Billion Dollar Unicorns: Luckin Coffee Giving Starbucks Tough Competition

According to an iResearch report published earlier this year, an increasing number of customers in China are shifting to an Online-to-Offline (O2O) model for their daily needs. The Gross Merchandise Value of local lifestyle service O2O in China grew nearly 50% in 2017 to over a trillion Yuan (~$158 billion) driven by the increasing adoption of smartphones, mobile payment services and the emergence of newer products and services within the O2O model. One such player is Luckin Coffee, China’s latest entry into the Billion Dollar Unicorn club.

Luckin Coffee’s Offerings

Beijing-based Luckin Coffee was founded nearly a year ago in 2017 by Jenny Qian Zhiya. It began operations as a local coffee shop, but within a year, the company has turned into the biggest rival for global coffeehouse chain Starbucks in China. Unlike Starbucks, Luckin Coffee is not a traditional coffee shop. It resembles an internet company more than a café.

Luckin Coffee’s operations rely on the internet and mobile devices. It has over 525 coffee shops including nearly 230 “kitchens”. Consumers who wish to buy coffee from its coffee shop are expected to download its app, order coffee through the app, and even pay through mobile payment apps like WeChat or its own mobile payments platform. It doesn’t accept cash, and you have to order through the app. Its “kitchens” are used to deliver coffee orders to offices and homes. It claims that it delivers coffees in less than 18 minutes after an order is placed. It is also expanding beyond coffee delivery to include snacks for its customers. It currently has operations in over 13 cities and caters to over 1.3 million customers.

Like all other new age tech giants, the company relies on rapid expansion, steep discounts, and aggressive advertising. Luckin Coffee cups are typically priced 20%-30% lower than Starbucks’ offerings. Recently, it also entered into an agreement with Tencent to expand its coffee delivery service.

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Disclaimer: More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion ...

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