Revenue surpasses Starbucks China for the first time, 10,000 stores, and huge sales of sauce-flavored latte... 3 keys to Luckin's long-term success

Recently, Luckin Coffee launched a new "Sauce Flavor Latte", which has been all over the WeChat Moments, a very successful marketing case. Luckin Coffee has frequently launched popular products, what is the secret of its long-term success? Let's follow the author's thoughts and explore it together.

On September 4, Luckin Coffee and Moutai jointly launched a new product, Maotai Sauce Latte. In the following days, this Maotai Sauce Latte also led Luckin Coffee and Maotai to dominate the hot search list for many consecutive days, and the whole nation entered the "Maotai Sauce Latte Moment". Later, Luckin Coffee also proved the popularity of this cup of coffee with sales: the sales of Maotai Sauce Latte exceeded 5.42 million cups on the first day, and the sales of the single product exceeded 100 million yuan on the first day, setting a new record for the single product.

Of course, this is not the first time that Luckin has been on the hot search this year and has become the focus of the coffee market. After the number of domestic stores exceeded Starbucks China in 2021, Luckin's revenue also surpassed its old rival in Q2 2023. And, in this quarter, Luckin also achieved the small goal of "10,000 stores" ahead of schedule and achieved an operating profit margin of 18.9%. According to Luckin Coffee's second quarter 2023 financial report, its total net revenue in the second quarter was 6.2014 billion yuan, a year-on-year increase of 88.0%. In June of this year, the number of Luckin Coffee consumer users exceeded 50 million, setting a new record. As of the end of the second quarter, the average monthly number of transaction customers reached 43.07 million, with 1,485 net new stores opened, totaling 10,836 stores, becoming China's first chain coffee brand to exceed 10,000 stores.

So, from the initial popularity of the raw coconut latte, which brought Luckin back to life, to becoming the first domestic coffee brand to have a chain of 10,000 stores, to surpassing Starbucks China in revenue for the first time... What has Luckin experienced in the past few years? This article attempts to analyze Luckin Coffee from multiple angles, including products, franchise model, and marketing.

1. Product: Coffee + "More Suitable for Chinese People's Physical Constitution"

If the sauce-flavored latte is just one of the products that made Luckin Coffee popular again, then the raw coconut latte has the highest status among its many "products". After all, it is recognized in the market as one of the key core products that made Luckin Coffee "resurrect". At the same time, this cup of raw coconut latte can also be seen as a key to opening the door to Luckin's product innovation. Luckin's new product launches can be summarized in one sentence: high-frequency launch of new "coffee +" products.

On the one hand, according to iBrandi's observation, Luckin Coffee's frequency of new product launches far exceeds that of other coffee and tea brands. In 2020, Luckin Coffee launched 77 new freshly brewed drinks throughout the year; in 2021, it launched 113 new products; in 2022, Luckin launched nearly 140 new products. Based on the frequency of Luckin Coffee's new products, we also found that Luckin Coffee has the characteristics of "coffee +" in its products. For example, coffee + juice, coffee + tea and other coffee + products.

As for "coffee +", coffee + coconut is a form, coffee + wine is a form, and coffee + tea is also a form. In short, in Luckin's view, under the trend of coffee beverageization, "coffee +" products are more suitable for Chinese babies. For example, "coffee + tea" has become one of the characteristics of Luckin's new products in recent times, and the new trend of "Chinese tea coffee" has been led by Luckin again. iBrandi Pinchuang observed that Luckin's spring limited popular Biluo Zhichun Latte sold 4.47 million cups in the first week of its launch. This product uses Luckin's selected Biluochun before the rain and the fresh green tea from the southern tea garden to make the tea base of the new product, and then matches it with the refined coffee made from the IIAC gold medal coffee bean formula and the Ristretto® process, as well as Luckin's signature popular ingredients: thick and mellow milk, to create the Biluo Zhichun Latte, a new Chinese tea coffee masterpiece that amazes the taste buds and sweeps the entire network.

In addition, the emergence of products such as Jasmine Latte, Jasmine Americano, Steamed Green Sunflower Latte, Lanyun Tieguanyin Latte, etc. are all actions to continuously improve the "Chinese Tea Coffee" series of products. Many people say that it is not coffee, but a better coffee drink.

