Luckin Coffee wants to challenge Starbucks. Who will win in the end?

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Luckin Coffee, a burgeoning mainland coffee shop chain seen as Starbucks's biggest rival in the Chinese market, has revealed plans to raise up to $100m in a US application for IPO.

Luckin Coffee, which has only been established for more than a year, has rapidly expanded to 2370 branches, equivalent to opening one every 5.5hours. however, like Meituan, Didi and other start-ups, the coffee shop has not yet made a profit, with a net loss of 552 million yuan in the first quarter of this year, more than four times that of the previous quarter.

Last year, the size of the mainland coffee market increased to 56.9 billion yuan.

With the improvement of consumption level in the mainland, coffee culture is taking root in China. Luckin Coffee's listing document quoted the report as saying that China's coffee market totaled 15.6 billion yuan (RMB) in 2013. It has increased to 56.9 billion yuan in 2018 and is expected to expand to 180.6 billion yuan in 2023.

The Frost Sullivan report also predicts that the average number of coffee cups consumed by the Chinese will rise from 6.2 in 2018 to 10.8 in 2023. However, this is still far lower than that of some "big coffee consumers". Last year, Germany drank 867.4 cups of coffee per capita, Americans drank 388.3 cups of coffee a year, and Hong Kong people also had 249.5 cups, reflecting the potential of the mainland coffee market.

Sales in Chinese coffee market (source: Frost Sullivan report).

Luckin Coffee VS Starbucks-Store

Starbucks, an American coffee chain, entered China 20 years ago and now has more than 3600 stores in more than 150 cities in China, making it Starbucks' fastest-growing and largest overseas market. Last year, Starbucks set a goal of increasing its stores to 6000 by 2023.

As for Luckin Coffee, which was only established in June 2017, the number of stores exploded to 2370 by the first quarter of 2019, but it turned out that the secret of its rapid expansion came from its opening strategy, with self-access (pick-up) accounting for 91.3% of the total number of stores, usually located in office buildings, business districts and university campuses.

The number of seats in these pick-up shops is limited, or even no seats, with an area ranging from 20 to 60 square meters. The listing document explains that opening a pick-up shop allows the company to enjoy lower rents and decoration costs to expand rapidly and be close to the target customers.

The strategy of opening a store is different, and the consumer groups of Ruixing and Starbucks are also different. Apart from drinking coffee, consumers at Starbucks need a "third space" to relax, work or socialize. As for Luckin Coffee, he is more inclined to bring himself and deliver tea in the market, more like a "coffee version" of happy tea.

Luckin Coffee has expanded to 2370 branches in the first half of its business, but it turns out that more than 90% belong to the pick-up shop in the picture, with a limited number of seats or even no seats (source: Luckin Coffee listing documents).

Luckin Coffee VS Starbucks-Price

Downloading Luckin Coffee's mobile app shows that the price of his coffee is set at 21 yuan to 27 yuan. At present, there is a discount of "charge two get one free". The beverage coupons can be stored for three years, while the price of light snacks is only 10 to 20 yuan. It is 1 / 3 of the Starbucks price. The price of Starbucks coffee in the mainland is about 30 to 40 yuan, which is generally more than 10% more expensive than Luckin Coffee.

It was only in the second half of last year that Starbucks woke up to the popularity of takeout in the mainland and partnered with Ali ele.me to expand its takeout service. Lucky saw the opportunity, seized the advantage of cheap and convenient, and was able to catch up, close to Starbucks as the second largest coffee chain in China in terms of the number of stores and the number of coffee cups sold throughout the year.

The rise of Lucky has affected the growth rate of Starbucks' business in China. Starbucks' same-store sales in China grew by only 1% in the first quarter to the end of December, but sales fell 2%. Starbucks China and Asia Pacific still had revenue of nearly $1.23 billion (about 8.26 billion yuan) and operating income increased 13% to $221 million.

On the contrary, Luckin Coffee's loss is expanding, with a net loss of 550 million yuan in the latest first quarter of this year, more than four times that of the previous quarter, and 1.619 billion yuan for the whole of last year, according to listing documents.

Consumers can place orders to buy Starbucks on Taobao, Tmall, Alipay, ele.me, box horse, word-of-mouth and other new retail ecology, as well as Starbucks' own app.

Luckin Coffee VS Starbucks-Finance

Luckin Coffee is expanding at an alarming rate, but his financial situation is quite frightening. in addition to opening a large number of stores, he has hired stars Zhang Zhen and Tang Wei as spokesmen, and often offers discounts. Recently, Ruixing launched a cash handout campaign to "compete for millions of giants". Customers who consume more than seven items a week can share a cash prize of 5 million yuan, which lasts for 10 weeks, thus burning 50 million in cash.

According to the listing documents, Luckin Coffee's cash and cash equivalents are 1.159 billion yuan. If the listing fails to raise funds successfully, at the current rate of burning money, that is, a loss of 550 million yuan in the first quarter, it will only take two quarters to burn up all the cash in the account. In addition, Lucky also faces various medium-and long-term debt pressures. according to the prospectus, the company has to pay 812 million yuan in capital within a year, including leasing, decoration, bank loans, buying coffee machines and other costs.

In contrast, Starbucks, which has operations all over the world, held nearly $9 billion (about 60.4 billion yuan) in cash and quasi-cash last year, although its liabilities reached $9.44 billion (about 63.43 billion yuan). But most of them are forward notes with low interest rates of 2% to 4.5%, while Starbucks had a net cash inflow of $11.94 billion (about 80.2 billion yuan) last year, reflecting a relatively healthy financial position. It is difficult to compare with Luckin Coffee, who has been established for more than a year. It seems that if you want to win, you have to win yourself.

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