Luckin Coffee: The 2-Yr-Old Company that Plans to Defeat Starbucks in China

The fast-growing business is expected to have more locations than Starbucks in China by the end of the year

21.06.2019 | by Reve Fisher
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Technology is helping modern businesses grow and scale at increasing rates. What used to take decades to accomplish can now be achieved in mere months or years. 

Take China’s Luckin Coffee as the latest, disruptive example.

After not even two years in business, the technology-driven restaurant has over 2,400 locations throughout the country. Starbucks has been present in China for over 20 years and has only about 3,700 branches, as reported by Abacus News. Similarly, Starbucks went public in 1992, 21 years after its founding in Seattle, Washington. Luckin Coffee was listed as a publicly traded stock on the Nasdaq last week, on the 16th of May.

“They are still basically a retail coffee business at the end of the day, but they act like a tech company,” said Peking University professor Jeffrey Towson.

According to Statista, Luckin Coffee will have more locations than Starbucks by the end of the year. As Luckin Coffee stores are small, cashless kitchenettes that are designed for fast delivery or pickup, the company has been able to expand at an incredibly fast rate—with a store opening every 15 hours. By the end of 2019, the 2-yr-old company is expected to have about 4,500 stores throughout China, compared to the 4,100 or so locations predicted for Starbucks.

On top of that, Luckin’s prices are about 25 percent lower than the coffee conglomerate, and the company offers plentiful coupons to its customers.

Throughout every step of the way, Luckin Coffee is using technology to transform the “traditional retail model.”

Reinout Schakel, CFO of Luckin Coffee, told CNBC that the company’s founders “looked at the transaction structure of coffee and thought, ‘We can do better than this.'” As a result, Luckin Coffee customers must use the company’s app to place an order at the restaurant.

“The founders of our business are used to using technology and disrupting industries,” the CFO said.

Reinout explained that the company can connect to its customers better—both in terms of customer service and data collection—and increase retention rate through use of the app. While he said that customers can technically pay with cash, the transaction still must take place on the app. He also stated that the app helps to make the business’s operations efficient and improve quality control.

“[The ‘new retail model’] has fundamentally changed the cost structure in China, which allows us to bring higher-quality products for actually a much more affordable price and still be profitable,” Reinout elaborated.

According to Crunchbase, Luckin Coffee was worth about $5 billion when it went public. Prior to the IPO listing, the coffee disruptor raised $550 million in venture capital funding, which helped to propell its rapid expansion.

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