Lattes Replacing Tea in China?

Founded only in 2017, fast–growing Luckin Coffee (LK) is already China’s #2 player, with 2,370 stores serving 4.4 million customers monthly. Luckin is on pace to surpass Starbucks to become the largest coffee chain in China by the end of the year. 

While tea and juice remain the non-alcoholic beverages of choice in China, according to Statista, Luckin believes its app-based, cashier-less pick up store model will win out for convenience over traditional coffee shops.

Here are three other things you need to know about Luckin Coffee.

1. The Chinese coffee market is $8 billion, which grew 31% in 2018 and is expected to grow at a 26% CAGR through 2023.

2. Luckin is heavily discounting its coffee as it rolls out stores, to attract and keep customers. Thus far, 54% of its customers return to repurchase more coffee. It sells an average of 3.7 items/customer/month, including three freshly brewed coffees.

3. While currently unprofitable due to discounting, Luckin believes that over time it can gain operating leverage due to the efficiency of its cashier-less, high turnover stores.

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