Daily Management Review

Starbucks’ Chinese Rival Luckin’s CFO Says What Distinguishes It From Its US Peer


Starbucks’ Chinese Rival Luckin’s CFO Says What Distinguishes It From Its US Peer
The major rival of US coffee giant Starbucks in China – the domestic company called Luckin Coffee has managed to create a different business model which differentiates it from its US rival because of the technology based operations it follows, said the chief financial officer of the company during a television interview to CNBC.
“The founders of our business are used to using technology and disrupting industries,” CFO of Luckin Coffee, Reinout Schakel said even while the company was set to get itself publicly listed at the Nasdaq stock exchange. 
Schakel said Luckin’s founders “looked at the transaction of coffee and thought, ‘we can do better than this.’” Chinese entrepreneur Jenny Qian Zhiya founded the company in 2017.
The app of the company has to be used by those customers who want to purchase Luckin brew, or any other drinks which, according to Schakel, increases the efficiency of the company and reduces waste to a large extent compared to the business model. The use of online methods for purchase also allows the company to gather valuable data about its consumers which are then used for analysis of the trends in order to drive retention rates, Schakel said.
“What we’re trying to do is bring down the per-cup cost ... with that and with that price point, we think we’re going to drive mass-market consumption,” he said. This business strategy has therefore helped the company to keep the rate of most of the items on its menu at costs that are lower by about 25 per cent in comparison to the same products available at the Starbucks stores.
By the end of the current year, Luckin is looking to become the leader in the instant coffee market of China and surpass Starbucks in terms of volume. Currently, the US beverage company now has a total of more than 3500 stores in China. In comparison there are 2,370 stores of the 2-year-old Luckin throughout China. The company now plans to open up an additional 2,500 locations this year in the market from where its customers can collect their online orders.
Schakel said that in stark contrast to the strategy of Starbucks, “We’re using very small stores”, which helps the company to reduce its operational costs while being “very close to our customers.” He added that the “new retail model” of the company is made up of the technology and small stores. “That has fundamentally changed the cost structure in China.”
In the latest funding round, Luckin Coffee was valued at $3 billion. “We have done what most people do in 15 or 20 years,” Schakel said.
Warning of continued possible losses in the foreseeable future has been issued by Luckin. The U.S. money manager BlackRock and Singapore’s GIC Private Limited sovereign wealth fund are among the major backers of Luckin.
According to the filing made by the Chinese chain for its IPO,  a net loss to shareholders of $475.4 million was recorded by it last year against a total revenue of $125.27 million. The company posted a net loss of $85.3 million for the first three months of 2019.

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