What exactly did Luckin do right?, From Broken Dreams on Wall Street to the Great Fire of "Sauce flavored Latte"

On September 4, Ruixing Coffee, a new product named "Maotai Latte" jointly with Kweichow Moutai, was put on the shelf, and young people were clocked in one after another. At present, the Jiefang Daily Shangguan News reporter found that many Ruixingmen stores in the urban area of Shanghai have sold out this product.

The clerk of Ruixing Coffee Shanghai International Group Building told the reporter that their main raw material, Baijiu flavored thick milk, had been used up yesterday, so today this "sauce flavored latte" has been sold out. At noon, he borrowed a batch of raw materials from a distant store, which could make dozens of cups, but it was sold out in just ten minutes after being put on the shelves.

According to calculations by Jiefang Daily's Shangguan News reporter, if the alcohol concentration per cup is around 0.2 to 0.3 degrees, then one bottle of Feitian Maotai can make about 221 "sauce flavored lattes". According to Luckin's announcement of 5.42 million first day sales, Luckin used nearly 25000 bottles of Maotai on the first day. Under the explosive situation, there are still doubts about whether the supply of raw materials for subsequent products is guaranteed.

However, regardless of the situation, Luckin's launch of the "Sauce flavored Latte" has achieved "effective collaboration" in terms of both recognition and sales. From the shattered dreams of Wall Street, to making a comeback with over 10000 stores, and then to breaking through marketing circles, what did Luckin do right?

The beverage industry is in a frenzy of internal competition

Why can "sauce flavored latte" become popular? The first and foremost reason is pricing.

According to the Luckin Coffee mini program, this "sauce flavored latte" is priced at 38 yuan/cup, with a discounted price of 19 yuan/cup. Although it belongs to the high price range in Luckin Coffee's product line, it is still lower than the latte prices of mainstream brands such as Tim and Starbucks on the market.

And even before Luckin, Starbucks had launched a similar "alcohol+coffee" product. But Starbucks has a higher price, with its whiskey barrel brewed cold extract coffee priced at 68 yuan and whiskey barrel brewed latte priced at 49 yuan, both higher than the price of regular coffee in chain coffee shops.

Obviously, even though Ruixing co branded the high-end Baijiu brand Kweichow Moutai, Ruixing did not want to take the high-end line, but instead achieved the effect of "pulling down the altar" of alcoholic drinks, which became the key to attracting young people to consume and taste.

Before launching the "Sauce flavored Latte", Luckin Coffee was in a fierce price war with another domestic chain coffee brand, Kudi. The Kudi coffee brand is relatively new. In October 2022, Kudi Coffee opened its first store in China. But according to data from Jihai, in early August this year, Kudi Coffee had opened nearly 5000 stores worldwide. It took Luckin four years to open a store of the same level.

The rapid expansion of Kudi coffee has intensified the price competition with Luckin. In June this year, Kudi Coffee launched a promotion for new users to drink coffee for 1 yuan. Currently, its main product, Coconut Latte, can still be purchased for 8.8 yuan. Afterwards, Luckin Coffee also increased its discount efforts and launched the "9.9 yuan per week coffee" promotion in June, while announcing that the number of stores had exceeded 10000, which has continued to this day.

It is interesting that the founder of Kudi Coffee is the former founder of Luckin Coffee, and the expansion strategies of the two coffee brands are very similar, that is, they both attract customers with extremely low market prices and convenient and accessible stores, while increasing brand awareness and market share.

As for why the price can be made so low, there are two reasons. Firstly, in the early days, Luckin Coffee subsidized the unit price of coffee by burning money, attracting a large number of customers and opening more stores. Once the product scale is expanded, the supply chain costs will gradually decrease, and substantial data can help Luckin in carry out a new round of financing. This is similar to making coffee with the competitive model of Internet enterprises.

Secondly, the business models of Luckin and Coodie are not the same as traditional brands such as Starbucks. Starbucks adopts a direct sales model, with all stores directly operated by Starbucks and mostly located in the center of the commercial district; Luckin adopts a "joint venture+direct operation" model, focusing on controlling key commercial districts and opening up lower tier markets through franchisees; Kudi's stores all adopt a joint venture model, and the joint venture partners do not need to pay franchise fees to the brand, but need to pay equipment fees, decoration fees, security deposits, etc. They are responsible for their own profits and losses, and Kudi takes a share from the store's profits.

For brand owners, the management cost of the franchise model will be lower. As long as the brand owner focuses on doing a good job in the supply chain, their cost control and price competitiveness are stronger.

Luckin Store's "Sauce flavored Latte" is Hot Selling

Cross border collaborations are becoming a trend

The marriage alliance between Luckin and Maotai is not the first time that the beverage industry has gained popularity through joint efforts. In the past two years, tea and coffee brands have been sparking a new wave of co branding. According to Quest Mobile's "2023 Summer Economy: Insights into the freshly brewed coffee and tea market", in the first half of this year, there were 41 co branded freshly brewed coffee and 62 co branded freshly brewed tea.

On May 17th of this year, HEYTEA launched a co branded beverage with luxury brand FENDI. On the day of the event, orders quickly skyrocketed, with many stores selling out their co branded products. Some delivery times for takeout exceeded three to four hours, and even the co branded takeout bags can be sold for more than ten yuan on second-hand platforms. In June, MANNER Coffee also co launched a limited time co branded bookstore with Louis Vuitton, which also caused a wave of queues in Shanghai.