In fact, through big data, Luckin Coffee will reversely think about the taste of ordinary Chinese people for coffee, that is, not so bitter or sour, but smooth and delicious. Therefore, the coffee formula is specially selected for the Chinese taste. Unlike Westerners who like sour and bitter coffee, Chinese people prefer a mellow, smooth, sweet and non-greasy taste. In order to make coffee that is more suitable for the Chinese taste, Luckin Coffee controls product quality from multiple angles such as formula preparation, raw material selection, and machine use.

So, what supports Luckin Coffee's ability to innovate products and create explosive products? In addition to the good foundation laid by high-quality coffee, Luckin also has the efforts to establish a global high-quality supply chain and use big-name and reliable ingredients to innovate flavors and upgrade quality. Since its establishment, Luckin has adopted standardized processes and continuously polished its quality control system. All stores use uniform imported automatic coffee machines, and then through the cooperation of IoT Internet of Things technology, it is guaranteed that 10,000 stores can produce the same coffee according to the same standards and parameters. It is worth noting that Luckin Coffee recently ushered in the 9.9 quality coffee era. Since the launch of the 9.9 yuan coupon event, 39 million cups were sold in the first week, and the number of members exceeded 50 million in the first month. The number of paying users exceeded 50 million in June, setting a new record. And the support for this is also inseparable from the supply chain behind Luckin Coffee.

2. Ten thousand store chain and franchise store: Luckin Coffee’s scale game

In fact, Luckin Coffee not only opened the era of 9.9 quality coffee, but also opened the era of China's first coffee brand chain with 10,000 stores.

By the end of the second quarter, Luckin Coffee had a total of 10,836 stores. What helped Luckin Coffee become China's first coffee brand with 10,000 stores and stand out in this scale game was actually the store franchise model.

According to iBrandi, the "store franchise" model opened by Luckin Coffee this time is based on the joint venture cooperation model. It is a new form of cooperation launched for stores that are currently in operation during the lease contract period or investors of self-owned shops.

Luckin Coffee, as the absolute leading brand in the Chinese coffee market, has actually also felt the pressure of market competition. Old brands Starbucks, new brands Kudi, Nova, Lucky Coffee, etc. have all expanded very quickly this year. When many brands are expanding rapidly, it is actually difficult to continue to expand stores slowly in the traditional way.

The store franchise model has always been an effective means for franchised enterprises to expand rapidly. In this case, Luckin Coffee’s store franchise model can not only quickly expand its market share, but also expand its influence and market share with the help of franchisees, helping Luckin Coffee to quickly get a good position. This is a good killer to seize advantageous positions. For entrepreneurs who want to quickly join the Luckin brand but do not want to take the risk of operating independently, this is undoubtedly a good choice.

In addition, Luckin Coffee also has its own strategy in site selection.

Luckin Coffee uses big data and artificial intelligence technology to conduct a comprehensive market analysis. It focuses on selecting stores in crowded areas such as commercial areas, schools, and transportation hubs. It pays attention to the balance between the number and scale of stores to avoid blind expansion. It pays attention to market analysis and changes in market demand, and ensures store profits and operational efficiency through precise site selection. When entering new markets, Luckin Coffee will also adopt a phased and batched approach to gradually stabilize operations and avoid financial and operational risks.

Unlike Starbucks, Luckin Coffee increasingly relies on franchise stores. These franchise stores in lower-tier markets have also laid the foundation for Luckin Coffee to break through the 10,000-store mark. As the number of self-operated stores in first- and second-tier cities continues to increase, this also means that Luckin's stores in first- and second-tier cities have become saturated and the store scale is approaching the ceiling.

So, in the face of saturation of coffee brands, how did Luckin Coffee seize the lower-tier markets?

Differentiated competition with "small-store" coffee shops helped Luckin Coffee quickly expand its network, quickly increase brand awareness, and achieve rapid expansion, with self-operation and joint ventures as the dual drivers. As consumers in the sinking market are becoming less sensitive to prices, the coffee war in the sinking market is by no means a price war. Sensitivity to brands is gradually increasing, and brand potential is becoming more and more important.

Luckin Coffee's business model is a new retail model driven by new technologies. This new retail model is based on mobile applications (APP) and store networks, and is reflected in online APP ordering and offline store pickup services. Consumers can place orders through mobile APP, choose stores and pickup times, and enjoy convenient services such as automatic production and short waiting time, combining online and offline.

