Luckin Coffee + Moutai, failed to become popular in the Year of the Dragon

After gaining huge traffic with "Jiangxiang Latte", Kweichow Moutai and Luckin Coffee launched a new product "Jiangxiang Chocolate". Can the sweetness of Jiangxiang Latte continue?

The "first cup of Moutai in the Year of the Dragon" seems unable to replicate the miracle of the sauce-flavored latte.

On January 22, Luckin Coffee once again joined hands with Kweichow Moutai to launch a new joint product, "Sauce-flavored Chocolate". The price of this new product on the mini program is 38 yuan per cup, but after the discount, the actual payment is only 18 yuan. The product details page shows that this new product combines pure milk, white wine-flavored thick milk and fragrant cocoa-flavored solid beverages, and each cup incorporates the unique flavor of Kweichow Moutai. Last September, the sauce-flavored latte jointly launched by Luckin Coffee and Moutai became a hit, and "one cup is hard to come by", setting a record of daily sales exceeding 100 million yuan.

In contrast, the sauce-flavored chocolate, which also contains Moutai products, received a much colder response after its launch. According to Value Planet, on the day when the sauce-flavored chocolate was launched, not only did Luckin's offline stores not sell out, but even on social media, the product was not discussed much, and many people did not even know that Luckin had once again launched a new product co-branded with Moutai.

One consumer said that he checked 8 Luckin stores near the company, and the sauce-flavored chocolate was still available until the evening of the 22nd. In recent years, Luckin has become a "hot product manufacturing machine" in the coffee industry. From raw coconut latte, SOE Oiran "Little Black Cup", to sauce-flavored latte, many new products quickly became popular after they were launched, but when similar new products are launched or the unshelf hot products are put back on the shelves, it seems difficult to achieve the same effect. Luckin, which once relied on creativity to "come back to life" and "repeatedly create hot products", needs to give consumers more freshness.

Image source: Luckin Coffee official Weibo

1. New sauce-flavored products that are not selling well

Judging from the sales on the first day, the sauce-flavored chocolate failed to replicate the miracle of the previous sauce-flavored latte. On September 4 last year, the "sauce-flavored latte" jointly launched by Luckin Coffee and Kweichow Moutai was launched and became a hot product on the same day.

In countless Luckin stores, the sauce-flavored latte was sold out very quickly, and in some stores, due to the excessive number of cups, raw materials such as snow cream were exhausted early. On Weibo and WeChat Moments, consumers who bought the sauce-flavored latte covered with cream posted photos, while consumers who didn't buy one joked in the group: "Everyone buys a sauce-flavored latte for 3 yuan, checks in and takes a photo, and is not allowed to drink before taking the photo."

The enthusiasm of consumers has made the sales of Jiangxiang Latte break Luckin's historical single product sales record. On the first day of listing, Luckin's Jiangxiang Latte sales exceeded 5.42 million cups, and sales exceeded 100 million yuan. A few days later, on September 7, Luckin issued a "Notice of Out-of-Stock and Restocking of Jiangxiang Latte", stating that the sales of Jiangxiang Latte were hot, "far exceeding our expectations." Due to insufficient supply of raw materials, most Luckin stores sold out their products within a week, and urgently purchased a new batch of 53-degree Feitian Moutai from Kweichow Moutai, promising to restock twice on the 10th and 19th.

Image source: Luckin Coffee official Weibo

At the same time, Luckin also announced that the Jiangxiang Latte is a strategic long-term product jointly launched by Luckin and Kweichow Moutai and will be sold for a long time.

For consumers, the biggest attraction of sauce-flavored latte comes from the expensive Kweichow Moutai. Luckin's sauce-flavored latte ingredients use thick milk with Moutai's liquor flavor. According to media reports, a 480 ml cup of coffee contains about 1.8 to 2.7 ml of Moutai. Luckin's main consumer groups are students and white-collar workers aged 20 to 35, who do not belong to Moutai's traditional consumer groups. For them, they can drink the sauce-flavored latte with Moutai for only 19 yuan, which is much cheaper than the 68 yuan Moutai ice cream jointly launched by Moutai and Mengniu. Therefore, many people call the sauce-flavored latte "the first cup of Moutai in life."

Strong curiosity has triggered consumer enthusiasm, but not all consumers can accept the taste of Jiangxiang Latte. Some consumers like the aroma of coffee and think that Jiangxiang Latte has a strong taste; but other consumers complain that before drinking Jiangxiang Latte, they thought it was "fine wine + coffee", but after drinking it, they found that the mixture of alcohol and coffee tasted very strange, "like vomit after being drunk."

Chen Lei, who works and lives in Beijing, didn't buy her first Jiangxiang Latte until October 2023. She thinks it's an exaggeration to say that Jiangxiang Latte is "drunk vomit", but compared with other alcoholic coffees, Jiangxiang Latte is really not very good: although the spicy taste of the wine is gone, the taste of both Jiangxiang liquor and coffee is too stimulating. After blending together, "it's far worse than the special coffee with low-alcohol sweet wine."

