prices. Their first stores were actually just kiosks where coffee was delivered that was purchased only through a cell phone application, without even needing to have a cash register.
In the first year since its founding, the chain opened 2,000 format stores in China. take away. Just a kiosk-type counter with a coffee machine and someone to deliver. This is how it lowered costs and competed with Starbucks with prices up to 60 percent lower.
The fight with Starbucks It was also conceptual.. Faced with the idea of the third space, intermediate between home and work, with emphasis on experience, Luckin proposed speed in consumption in response to the urgency of the client who has to get to work early but opts for a coffee instead of the traditional tea.
Regarding prices, the offer consisted of a premium looking product at a low cost price. For example, a regular latte costs just $2. This was also the formula for success that brought Luckin to Wall Street in 2019.
At that time the company the stock market valued at US$3,000 million came outcelebrated by investors from around the world and leveraged by accelerated development of locations throughout mainland China.
Paradoxically, its headquarters currently operate in Hong Kong, where It doesn’t have a single store.
That love affair with the New York stock market lasted just two years. In 2020, an investigation by Muddy Waters Capital, the investment fund who bears the same name as the famous blues musician who died in 1983based on an anonymous tip, discovered that Luckin’s balance sheets had included an invented billing for just over US$300 million.
This revelation led to a huge financial scandal that destroyed the stock price. And when in 2021 she is expelled from Wall Street worth less than US$700 million.
He then filed for Chapter 11 of the United States Bankruptcy Law and agreed to pay a fine of US$180 million to the SEC, the regulatory body of the US stock market.
How to rise from the ashes selling coffee in China
When everyone expected Luckin’s demise, the chain rose from its ashes. From there, recovery was proposed, with a total change of its management teams.
And extra help from a loyal investor who had accompanied them since their founding and continued to believe in the viability of the business model.
The Chinese fund Centurium Capital completed a capital contribution of US$240 million that helped her get back on track. He bet again and became the majority partner. In 14 months, in 2022, the chain managed to emerge from bankruptcy.
Also had an extra and unexpected push with the pandemic. China was the country where restrictions lasted the longest and were strictest. This led to the closure of large venues that involved gathering many people.
Instead, Luckin was able to continue with its technology-based model, almost without human contact, without lines and with delivery speed.
The resurgence also involved a revamp of its product offering. The coffee with coconut milk It became a star among Chinese consumers. And Mouttai Late also had great acceptance and impact on social networks, which gives coffee a mild aroma of alcoholic beverage without altering the original flavor.
So it was that in 2023 Luckin billed US$3.5 billion in China, surpassing Starbucks for the first time. And after continuing its expansion in 2024 through China and Singapore, it now intends to go into the US market.
The decision could be seen as a way to get revenge on Starbucks. But the reality is that this chain is no longer a threat, at least in China.
But to the surprise of his owners, Luckin also found other candidates seeking to dethrone her in her country of origin. There are at least two. One is Chinese and one is American.
A competitor that is hot on Luckin’s heels is Cotti Coffee, a low-cost coffee chain founded by Lu Zhengyao and Jenny Qian. They both know the business because founded and managed Luckin Coffee, until they were expelled after the New York Stock Exchange accounting scandal.
And another that came out to compete quite successfully is KCoffee, a coffee business unit of the fast food chain KFC Kentucky Fried Chicken. This signature is considered as today’s biggest challenge according to Luckin’s own owners.
As Luckin prepares to break the US market with its low prices, experts warn that This strength can also be your weak point.
They say that if your only differential is the price, nothing guarantees that your customers will be loyal if another similar proposal appears at a lower value. In short, they are all after the same business: selling a quality cup of coffee that is cheap and quick and easy to consume.
Luckin’s commitment to landing in the homeland of Starbucks is anchored in some specific figures. Until a few years ago, mainland China consumed 3 cups of coffee per average person per year. On the other hand, in the United States that figure exceeds 300 cups per capita.
Source: Ambito
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