Will Luckin Coffee Machines Franchise Plan Pay Off?

Luckin Coffee opened a 2023 recruitment round for new retail partners, covering 80 cities across 15 provinces and targeting fourth- and fifth-tier markets. As of September 2022 the chain had 7,846 stores, 2,473 of them joint-operation, with over 70% concentrated in first- and new first-tier cities, leaving lower-tier coverage thin.

Its self-service coffee machines, branded Ruijigou, have performed well in malls, hospitals, and office buildings, serving 24-hour large-cup drinks made to the same standards as stores. The article reviews the franchise strategy, the opportunities and risks of lower-tier expansion, and the logic behind deploying these machines alongside shops.

Luckin Coffee launched a new round of new retail partner recruitment in 2023, covering 80 cities in 15 provinces, with a focus on lower-tier markets in fourth- and fifth-tier cities. As of the end of September 2022, Luckin had a total of 7,846 stores, including 2,473 joint-operation stores, with over 70% located in first- and new first-tier cities, while coverage in lower-tier cities remained sparse. Meanwhile, Luckin's self-service coffee machine, "Ruijigou," has performed well in shopping malls, hospitals, office buildings and other locations, offering 24-hour large-cup beverages that meet the same standards as its stores. This article will review Luckin's franchise strategy, the opportunities and challenges of lower-tier markets, and the logic behind the Ruijigou deployment, while retaining relevant recommendations from Front Street Coffee, to help coffee enthusiasts gain a comprehensive understanding of Luckin's expansion moves.

For professional coffee knowledge exchange and more coffee bean information, please follow Coffee Workshop (WeChat official account: cafe_style)

For more specialty coffee beans, please add the private WeChat of Front Street Coffee (FrontStreet Coffee), WeChat ID: qjcoffeex

Yesterday, Luckin Coffee officially announced the launch of its 2023 new round of new retail partner recruitment. According to the introduction, this round covers 80 cities across 15 provinces—Anhui, Jilin, Liaoning, Heilongjiang, Inner Mongolia, Shandong, Henan, Guangxi, Sichuan, Yunnan, Shanxi, Hunan, Hubei and Guizhou—with a focus on developing fourth- and fifth-tier cities.

According to data, by the end of September 2022, Luckin Coffee had a total of 7,846 stores, including 2,473 joint-operation stores. More than 70% of the stores are located in first-tier and new first-tier cities, while coverage in second-tier and especially third-, fourth- and fifth-tier cities is not high.

The 80 cities highlighted for coverage all already have franchise stores, but the number of franchise stores is not dense, with basically no more than 10 stores distributed in each city. From this latest recruitment, it can be seen that Luckin is accelerating its layout in lower-tier markets.

In the past two years, as the pandemic continued to recur, lower-tier markets became a key focus of the coffee industry. On the one hand, this is because coffee in first- and second-tier cities is approaching saturation and competition has become fierce. To make the brand more deeply rooted in people's hearts and attract more new customers, the only option is to expand into the lower-tier markets of third-, fourth- and fifth-tier cities.

On the other hand, in recent years, life and work pressure in big cities has been high, and more and more people are moving to smaller cities. Many people who have lived in big cities have a demand for coffee. Even if coffee is not a necessity, they will still be repeat customers.

Another aspect is that third-, fourth- and fifth-tier cities are not a blank market. Before this, many independent coffee shops with strong regional characteristics had already appeared. County-town coffee has also become a long-lasting hot topic of discussion on social platforms in the past two years.

Therefore, whether domestic chain coffee brands, new-style tea beverage brands, or international chain coffee brands, all are closely eyeing the cake that is the lower-tier market.

However, dividing this cake is not easy. One reason is that the consumption habits of consumers in third-, fourth- and fifth-tier cities differ from those in first- and second-tier cities. Compared with convenience and speed, lower-tier markets not only need to focus on product value for money, but also require more spatial experience.

Although Luckin Coffee is famous for being affordable, it is at a disadvantage when it comes to store space. However, according to observations, many Luckin stores in various regions already provide dine-in areas.

For many things that are taken for granted in big cities, there are actually still many consumers waiting for the day when they can enjoy the same convenience. Compared with urban office workers' demand for caffeine, consumers in third-, fourth- and fifth-tier cities have a stronger demand for scenarios.

In addition to developing stores, from netizens' shares on social platforms, it can be seen that Luckin's promotion of "Ruijigou" (self-service coffee machines) has achieved good results. In large locations such as shopping malls, hospitals, office building lobbies and subway platforms in first- and second-tier cities, "Ruijigou" can be seen.

As early as January 2020, Luckin Coffee announced at a strategy conference the launch of its smart unmanned retail strategy, introducing the self-service coffee machine "Ruijigou," which can make Americano, latte, cappuccino and other master coffee series as well as non-coffee drinks. The coffee machine sells uniformly sized 16oz large cups, reaches the same standards as Luckin Coffee stores in product variety and taste, and operates 24 hours a day.

Whether it is Luckin Coffee reopening franchising or the self-service coffee machine "Ruijigou" strategy, it means that Luckin will once again extend the business of selling coffee to unlimited scenarios, and through continuous store expansion and terminal placement, achieve higher-density coffee service coverage nationwide. The competition for market share in China's coffee market will also be pushed to a new climax.

Image source: Internet

The above content is compiled by CoffeeHunters, a coffee news website.