I have heard a lot of bad news about luckin coffee recently? What’s the logic behind their business?
The company’s business model is positioned as “Starbucks + 7-eleven + Costco + Amazon”, no matter what the outsiders say.
The core business logic is “technology + retail”.
It sounds easy to select hundreds of SKUs and sell them with vendor machines, cover an area intensively, orgnize an intensive network, build brand awareness, and then finally achieve network effect and economy of scale. However, you can hardly do it without a lot of money, a strong supply chain, and low-costs stores. Luckin managed those three points so good…
In stead of doubting their motivation, let’s discuss how they cut in -
1, choose the coffee category. Its gross profit is high enough. Event cutting half of the gross profit, it is still higher than traditional retail. At first, they only serve coffee, a single category, which means that the supply chain integration is greatly simplified. Logistics costs are also relatively controllable. This model can be quickly replicated in any region. You can think about why most of the retail giants in China are local only, with very few having the ability to do it across regions. If your target market is national, select only a single category with high gross margins.
3, Data-driven operations. The supply chain and the on-site serving are all operated on an integrated information system. Traditional vendors in china could hardly gain this competitive advantage.
In summary, Luckin operations with higher efficiency and lower costs to serve an underestimated market.