3. From co-branding to "Swiss"? Regarding marketing, the key is to play with young people

In order to resist the siege of low-priced coffee, in addition to the importance of store size, Luckin Coffee is also good at joint marketing. If we ask which major brand is the best at joint marketing, then Luckin Coffee must be one of them. Luckin Coffee always brings surprises to consumers in the field of joint marketing, and when selecting IP licensing cooperation, it will reach young audiences from different interest dimensions.

According to the financial report data, Luckin's sales expenses in 2022 were approximately 570 million yuan, a year-on-year increase of 69.14%. The sales expenses in the fourth quarter were approximately 173 million yuan, a year-on-year increase of 74.75%. A large amount of sales expenses were invested in IP joint activities, providing strong support for Luckin's "comeback against the wind".

Luckin Coffee is not limited to some well-known brands and IPs in its choice of co-branded partners, but will find many niche brands and IPs, such as the lonely frog and the striped puppy that were very popular some time ago. Last year, Luckin Coffee launched the exclusive theme "No Guagua on Chinese Valentine's Day" and Easter eggs carefully prepared for singles. Facing the self-deprecation and single status of the sad frog, many young people seemed to see their own shadows, and while buying coffee, they invisibly strengthened their sense of identity with the brand.

This year, the Luckin Coffee x Line Dog Valentine's Day joint event was launched, which made the coffee Internet fall into a sea of ​​dog love. Through joint comics, stickers and other peripheral derivatives, the concept of "hiding the desire for love is a manifestation of losing oneself and shutting out love" was conveyed, encouraging users to love boldly and "stick" as they please. Since Luckin launched the Valentine's Day Line Dog joint series of drinks, its Valentine's Day-related tweets on Weibo, Douyin, and Xiaohongshu platforms reached 17,893 in just three days, with an interaction volume of 491,200 times.

Overall, the brand relies on Weibo to penetrate the young Z generation, relies on Xiaohongshu to establish the main position of seeding, and relies on Douyin to tap into the purchasing power of the crowd. The user characteristics of Douyin have enabled the brand to quickly increase its volume through this channel and use traffic to drive sales. Since the establishment of the brand, Luckin Coffee has always attached great importance to the role of spokespersons. The main logic of Luckin Coffee in selecting spokespersons is to give spokespersons various brand labels.

In 2017, Luckin Coffee opened its first store in Beijing and invited Zhang Zhen and Tang Wei as spokespeople, which helped Luckin Coffee gain popularity and establish a good brand image. In order to welcome the coming of winter and the 2022 Winter Olympics in Beijing, Luckin Coffee chose 18-year-old freestyle skiing world champion Gu Ailing as its brand spokesperson based on its judgment that the Winter Olympics would be popular. It released the brand declaration "If you are young, you should choose Luckin" to strengthen the brand's youthfulness and gain super high traffic at a relatively low cost. The label of "genius skiing girl" has a huge impact on Luckin Coffee. In addition to joint names and celebrity spokespeople, Luckin can also play with itself. "Luckin?" "Luckin!" Luckin Coffee's emoticons are popular on social platforms, and netizens have used "Luckin" to express "Do you drink Luckin?" "Luckin" means "drink".

Overall, in the past two years, more and more people cannot live without a cup of coffee every day. The main consumer groups are young working people and some college students. From public domain marketing to private domain interaction, Luckin Coffee also knows the importance of playing with young people.

IV. Conclusion

Obviously, as the Chinese consumer market continues to upgrade, the popularity of the coffee consumption market will also accelerate. Luckin Coffee is expected to further grow in the Chinese coffee market with its convenience, fast delivery, innovative categories, and high-quality services.

In addition, as the domestic coffee market is close to saturation, exporting coffee has become an option, and Luckin is the "pioneer".

At the end of March this year, Luckin Coffee took its first step overseas, and its Singapore store has now entered the business stage. According to Guo Jinyi, Luckin Coffee has established significant scale and cost advantages through years of hard work, which allows Luckin Coffee to achieve competitive prices and cup volumes while maintaining a reasonable profit margin. It is difficult for other brands to compete with Luckin Coffee in both aspects at the same time. Finally, in this still involuted coffee market, Luckin Coffee, which has stepped into the pit, has completed its transformation and has created a world for itself.

Author:Chloe

WeChat public account: iBrandi (ID: ibrandi)