How a coffee startup in China is brewing up a Starbucks scuffle

Luckin has forged a partnership with SF Express to do 30-minute coffee delivery. / Photo credit: Luckin

At 9 am, snappily dressed office workers swarm into a high-rise in the southern Chinese city of Shenzhen. Before hitting the elevator, some pause at a coffee shop called Luckin, which is tucked away in a corner of the lobby. There are no cashiers, as people have ordered and paid for their drinks upfront on their phones.

Amid the white-collar crowd, a small fleet of delivery men are hastily picking up Luckin orders to put them in the hands of customers within 30 minutes.

“There can’t be only one brand for China’s coffee market,” Luckin founder Qian Zhiya told media when asked whether she saw Starbucks, which commands half of China’s coffee market, as a competitor. “We are willing to learn from Starbucks’ advantages, from where we can innovate.”

The seven-month-old startup is eyeing China’s new caffeine craze. Coffee sales will top US$43.7 billion in 2020, a 330 percent jump from 2015, according to CBNData.

Luckin now counts 809 stores across China’s major cities, dwarfing the 449 outlets British coffee brand Costa has opened since entering China in 2003. Starbucks takes the lead with 3,124 Chinese facilities, but Luckin is closing in fast, promising to hit 2,000 by the end of this year.

Technologies that help bridge the online and offline retail worlds, Luckin hopes, could be its weapon to shake up China’s coffee establishment.

Chinese takeaway

Unlike Starbucks’s primely perched stores, Luckin is often hidden inside office buildings or just off the busiest streets. Luckin doesn’t need all its stores to be conspicuous, however, as it runs a mix of sit-down stores, pickup kiosks, and takeout kitchens to fit what a range of consumers need.

As of June, 44 percent of Luckin’s locations were for takeaways. And unlike many other food businesses that rely on third-party delivery services, Luckin leans on a formal partnership with courier service provider SF Express to make 30-minute delivery a reality.

Many Luckin stores are hidden inside office buildings. / Photo credit: Luckin

“Luckin is, for the most part, a delivery business,” Gavin Pathross, founder of Shanghai-based coffee startup Ratio and former chief digital officer at Yum China, tells Tech in Asia. “That said, it’s quickly moving into retail to compete head on with traditional players such as Costa and Pacific Coffee.”

“Consumers want delivery,” observes Alan MacCharles, a partner at Deloitte China. Luckin’s rapid ascent to US$1 billion in valuation, he suggests, signals that investors believe in the strategic importance of delivery.

Starbucks is now coming round to that sentiment in China. On August 2, the coffee titan announced that the Alibaba-backed meal delivery service Ele.me will be fulfilling its takeaway orders. Previously, unauthorized third-party services undertook that task until local regulators cracked down on the practice on grounds of food safety concerns.

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