Luckin wasn’t innovative, it was luckin lucky

So, Luckin coffee has been getting a lot of coverage and attention, claiming to be a Starbucks killer in China, and in this regard i think Starbucks have cause for concern, however, where i disagree with people is in the belief that Luckin Coffee is innovative and disruptive, i think people are sprinkling this words-du-jour over Luckin Coffee too liberally.

Luckin turned up in late 2017 with a massive PR and celebrity endorsed ad campaign. Now on their 200m USD series A, its interesting to note that the founder Jenny Qian Zhiya was a former COO of UCAR, this was another Luckin style business in-so-much as it copied an existing successful startup business model (in this case Uber) then raised local chinese VC funding to build a competitor with massive PR and ad coverage taking advantage of celebrity endorsement. Whats different however is UCar didn’t really pull it off, after all it also needed to compete with local competitors (Didi, Kwaidi) but Luckin seems to have no direct local competitors, and in China, thats a winning formula, after all a local home grown vs an international corporate, the local will always have a significant advantage- from language and cultural business acumen to government lobbying leverage, the international incumbent will always be disadvantaged. So far Starbucks has had the luxury of not having direct competitors in China, so Luckin is certainly going to present an interesting situation for Starbucks.

I see three areas where Luckin has taken a pole position, but the certainly aren’t innovative or disruptive per-se, it is the combination of these 3 factors that makes Luckin a threat to Starbucks.

1. price — luckin is far more price sensitive and their model seems to accommodate for more incentives and promotions — while this is a good short term tactic, its not a viable long term strategy.
2. digital first — so Luckin took Uber and kind of made the Uber of coffee, in so much as they provided a online ordering solution with click and collect and mapping to the nearest Stall, so the stalls don’t need to be in prominent areas, with high foot traffic and therefore high rental costs, at the same time, users can order as they walk to the stall and the drink will (presumably) be ready and waiting for them. payment is via wechat and alipay.
3. delivery — in addition to the app, they offer delivery, which has been a huge boon for office workers and something starbucks was slow to take advantage of.

So with 200m USD They are opening at a blistering rate — about 500 outlets since their launch earlier this year. That’s 2–3 locations per day (including weekends).

so why with all this do i think Luckin is a copy-cat with no real long term advantage over Starbucks?

I think Luckin is an opportunist, there is a clear gap in the market at this particular point in chinas development, Coffee is seen as the white collar workers drink, but starbucks-a-day is probably a bit steep a price of manager levels and the aspirational levels of the white collar community, additionally Chinese culture is notoriously price sensitive and less brand-loyal, so reduction in price by even a few kwai can shift the advantage. next there convenience coupled with tech, again china’s population has shown a high propensity for early adoption so anything thats going to save time and effort is going to be an advantage, so on all three accounts Luckin as an advantage. But, Starbucks is a notoriously fast moving business, especially for one of its scale, so this means that the convenience tech, store locations and product quality will remain something starbucks will have an advantage in, even if it loses ground in the short term to luckin, long term this ground can be easily gained back.

The only area that Luckin has a clear advantage over starbucks is on price, and starbucks is not going to lower prices so Luckin will probably be safe using this as a way to ‘buy’ customers. BUT, this is a fools errand, Mobike and Ofo two local players basically ran themselves into the ground racing with countless promotions and discounts to gain customers, Starbucks might not compete here, but other local competitors (or rather copy-copycats) will, and when that happens luckin will be distracted from Starbucks and be fighting a war on multiple fronts… given the rate of store openings and promotions, i can’t imagine Luckin is profitable yet, so if they gain credible competitors soon, they’re going to be in trouble, and end up having to ‘ponzi’ their way out of a competitive bloodbath as prices race to the bottom. Meanwhile, why isn’t starbucks affected by this? i’d argue they have brand reputation and perceived quality and consistency on their side, i’d argue the kind of ppl who are price sensitive over a cup of coffee really aren’t starbuck’s core audience, so competing on price isn’t something starbucks need be concerned about. the convenience and tech factor however are a threat, but starbucks can easily replicate and mitigate this, so i really don’t think starbucks has anything to be threatened by this copy cat. Luckin simply got lucky.