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Business· Markets· Equity

Luckin Coffee’s model mutates into discount stores with tentacles onto consumables, competitive pricing a threat to Pinduoduo

CKN
minutes 2020/03/26 05:57:35
6,006
Luckin, Pinduoduo, Starbucks, 7-Eleven, JD, Amazon

Mar 26, 2020 (China Knowledge) - Luckin Coffee (LK), China’s version of Starbuck, has built mobile application and WeChat's mini-program, to penetrate into China’s consumable market and eating into online retail giants like Pinduoduo (PDD), JD.com (JD) and Alibaba’s (BABA) online and offline businesses. Luckin’s stealth attack on Chinese consumable is as dramatic as launching a ‘Pearl harbor-type’ attack, its ammunition to extend its aggression into the fiercely competitive e-commerce poses not only doubts of the coffee chain, but also its ability to establish itself as a formidable e-commerce giant wrestling with tens or hundreds billion dollar-worth gorillas in China’s current e-commerce landscape.

In addition to coffee accessories like snacks, nuts, and mugs, one can now buy Apple’s headphones, keyboards, electric toothbrushes, lunchboxes; and, even canvas bags and hand sanitizers. It is without doubt the offers will extend further and broader. Barely 5 years of age, and being listed on the U.S. stock exchange after 3 years in business, Luckin seems to ‘dash’ into businesses that analysts may never to expect.

The current sale and marketing strategy it is adopting is a consistent subsidy policy. For example, the original price of RMB 1,246 AirPods2 headphones, buyers could purchase, after a variety of subsidies and discounts in the billions, at the lowest price in JD.com for RMB 999, and even lower from well-known heavy-subsidized online retail giant Pinduoduo at RMB 859. In the boldest offer, Luckin sells it for only RMB 799 and calling it a "super subsidized" product.

On the online shopping mode, coffee drinkers that placed takeout orders using its same app can expect delivery of online purchases of other items. Originally focuses on coffees its extension of other drinks and simple takeaway food items did not leave a clue of the coffee chain mutating into other consumables.

Previously, local Chinese consumers used to compare Luckin to Starbucks, but last year it started to offer vending machines selling small items, and people start to match the similarities to convenience stores.

Investors and analysts who follow Luckin's IPO roadshow and its Powerpoint pitches, the mantra, and Luckin's business DNA has already surfaced and presented as to "be part of everyone's everyday life, starting with coffee". Clearly, Luckin sees itself as more than just a coffee chain.

Luckin listed this formula in the PPT: Luckin coffee = Starbucks + 7-Eleven + Costco + Amazon. Specifically, Luckin is a hybrid whose vision is to have Starbucks-quality coffee and food, 7-Eleven’s channels, Costco's attractive selection of low-priced products, and Amazon's technology-driven one-stop shopping platform.

Before that, Luckin was telling the story of Starbucks + 7-Eleven, and the combination of those two stories made Luckin worth more than USD 10 bln at one point. Now it is telling a third story, Costco's retail story of selective low prices.

But no matter how big the dream, it will require solid financial data and market capitalization.

Luckin's shares were trading at USD 35 per share when it unveiled its retail strategy in Jan this year, and within two weeks its stock had soared as high as USD 51, also completed a seasoned equity offering and bond issuance. But then Luckin's share price began to fall, catching up with the COVID-19 outbreak and now trading at less than USD 30, nearly halving its market value. It remains to be seen how far Luckin can go.

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