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SunTzu Recruit has learned that Luckin Coffee plans to launch a large-scale overseas expansion from the fourth quarter of 2024 to the first quarter of 2025, with a focus on the Southeast Asian and American markets.
Currently, overseas, Luckin Coffee has only opened 38 directly-operated stores in Singapore. Luckin’s overseas expansion plan can be traced back to 2019, when the company was still led by founder Lu Zhengyao. The team planned to start expanding overseas in the second half of 2020, but this was postponed due to financial fraud and the pandemic. After Luckin replaced its management team, the new management discussed the overseas expansion plan multiple times, but with a cautious attitude. They researched several markets, including Southeast Asia, Japan and South Korea, and the United States, ultimately choosing Singapore as the first stop for their overseas expansion.
In April 2023, Luckin Coffee opened its first overseas store in Singapore. A person close to Luckin stated that the company views Singapore as a testing ground for enhancing its overseas visibility and business model. In the next 3 to 5 years, Luckin plans to use Singapore as its Southeast Asia headquarters and gradually expand into surrounding countries and regions. Overseas, Luckin plans to expand through a large franchise model—headquarters will control the final decision-making on growth and marketing, providing support for back-office operations and the supply chain, while local franchisees (who will determine whether to adopt joint ventures, licensing, or franchising models based on local conditions) will manage local stores and some suppliers, and franchisees can make suggestions to headquarters.
In the first half of this year, the Luckin team has successfully engaged with BJ Food in Malaysia to explore the establishment of a new company in the form of a joint venture to enter the Malaysian market. BJ Food is the operator for Starbucks in Malaysia, managing over 340 stores. In the Singapore market, Luckin has referenced Starbucks’ site selection strategy, opening stores in commercial complexes, transportation hubs, street shops, and intersections, but Luckin only opens small stores, with an area more than half smaller than Starbucks locations, ensuring that rent and labor costs are controllable. Operationally, Luckin did not adopt the zero-yuan strategy previously implemented in China to quickly attract new customers in Singapore; instead, it launched a promotion offering the first cup of coffee for new customers at 0.99 Singapore dollars (approximately 5.4 yuan), with product pricing sold at 60-70% of the original price. The practices in Singapore have also strengthened Luckin’s determination to invest in its supply chain. Previously, the material costs for Luckin in Singapore were about 1.5 times that of the Chinese market, but after further production at domestic supply chain factories, material costs can be reduced to 1.1 times that of the Chinese market. Luckin currently operates over 20,000 stores in China, making it the coffee brand with the most stores in the country and one of the processing enterprises most deeply involved in the coffee supply chain.
Since 2019, Luckin has built three large factories in Fujian, Jiangsu, and Yunnan. The Jiangsu and Yunnan factories have been put into production this year, with the Jiangsu factory having an annual roasting capacity of 30,000 tons of coffee beans, bringing the overall capacity to 45,000 tons. In June this year, Luckin announced plans to purchase approximately 120,000 tons of coffee beans from relevant coffee-producing regions in Brazil between 2024 and 2025, as Brazil is currently one of the most cost-effective coffee bean production areas in the world. Previously, Luckin signed a plan in 2022 to procure approximately 45,000 tons of coffee beans in Brazil over three years. Sources close to Luckin stated that there are many small and beautiful local coffee brands in the Singapore and overseas markets, but Luckin’s international expansion will not follow the domestic price war and rapid expansion strategy, nor will it seek to quickly eliminate local brands. Instead, it prefers cautious expansion, aiming for long-term coexistence with multiple brands and gradually embedding its brand in people’s hearts. Luckin also hopes to follow the path of brands like Starbucks, not limiting itself to store expansion abroad, but utilizing supply chain capacity domestically and internationally, selling coffee beans to small and medium-sized brands, regional companies, and individual coffee shops beyond Luckin’s franchisees. In the past two years, Luckin’s biggest domestic competitor, Kud Coffee, founded by former founder Lu Zhengyao, has been much more aggressive in its international expansion.
In August 2023—four months later than Luckin—Kudi made its first foray into South Korea and has since entered 28 countries and regions worldwide, including the United States, Canada, Japan, and South Korea, within a year. To attract more Chinese franchisees to open stores overseas, Kudi can assist interested franchisees in referring immigration intermediaries, who can help them apply for long-term residence visas or business owner work visas in the United States, Canada, Europe, Japan, the UAE, and assist their children in applying to international schools in Southeast Asia. Several Kudi representatives told us that Kudi’s expansion in China is nearing its ceiling, and choosing to go overseas early may allow them to compete with Luckin abroad. “Kudi places its hopes on overseas expansion, believing that in this endeavor, it is on the same starting line as Luckin.”
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