- Luckin Coffee just opened China’s largest roastery
- This move ties into their wider expansion strategy with 2,342 store openings in Q1 2024
- China is investing in its coffee sector for both national and international expansion
LUCKIN COFFEE made headlines recently with the opening of China’s largest coffee roasting facility in Jiangsu – a strategic move that reflects Luckin’s ambitious growth plans.
It also points to the continued growth and maturation of the Chinese coffee market on a broader scale. According to the International Coffee Organization, coffee consumption in China grew 15% from 2022 to 2023.
“This is very much on-brand for Luckin,” says Isabelle Mani, coffee journalist. “Four years after going through a fraud scandal, they’re maturing and regaining investor trust. The new administration has strategised and brought long-awaited business growth plans to fruition.”
The Chinese coffee giant is known for its rapid expansion and innovative business model. Its decision to expand its roasting facilities underscores Luckin’s commitment to enhancing its supply chain capabilities and meeting the increasing demand for high-quality coffee products in the Chinese market.
During the first quarter of 2024, Luckin opened 2,342 new stores – representing a 14.4% increase from the number of stores it had at the end of the fourth quarter of 2023, and a 41.5% increase in total net revenue. By investing in a state-of-the-art roastery, Luckin aims to ensure a consistent supply of freshly roasted coffee beans to fuel its extensive network of stores across the country.
However, sales growth of existing self-operated stores in the first quarter of 2024 was negative 20.3%, compared to 29.6% in 2023. This could be another motive for Luckin to increase its roasting capacity and number of stores, as it seeks to reach new markets to make up for this loss.
The expansion aligns with Luckin’s overall growth strategy, which focuses on leveraging technology, data analytics, and a strong digital presence to drive customer engagement and loyalty. By controlling more aspects of its coffee production process, Luckin seeks to solidify its position as a key player in China’s competitive coffee industry.
The rapid evolution of China’s coffee consumption
Luckin seems to be banking on the continued growth of domestic coffee consumption, and with reason.
China’s coffee consumption has experienced a remarkable evolution over the past few decades. From a nation predominantly known for tea-drinking culture, China has witnessed a surge in coffee consumption driven by changing lifestyles, urbanisation, and a growing middle class. Today, coffee has become a popular beverage choice among urban consumers, with coffee shops and cafes proliferating in major cities.
Coffee first entered the Chinese market in the 1980s, with a slow uptake. 30 years onwards, while consumption per capita remains low (just 10 cups a year in 2023), China’s coffee market sales have skyrocketed in the last few years.
From 2015 to 2020, the Chinese coffee market’s value has almost doubled, going from approximately $7 billion in 2015 to around $12 billion in 2020. Based on this rapid increase, China’s coffee market is expected to reach an annual growth rate of 22% until 2025.
New generations are the principal drivers of this growth, with 36.2% of coffee consumers reportedly in the age range of 25-34 years old – something Luckin is well aware of.
“Luckin’s initial business strategy was to take global (Western) coffee culture, but to make it a Chinese thing – make it their own,” says Isabelle. “They injected local culture and flavours into it, making Chinese consumers feel included and heard with discounts, promotions and catch reward points. People felt heard, and young people with lower income especially felt embraced.”
Looking ahead, China’s coffee market is poised for further growth, fuelled by increasing consumer sophistication, a burgeoning coffee culture, and a rising demand for premium and specialty coffee products.
China’s plans for domestic and international expansion
Luckin Coffee’s meteoric rise in the Chinese market has positioned it as a formidable competitor to established players like Starbucks. With a rapidly expanding store network, a focus on digital innovation, and aggressive marketing strategies, Luckin has managed to outpace Starbucks in terms of store count and market share in China.
Luckin’s total sales in 2023 came to $3.45 billion, surpassing Starbucks’ comparable annual sales of $3.16 billion in China, making it the biggest coffee chain in the Asian nation. The brand seems very focused on dominating the Chinese market, and less so on international expansion.
“They want to represent China and champion China as a world class, high quality coffee brand that can compete with the other established global ones,” says Isabelle.
In contrast, Cotti Coffee, another prominent player in the Chinese coffee industry, has adopted a different approach with a focus on international expansion. While both Luckin and Cotti Coffee operate in the same market, their strategies appear to be complementary rather than directly competitive.
“Cotti has a different business model; they leverage food – coffee is not necessarily their main product,” says Isabelle. “Insiders know that Cotti is led by the former team that created Luckin. They have this very backstage competition, where they are always trying to outdo each other. But Luckin is at another level of maturity as a company.”
Luckin’s dominance in the domestic market and Cotti Coffee’s international ambitions suggest a harmonious coexistence where each company targets different segments of the market and geographical regions.
China’s coffee market is extremely competitive, keeping even global multinationals on their toes. New brands are emerging with new value propositions, and other tea brands like CoCo, Nayuki’s Tea and Hey Tea have also started to enter the coffee industry to expand their market.
“China is placing a lot of resources and attention on its coffee sector infrastructure, know-how, and is supporting manufacturers. They are structuring the industry – bringing in foreign know-how to improve the business structure-wise, while retaining their cultural identity.”
Luckin Coffee’s new roastery opening reflects the dynamic growth trajectory of the Chinese coffee market and Luckin’s strategic positioning within it.
As China’s coffee consumption continues to rise, fueled by changing consumer preferences and lifestyle trends, companies like Luckin are poised to capitalise on this momentum and shape the future of the coffee industry in the region and beyond.