In the joint event between Luckin Coffee and Moutai last year, consumers’ curiosity was satisfied, and many consumers did not intend to repurchase after trying it. This may also explain why the recent sauce-flavored chocolate products have received mediocre response. Amy, who also works in Beijing, went to Luckin Coffee on January 22 and found that almost no one was interested in the sauce-flavored chocolate. In the end, she bought a cup of coffee because she "needed to drink coffee." In addition, she found that the packaging of the sauce-flavored chocolate this time also used the packaging of the previous sauce-flavored latte.

Image source: Luckin Coffee official Weibo

2. The “hot-selling machine” in the coffee industry

In early 2020, short-selling agency Muddy Waters published a report claiming that Luckin Coffee had falsified its sales. Subsequently, Luckin Coffee admitted to the fraud and delisted from Nasdaq to enter the pink sheet market.

The fraud scandal seriously affected Luckin's reputation and led to a major change in Luckin's management. Chairman Lu Zhengyao and Luckin Coffee founder and CEO Qian Zhiya were expelled from the management, and the company's director and vice president Guo Jinyi served as acting CEO. On July 14, 2020, Guo Jinyi became the chairman and CEO of Luckin Coffee.

A year later, Luckin Coffee returned to the public eye in a different way: in the summer of 2021, its new product "Raw Coconut Latte" became a hit. Together with the previous hits of Meteorite Latte and Thick Milk Latte, Luckin Coffee successfully led the trend of coffee consumption in the Chinese market.

Adding coconut milk to coffee is a brand new idea. The light coconut aroma and coffee blend perfectly together. It not only tastes sweet, but is also suitable for people who cannot drink milk coffee due to lactose intolerance.

The coconut latte not only created a sales "myth", but also immediately became a hot search on Weibo. All major social media platforms were occupied by users who checked in and recommended the coconut latte. Some people "squatted" for a long time to wait for the out-of-stock coconut latte, while others chose to make it themselves because there was no Luckin store in their city.

Image source: Luckin Coffee official Weibo

At the same time, Luckin Coffee began to use celebrities and social media for marketing, inviting new internet celebrity Liu Xuxiu to endorse its products, and using a series of "stalks" that are close to young people as poster copy. For example, "I heard that coconuts are already being picked" and "Raw coconut latte, YYDS". Among them, the Weibo topic "Luckin Coffee Iced Coffee Recommender Liu Xuxiu" reached 130 million views in 20 days. After the raw coconut latte, Luckin Coffee has frequently created hot products by launching new products or co-branded products and inviting celebrities to endorse them.

Before the 2022 Winter Olympics, Luckin Coffee signed Gu Ailing, who has great potential to win the championship, as its spokesperson. At the opening of the Winter Olympics, Luckin Coffee launched the "Luckin Ice and Snow Series" customized for Gu Ailing - Blue Velvet Snow Latte and Walden Ski Latte made with cream, milk foam and blue food coloring. With the addition of Gu Ailing cup sleeves, straws with the words "Come on Gu Ailing" and other peripheral products, as well as Gu Ailing pop-up stores launched in various cities, Luckin Coffee's popularity has increased greatly, and both coffees are sold out.

In early 2022, Luckin Coffee launched the "Little Black Cup" SOE Oiran series. This is a boutique coffee with a strong tropical fruit aroma, including Americano, Dirty and other products. Just 10 days after the launch, half of the more than 90 tons of coffee beans purchased by Luckin Coffee were consumed. After purchasing an additional 40 tons, some consumers still complained that it was "not enough to drink."

In April 2022, Luckin Coffee and the national brand Coco Tree Coconut Juice launched a joint product "Coconut Cloud Latte". This new product has both similarities and differences with the previous raw coconut latte: instead of adding coconut milk to the bottom of the coffee cup, it is whipped into milk foam floating on the top of the coffee. This time the advertisement is also very creative. It borrowed the advertising slogan of Coco Tree Coconut Juice "Drink from childhood to adulthood" and the dense and soft characteristics of Coco Cloud Latte milk foam, and designed the copy "Drink from childhood to the atmosphere". In addition, the recognizable black background and colored text design of Coco Tree Coconut Juice is also used on the cup sleeves and paper bags of the joint products, attracting many consumers to buy and collect them specifically.

Despite the similar raw coconut latte, the performance of Coconut Cloud Latte is still dazzling. On April 17, 2022, Luckin Coffee released a weekly sales report of Coconut Cloud Latte, with sales of 4.95 million cups and total sales exceeding 81 million yuan.

Luckin Coffee’s latest hit product is the soy sauce latte, which was launched in September last year. It achieved sales of over 100 million yuan in a single day, breaking the sales record for a single product.

From 2021 to now, Luckin Coffee can be called the "hit-making machine" in the Chinese coffee market - there is almost no coffee chain brand that can compare with Luckin Coffee in its ability to create hits.

