The Secret Behind The Blue Cups – Is Luckin Coffee Becoming Starbucks’s Biggest Competitor In China?

Fri, 04/27/2018 - 10:15
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For the past few weeks they’ve been everywhere. In elevators, WeChat Moments and website banners, online and offline. They’re staring at me first thing in the morning when I leave my flat and later, when I go back home. Those blue cups everywhere! Luckin Coffee’s offensive has grown stronger lately and they claim they want to revolutionize China’s coffee market.

It’s the first time one of China’s in-house brands launched such enormous marketing campaigns. As the country is known for its love for tea and hot water, the Chinese on average drink only four cups of coffee every year (tragic!). This number is a bit higher in first-tier cities, where the average amount is twenty, compared to the 1240 cups of coffee people drink every year in Finland or the 400 by the typical American (source in Chinese).

coffee-consumption-in-china

Nevertheless, coffeehouses exist in China. Costa has opened over 400 stores and its even bigger rival, Starbucks, opened over 2,000! And the company states they now open a new store in China every 15 hours! Crazy numbers, right? Well, probably not if you think of how many people live in China… Oh, and if you consider what people usually order at Starbucks. I haven’t seen any statistics, but every time I’m there, I’m the only person getting actual coffee. Chinese people love matcha lattes and all the other sugar-coma inducing drinks.

However, this trend’s been changing over the past few years. Whether it’s because of the Starbucks’s cup craze or life getting busier in China, but the foreigners  are no longer the only coffee consumers in the country. And following the trend, a lot of cheaper chains (like Coco) and other tiny coffee shops pop-up. But none of them has managed to draw as much attention as Luckin Coffee though.

What The Heck Is Luckin Coffee?

Lucking-coffee-coffeehouse
Nope, it's not Starbucks! (source: Luckin Coffee)

Luckin Coffee (瑞幸咖啡) was founded in November 2017 by Qian Zhiya, a former COO of ride-sharing firm UCAR. By the end of the year, the company managed to open over 300 stores and they’re planning on opening 200 more before May 2018. Sounds crazy enough, even if we don’t mention that Costa needed 12 years to open just four hundred stores in China.

But, the question remains: how did they become an overnight hit in China? It’s one thing is to decide that you want to become a super-brand in just a few months, and another to actually do it, right?

Well, to get started, they just decided to give away free coffee to anyone who downloaded their app. And to anyone who recommended the app. And to anyone who ordered at least two cups of coffee. And anyone who followed their social media account.

Luckin Coffee claims their budget for the marketing campaign was 1 billion RMB coming from the parent company, banks, and its own members. This is the money spent on building the customer’s loyalty and promoting coffee culture among Chinese consumers. The company targets young white-collar workers and says their main goal is solving the biggest problems on the way between the consumers and their cup of coffee. What problems? According to Luckin Coffee’s CEO, a cup of coffee in China is simply too expensive and it’s relatively difficult to get.

 

Marketing Strategy

 

Okay, first things first. We already figured out Luckin Coffee’s main competitors and we mentioned their target audience. We also know the budget. What’s next?

The company seems to fully embrace the new retail concept that Chinese giants like Alibaba have been promoting for months. They managed to blend in their online and offline marketing efforts and retail channels. They also collect as much user data as possible and they fully use it. Can you say that about all (or even half!) of the foreign companies that struggle to grab a piece of China’s market?

Here is what Luckin Coffee’s CMO, Yang Fei, stresses when it comes to the company’s marketing efforts in China (source in Chinese).

lucking-coffee-ads
"This cup - who wouldn't love it?" (source: Luckin Coffee)

Offline marketing.

It’s often underestimated in the current digital era, but it still works! Luckin Coffee focused on urban office buildings and residential areas. The idea was repetitive exposure. Even if someone was indifferent to the popping blue color of the ads, there’s a limited number of times you can ignore an ad if it’s screaming at you from all sides. Still not convinced? Luckin Coffee also hired KOLs and foreign baristas to be their brand ambassadors. Tang Wei and Zhang Zhen were smart choices – they’re top tier celebrities in China and are free or unfavorable gossip, and help target people ages 25+.

Online marketing.

The company’s main goal was to infiltrate social media friend circles, so they focused on WeChat Moment LBS ads. They could also rely on word-of-mouth shared among friends thanks to all those aforementioned free coffees.

Data analysis.

As mentioned before, Luckin Coffee does not leave anything to chance. They first opened three test stores in different locations to access their capabilities and find out who their target audience would be. They also learned consumer behavior and improved their app. As the app is standalone, not a built-in mini-program, they’re able to take a full grasp of user data and lower management and customer acquisition costs.

Their marketing campaign was built on a simple concept: coffee is “a social drink”. Especially in China where people don’t start a day with a mandatory cup of coffee, coffeehouses are more about socializing, going out, and chatting with friends. That’s how they knew they had to focus on WeChat friend circles. That’s where you build  the relationship with clients. Yang Fei said that it was relatively easy to get out of a local store and forget it, but leaving a social circle was much more difficult. If every single one of your friends talks about the blue cup, you want to as well, right?

Cost saving.

