China’s newfound love for coffee over tea became evident a few years ago. The popularity of tea, a significant part of Chinese culture, started to diminish when the demand for coffee increased. The tea culture did not totally fade away in the country, but the shift in the younger generation’s preference could be seen. Luckin Coffee took advantage of the situation back in 2017 and opened about 4,500 stores across China.
It soon became a strong competitor for Starbucks, which is the powerhouse in the coffee industry. Luckin coffee had some specific goals in mind, including reviving a rejuvenating cup of coffee that is not heavy on the pocket. This goal, along with the young consumers as target audience, the marketing strategies of Luckin coffee resulted in winning over Starbuck’s consumer base in China.
But What Happened to Luckin Coffee?
Luckin coffee’s fate met a humungous financial scandal – unveiled by a whistleblower – involving its upper management. The scandal involved the company’s management showcasing inflated sales (up to $300 million) for 2019.
Following the investigations, Luckin coffee agreed to pay a fine of $180 million for publishing misleading sales figures. The verdict also led to the delisting of the company from NASDAQ.
In February 2021, Luckin coffee filed for bankruptcy in US court. However, the company announced that its stores would remain open and conduct business.
The Ministry of Finance also reprimanded Luckin coffee in China for fraud and circulating misleading sales reports. Charles Lu, the previous chairman of the Luckin coffee, was also removed in July 2020, though he still holds shares in the company.
The Comeback of Luckin Coffee
China’s local competitor of the world-renowned Starbucks has made a surprising comeback. After hitting a low during 2020 financial scandals and amid bankruptcy filing earlier in 2021, Luckin Coffee has become a fascinating case history for business students.
After being delisted from NASDAQ, Luckin coffee did not close its stores and conducted business even during the 2020 pandemic. According to China’s latest urban coffee consumption report, Luckin coffee has shown promising results. It is gaining more momentum in the younger population.
Luckin coffee in China requires downloading an app to order your favorite cup of Luckin coffee at the café. Unlike Starbucks, Luckin coffee thrives on the “coffee for all” model. By employing cost-effective methods of introducing its new flavors and offers, Luckin coffee is expanding steadily.
Luckin Coffee is one of the most exemplary case studies for business students. Following its scandal in 2020 and the defamation it brought, the company stood firm on its ground and made amendments to assure its investors that change was on its way.
The company kept operating during a surging 2020 pandemic and did whatever it could to keep its stores open in China. It cleared out its boardroom and employed new faces to denote a fresh start for the company.
Source: Bloomberg
Luckin Coffee Witnessing Success Again
Luckin has made a crashing comeback and taken hold of the younger population, especially the students. Research shows how Luckin and Starbucks compete head-on in various Chinese cities. However, national surveys show user preference of Luckin more among the students in first-tier cities.
The recent financial report of Luckin coffee shows the company’s net income of about 2.3502 billion yuan as per the data of the third quarter of 2021. This revenue is about 105.6% more than that of 2020.
In addition to the revenues, consumer surveys consistently show Luckin coffee is marked “highly recommendable” by the consumers. About 5.91% of the consumers marked Luckin coffee as one they would recommend to others, compared to only 2.88% of consumers choosing Starbucks for the same question.
Another important aspect related to the comeback of Luckin coffee is constant innovation. This coffee company seems to be on an unstoppable hunt to introduce new flavors and mixes to its consumers. The research and development teams of the Luckin coffee, along with rapid coffee testing, did not slow down during the 2020 pandemic too!
In fact, the year 2020 witnessed about 77 new drinks or mixes introduced in the menu throughout the year.
What Did They do Differently?
Luckin coffee started the previous year by adding about 50 new drinks to its menu by June. Raw coconut latte and thick milk latte are two of the most favorite additions during the first half of 2021.
One of the best strategies employed by Luckin coffee is the ease of purchasing channels. Luckin Coffee has deliberately opened its stores where Starbucks does not already saturate the coffee market. It has worked hard to live up to its aim of making coffee readily available for everyone. The financial reports released during September 2021 show that Luckin coffee stores have increased to about 5,671 stores across the country, out of which 4,206 are self-operated.
Another significant part of the comeback of Luckin coffee is franchising. About a quarter of the company’s stores nationwide are operating under franchises. It has profited the company largely.
Luckin is Young
An inspiring thing about the comeback of Luckin coffee is its unwavering focus on grabbing the attention of the younger generation. The company has an incorporating strategy for various festivals and holiday coffee so that the people can relate to the cup of coffee more than anything.
Luckin company strives to relate their products with the younger mindset, correlating how coffee jolts your fresh mind to work or study. It has even announced signing an 18-year-old freestyle skiing world champion as its brand ambassador during the upcoming winter Olympics.
Young Luckin is the motto this company is going with. By the initial financial reports this year, the company is succeeding in minimizing or breaking even its losses during the previous two and a half years.
An asset management company, Yong Rong (HK) Ltd., has also bought some shares in Luckin and now holds significant stakes in the company. Previous shareholders, Centurium Capital and Joy Capital, still have shares in the company.
The Unbelievable Story of Luckin Coffee
Luckin coffee is sure to make wiggle in some space in the world’s most shocking business case studies. We have to appreciate Luckin coffee for successfully striving to dim its past turmoil. The earlier it gets rid of its dodgy past, the easier it will be for Luckin to attract big investors.
Also, the experts assert that Luckin should get listed in Asia amid the rising dislike for US-listed Chinese companies. Investors who believed in Luckin coffee and never pulled out their capital even during the difficult times and bankruptcy are in for a lucky share of the growing revenues.
