Coffee chain’s turbo-caffeinated expansion driven by data
A coffee chain in China has outdone Starbucks — at least in terms of its physical footprint — and has done so by using data to drive an uncommonly rapid expansion.
Luckin Coffee begins its move into a new city by opening five to 10 sit-down coffee shops as well as kitchens specifically for servicing delivery orders, according to Fast Company. The chain’s physical outlets, however, only allow purchasing via mobile app.
Once it has established physical locations, Luckin uses the promise of a free cup of coffee to incentivize customers to download its app. Customer location data gleaned from app usage then drives the opening of pickup kiosks. When it has reached a point of store and kiosk saturation, the chain then shuts down its delivery offerings in that city so as to no longer have to absorb the costs associated with providing the service. Now in 53 cities in China, Luckin experienced 200 percent year-over-year growth by the third quarter, a 398 percent increase in return customers and a 558 percent increase in revenue.
Some have argued, however, that the attractive numbers Luckin is posting are the Chinese version of Silicon Valley smoke and mirrors. Last year, post-IPO, the chain’s operating expenses were three times that of its revenue, according to an article on Quartz.
Luckin continues to operate at a loss despite the impressive Q3 numbers, according to the Fast Company article.
While using demographic data to rationalize store locations is not a new strategy, rapidly deploying pickup kiosks based on app use data and cutting delivery as an offering when enough kiosks are in place is a novel twist.
How eliminating delivery will impact sales in the long run, even in a market saturated with kiosks, remains to be seen. Especially with Luckin still facing competition from the stateside coffee incumbent.
In the U.S., Starbucks has been slowly piloting pickup-only locations, as well. The success of Starbucks’ online ordering and pickup was, at one point, leading to significant bottlenecks and long lines in the chain’s stores.
- How Luckin Coffee surpassed Starbucks as China’s largest coffee chain…in just over two years – Fast Company
- What you can eat and drink at Starbucks’s China rival – Quartz
- Starbucks developing new store dedicated to pickup and delivery – RetailWire
DISCUSSION QUESTIONS: Is the Luckin data-driven model for expansion one that you could see being widely adopted by U.S. retailers or restaurants? Are moves like shutting down delivery when there are enough locations in an area a good idea or should these services be kept in place?