As mentioned before, the company sees significant savings in thorough data analysis. Another source of savings is the delivery option. Opposite to Starbucks or Costa, Luckin Coffee understands Chinese people’s love for food delivery and so they signed a deal directly with a delivery company; rather than food delivery apps like Ele.me or Meituan. Moreover, the take-out coffee does not come from physical cafes. What personally annoys me in other stores is that there are always delivery guys in front of me in the queue. Luckin Coffee has three different kinds of stores: 1) actual cafes where you can sit and sip your coffee, 2) pick-up stores, where you can collect your pre-ordered coffee, and 3) stores that prepare coffee just for delivery. That’s also a way to save money – for the two latter kinds of stores, the rent is much lower.

Stand-alone app.

Well, here’s the point we’re not so sure about. My initial thought was: “Why would they make me download a separate app just to get a cup of coffee?” I sound like a spoiled child, but believe me – having talked to my friends, I know I am not the only one! Why couldn’t they just create a WeChat mini-program? They’re so convenient and even easier to share!

According to Yang Fei, rolling out their own app guarantees they don’t miss even a bit of data and have mentioned many times how important it is to them (and it should be to everyone!). But they also underlined that they don’t want to rely on WeChat’s policies that would affect their company and the customers.

One very important part – WeChat mini-programs are more suitable for brands, like KFC, that have already secured a strong position in China (according to Yang Fei).

 

NMG’s Point Of View

 

It all sounds like a fairy tale. But is Luckin Coffee really capable of jumping into China’s market and win over consumers’ hearts “overnight”?

  1. Every time someone mentions Luckin Coffee, they talk about the company being Starbuck’s new competitor. But is it? They both sell coffee. However, for Starbucks’s loyal customers it’s something more than just a cup of coffee- It’s that luxury that comes with foreign brands in China. It’s that magic of walking around with the famous cup (and posting selfies with it, of course!). Starbucks has clearly become a lifestyle in China. Can a local brand top that?
     
  2. Having compared the prices of coffee in different places, I can clearly see Luckin Coffee stands in the middle, between Starbucks and unknown-quality chain stores. They claim to sell decent quality for reasonable prices, and as a coffee-lover, I could fall for that. But Chinese people will not necessarily follow. Again, getting a cup of coffee in China is not about coffee. After all, Starbucks is not known for amazing quality either.

    But here it’s not about the price. Starbucks is the Chanel or Ferrari of coffeehouses. If Chanel, out of blue, decided to lower their prices to H&M’s level, they would probably lose most of their clients. It’s the same with Starbucks, it’s all about getting a cup of luxury for almost 40 RMB (6.3 USD).

    luckin-coffee-cups

  3. If we’re talking about quality… If you don’t trust me nor everyone I’ve asked (they said “so-so”), Sesia, NMG’s ex-barista, said the coffee is not worth more than what you pay for it during a promotion. Which is the 6RMB cost of delivery. But it’s probably better than the cheap chains. So, if you can’t make your daily cup of coffee yourself, and don’t want to spend a fortune on Starbucks, you’ll probably choose Luckin Coffee.
     
  4. That stand-alone app they are so proud of? Most of the people I talked to just deleted it right after they took their free cup of coffee. But don’t worry, the company surely got most of the money back. Judging by the fact that all the cakes and muffins they offered were sold out mid-day, and no, they were not free ;-)

So, all in all, what’s obviously worth our attention is that their campaign went viral! I don’t remember the last time everyone went mad about something like that. Rubbish bins all around were filled with empty blue cups, WeChat Moment posts were a must-do, and, in general, Luckin Coffee was a number one topic! Even in our office, there was not even one day without a Luckin Coffee. Sometimes the poor delivery guy had to see our faces three or four times a day.

They should get an appraisal for their delivery system- I often struggle to get a cup of coffee if I’m too lazy to leave the office. Compared to other stores (Starbucks and Costa in particular), Luckin Coffee is surely the most convenient option.

I would also pay attention to how they managed to choose appropriate marketing channels, merge online and offline marketing, and how they collect and analyze their data . And what are the results? I hate saying this, but it’s probably too soon to judge. We will see in a few months or even years if they manage to survive or they end up like many other companies in China. After all, in China they say “since 2011” makes you a local hero, right? ;-)

 

Read more about Starbucks's marketing strategy in China here.

 

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Comments

I want details about the franchise I am in Jordan right now.

best regards,
Mohammad Shaar

Hi Mohammad,

Luckin Coffee doesn't seem to have any plans of expanding globally, they're focused on China's market for now.

Luckin Coffee is on life support. Starbucks will always have a stranglehold on the market in China. Luckin is for people who are too busy to enjoy a cup of coffee. 再见 Luckin.

I'm not a huge fan of their coffee either, and I think as soon as they stop handing out millions of discount coupons - they're done. But you got to admit they understand the Chinese market pretty well, and they did cause quite an uproar. I like to think they pushed Starbucks into stepping up their strategy and signing the deal with Alibaba.

I wrote a separate post on Starbucks' strategy in China if you're interested: http://nanjingmarketinggroup.com/blog/starbucks-marketing-in-china

Good day guys,

We are trading company and importing pure Ethiopian coffee to China. Would like to have an offer to Luckin coffee, this is a new test and chance to bring into the coffee consumption market.

Please can you give me Luckin coffee appropriate department contacts.

Thanks in advance.

Cheers..

Hi Sargis,

We're not related in any way to Luckin Coffee. I suggest you contact them directly and ask for specific information. You could try here: https://www.luckincoffee.com/corp

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