Luckin Coffee, China’s on-demand coffee startup, announced that it has raised $200 million in a Series A financing round, bringing it to a valuation of $1billion, joining the Chinese unicorn ranks. Some investors for this Series A include GIC, a Singapore sovereign wealth fund and Centurium Capital, a private equity fund.
In an official statement, Qian Zhiya, Luckin’s CEO and founder, said: ” The funds we raise will be used for product research, technology innovation, and business development.”
Established in the last year-end, this Beijing-based company has expanded aggressively via a cash-burning scheme – opening 525 stores in 13 Chinese cities right after a 4-month-trial, as of May.
The main target consumer group will be the young white collars in China by tackling two gaps in the Chinese market – namely high prices and lack of convenience. Hence, low prices and fast delivery times are some examples of the perks this young upstart rely on to quickly win consumers over alongside heavy marketing expenditures into its brand, something which Starbucks shunned – especially from Starbucks, China’s top coffee player, which accounts for 58.6 percent of China’s market share according to Euromonitor International. Specifically, a cup of latte with Luckin coffee costs 24 yuan ($3.74), easily 20 to 30 percent cheaper than one at Starbucks in China.
In fact, Luckin’s founder also once explicitly remarked that the Chinese coffee market will not only have Starbucks since every country has their own coffee brand.
The intense competition was even taken to the courts in China in May, all in the name of unfair monopolistic advantage, with Luckin suing Starbucks, claiming that the latter actively pressured common suppliers to take sides, knowing fully well of its present market dominance. Interestingly, it is also known that Luckin once poached up to 1/7 of Starbucks staff with three times their pay.
That said, Starbucks which boasts of over 3,000 stores in China might be already facing difficulties with store sales flattening into negative territories in the April-June period. However, the shift towards online delivery as well – might fuel a stiffer competition ahead.
If there is one clear advantage that Luckin might have against its archival, that would be Luckin is fundamentally rooted on technology – with everything revolving around a smartphone and customers pay conveniently either by WeChat pay or its own mobile wallet. Additionally, data analytics could go a long way in allowing Luckin more ‘data’ on consumers – allowing for targeted marketing that could yield bigger & faster results than traditional Starbucks.
Still, that might not be a ‘complete’ advantage, with Ex Starbucks coffee courier – Coffee Box has also raised $25 million – in a Series B+ round – to expand self-owned coffee chain earlier this year. This is also a tech-driven company that also has honed its online marketing skills – something to pit against Luckin going forward.
Given the growing competition, this Series A seemed to be the needful ammunition for Luckin to continue its blood-bleeding battle for a larger slice of China’s coffee market.