Luckin Coffee to Launch Tea Series in October With Franchisees

The Starbucks challenger has diversified into the tea business, which it will sell through partnering companies as soon as mid-October.

Belinda Zhou
    Aug 22, 2019 11:00 AM  PT
Luckin Coffee to Launch Tea Series in October With Franchisees
author: Belinda Zhou   

Luckin Coffee Inc. (Nasdaq: LK) is delving into China's to-go tea market as soon as mid-October together with its operating partners.

The Xiamen-based coffee chain is reportedly recruiting new business partners to kickstart tea sales, according to Chinese news site Leiyunwang.com. That was a turnaround from the principle Luckin emphasized in an official statement last year when it said it directly operates all its stores and rejects merchant partners in any form.

A spokesman from Luckin told reporters the company is undergoing "internal testing" for its operations with partners, though he did not elaborate on the plan. Most of the partners are affiliated with UCAR Inc., a car services platform, the chairman of which is also the chairman of Luckin Coffee - Zhengyao Lu. UCAR and Luckin share the marketing strategy of running massive discounts and promotions that increase the company's losses but effectively attract customers.

"The partnership recruitment plan is being launched recently, and the merchants' conference will be held at the headquarters of the UCAR every Monday, Wednesday and Friday," Leiyunwang.com reported.

The partners and Luckin will jointly operate the tea business. The partners will invest approximately $40,000 per store, which will cover equipment including coffee machines, milk tea equipment, decoration and insurance, according to the report.

Luckin, which seeks to outnumber Starbucks' (Nasdaq: SBUX) locations in China this year, has announced four tea products including cheese foam tea, fresh tea and milk tea in its application in April for testing. Early in July, Luckin launched the Xiaolu, or "deer," tea series with more than 10 tea products in its 3,000 stores across China, marking its official debut. 

"Coffee and tea are the two most popular drinks in the office. However, there are currently few renowned brands of milk tea in China, the quality of franchise stores is inferior, and supply chain management is deficient," Jinyi Guo, the vice president of Luckin, said at a media conference in Beijing in July, as reported by Chinese media.

The Xiaolu tea series is targeting young white-collar workers in China, Fei Yang, the chief marketing officer of Luckin, said at the conference. "We want to transform the tea series from traditional tea drinks into creative ones and we hope people drink it in the offices instead of streets," Yang added. The technology-driven company also gathers data via an easy-to-use app to boost sales of coffee and tea to customers. 

Luckin saw its revenue in the second quarter reach $126.7 million, representing an increase of 698 percent year-over-year. Its net loss reached $176.9 million, or 96 cents per American depositary share, in the second quarter.

"We opened 593 net new Luckin stores during the quarter, providing enhanced convenience to our customers, and strategically launched our new freshly-brewed tea drinks ‘Luckin Tea' to capture different consumption moments and benefit from strong demand for freshly-brewed tea drinks in China," Zhiya Qian, the chief executive officer of Luckin, said in its release in August. 

Luckin completed its initial public offering in New York on May 17, raising $561 million

The stock in Luckin was trading down 3 percent, at $18.94 per American depositary share, by midday Thursday.


YOU MAY LIKE