3. Pressure for Continuous Innovation

In August 2023, Luckin Coffee finally achieved its original goal for the first time: to compete head-on with Starbucks.

According to Luckin Coffee's second quarter 2023 (April 1 to June 30) financial report, Luckin Coffee's total net revenue was RMB 6.2014 billion, while Starbucks' net revenue in the third quarter of fiscal year 2023 (April 3 to July 2) was US$821.9 million, or approximately RMB 5.905 billion.

Compared with Starbucks, Luckin's prices are lower and it understands the tastes of Chinese consumers better: after quickly opening up the market with its low prices, Luckin began to concentrate on researching explosive products, adding brown sugar crystals, coconut milk, prunes and other ingredients similar to milk tea to coffee to create fancy coffee with a richer and more novel taste.

Luckin's digital management has also played a big role in controlling costs and launching new products. Luckin adopts a strategy of small stores with high floor space efficiency, using fully automated equipment to reduce the impact of human factors on product quality. At the same time, it tracks the popular trends of beverages through digitalization, and standardizes purchasing decisions and store location selection.

However, what Luckin can do, other brands can do as well.

Rather than saying that Luckin's competitors are Starbucks, it is better to say that they are China's various new local coffee and tea drinks. Like Luckin, they understand the tastes of Chinese consumers, have prices similar to Luckin, are also planning to enter the lower-tier markets, and are implementing digital management.

At present, Nayuki Tea, a high-end new tea brand, has completed system replacement, with digitalization covering all businesses including store management, supply chain management, store site selection, etc. The prices of some products have dropped to the range of 10 to 20 yuan, and it has begun to compete for the sinking market. Mixue Bingcheng, which mainly operates in the sinking market, has also established a standard franchise management mechanism, implemented digital management of stores, and realized standardization of store products.

Even within the domestic coffee industry, Luckin Coffee has many competitors.

China's new tea drinks and coffee have a tendency to penetrate each other. After Luckin's raw coconut latte became popular, many new tea drink brands launched coconut products; Luckin's meteorite latte and prune latte also borrowed the ideas of new tea drinks in terms of ingredients. Starting in 2021, in order to increase profit margins, many new tea drinks began to enter the coffee track and seize the coffee market share.

Among the new tea brands that have tried coffee, Mixue Ice City is still the most successful. In 2017, Mixue Ice City began to incubate its sub-brand "Lucky Coffee", and has expanded rapidly in recent years. It now has nearly 3,000 stores. Lucky Coffee also focuses on the sinking market, diluting the bitterness of coffee, adding ingredients such as lemon, cheese, and coconut milk. Most of its products are priced at less than 10 yuan, which is lower than Luckin Coffee.

Another brand priced at 10 yuan, Kudi Coffee, is applying Luckin Coffee's previous thinking to "compete" the current Luckin Coffee. Kudi Coffee was co-founded by Lu Zhengyao and Qian Zhiya who left Luckin Coffee. Following the idea of ​​occupying the market with low prices, it launched a price war against Luckin Coffee in 2023.

In February 2023, Kudi launched the "Coffee Carnival in Hundred Cities and Thousands of Stores", which included giving new customers a 8.8 yuan bonus and selling hot-selling products starting at 9.9 yuan. Sales exceeded 1.53 million yuan in two weeks.

After the Kudi event ended, Luckin Coffee launched a targeted counterattack against Kudi - Luckin Coffee stores near Kudi Coffee stores began to issue 9.9 yuan coupons. After that, Kudi restarted the 9.9 yuan discount event, and Luckin Coffee also continued to launch the 9.9 yuan coupon event every week, and announced that the event would last for at least two years.

No one can stay out of this price war. Now, most coffee chains and new tea shops have lowered the price of American coffee to single digits: Coco's American coffee costs 5.9 yuan per cup, and Heytea's is 8 yuan per cup; KFC and McDonald's have lowered the price of some coffee products to less than 10 yuan; convenience stores such as Lawson, FamilyMart, 711, and Convenience Bee have also begun to sell quick and low-priced coffee.

In addition, the coffee industry also lacks product barriers: a popular product can easily be imitated by competitors and standardized production can be achieved using coffee machines.

Among Luckin's popular products, most have become "others' clothes" except for the Maotai-exclusive joint product such as the Maotai Latte, which is not easy to imitate. Now, most street coffee chain shops and new tea shops that serve coffee have products such as the raw coconut latte.

In the fiercely competitive coffee race, Luckin Coffee, which has already entered the fast lane, cannot stop. Faced with competitors all around, Luckin Coffee cannot afford to slack off in terms of continuously developing new hits, strengthening digital management, improving store efficiency and reducing costs, or creating higher profits.

Author: Danmu, Editor: Maji

Source: Public Account: Value Planet (ID: ValuePlanet), discovering company value and telling capital stories.