In addition to luxury goods, IP images with topic relevance, cross-border brands, and film and television works are also frequent collaborators. In the marketing process of its flagship product, Coconut Latte, Luckin once partnered with Coconut Tree. Naixue's tea chose to collaborate with SpongeBob SquarePants when promoting its new product, Coconut Pineapple. On the day of its launch, the new product topped the sales chart, with store sales increasing by 150% month on month.

Co branding is not a free lunch, but a solid business. Although joint cooperation methods and payment rules such as "Luckin+Maotai" and "HEYTEA+FENDI" have not been disclosed, the value of IP collaboration can also be seen from the prospectus of "Joint Madman" Bubble Mart. According to the prospectus, Bubble Mart signed 3, 4, and 18 non exclusive authorizations from 2017 to 2019, with corresponding patent fees of 400000 yuan, 7.5 million yuan, and 41.7 million yuan. It can be seen that the licensing fees for IP co branding are increasing year by year, especially with higher prices for exclusive IP co branding.

In recent years, the tea and coffee market has been continuously sinking, and the average order value has gradually decreased. Why is it becoming more willing to spend money on joint marketing?

Heytea, which used to take the high-end tea beverage route, has started to focus on beverages priced under 20 yuan. Honey Snow Ice City, which focuses on cost-effectiveness, is expanding its market to first tier cities. Luckin Coffee's popularity has also led to a price war with Starbucks. Whether in the tea or coffee market, there is a high degree of overlap in brand positioning, price range, and store size, and there are no obvious competitive barriers. The phenomenon of product homogenization is particularly serious. A 2022 monitoring data shows that on average, each brand launches 11 new products per quarter, but within about half a month after the launch, other brands will also list similar products, with only slight differences between brands.

Improving user stickiness and promoting new products has become a key goal for tea and coffee brands, and joint marketing can precisely meet both needs. Co branding has brought considerable user interaction traffic. According to the report "2023 H1 Cross border Co branding Marketing Analysis of New Tea Beverage Brands", with the help of cross-border marketing, the interaction volume of new tea beverage brands from May to June reached 23.314 million and 31.753 million, respectively, with significant growth. Various festivals such as Dragon Boat Festival, Mother's Day, and Children's Day are the high-frequency periods of co branding.

The book "Consumer Society" points out that consumption is not just about goods, but the symbols represented by them. The same goes for co branding. There are many reviews on the internet about the poor taste of "Luckin+Maotai" coffee, but it has not stopped more consumers from paying for it. The sales of "one small goal a day" also prove the strong appeal of Maotai liquor.

Once a brand experiences the benefits of co branding, which brings both fame and fortune, co branding will also become a part of the brand's daily marketing, thereby increasing the variety and frequency of co branding marketing.

The reporter purchased and tried "sauce flavored latte", which has a distinct taste

The rise of local coffee brands

Judging from the popularity of this joint brand, "Maotai flavor latte" is likely to have an impact on the future development of both Baijiu and coffee markets.

For the Baijiu industry, this "Maotai flavor latte" is a very successful attempt to rejuvenate. In recent years, in order to seek an incremental market, many traditional Baijiu brands have begun to explore rejuvenation. For example, Wuliangye and Luzhou Laojiao have successively launched low-grade products and fruit flavor liquor products. Some emerging brands, such as Gu Xiaojiu and Jiang Xiaobai, have been focusing on the young market since their inception.

As a leading enterprise of Baijiu, Kweichow Moutai also coveted the young market for a long time. In May 2022, Kweichow Moutai launched "Maotai Ice Cream", which was also used to screen the Internet at that time. At the anniversary celebration in May this year, Ding Xiongjun, the current chairman of Kweichow Moutai Group, said that in addition to deep plowing the ice cream track, in the future, Moutai will increase its efforts to research and develop products such as wine chocolate, alcoholic drinks, stick sticks, soft ice, and continue to expand the product matrix. Co branding is also one of the ways for Maotai to enrich its product forms.

For the coffee industry, the popularity of "sauce flavored lattes" not only brings a lot of exposure, but also brings tangible benefits to coffee companies. On the morning of September 5th, according to the official Weibo account of Luckin Coffee, "Sauce flavored Latte" has broken Luckin Coffee's single product sales record, with single product sales exceeding 5.42 million cups and sales exceeding 100 million yuan on its first day of launch.

The sales results on this day far exceeded the sales data of individual coffee products on the market. Taking Luckin's flagship product, Coconut Latte, as an example, in April this year, Coconut Latte celebrated its second anniversary on the market. According to information released by Luckin at the time, over 300 million cups of fresh coconut latte were sold within 2 years. After calculation, the daily sales of this flagship product are around 400000 cups. The first day sales of 5.42 million cups of sauce flavored latte are more than ten times the daily sales of its regular product.

However, there is still controversy in the market regarding the evaluation of this product. Consumers have told reporters that alcoholic beverages are more suitable for tasting and will not be purchased multiple times. Some consumers also expressed that they do not intend to try drinking this coffee because they are not sure if it will trigger drunk driving. Long term observation is needed for the post production of sauce flavored lattes.

In addition, due to the "explosive sales" on the first day of listing, the raw material supply chain of "sauce flavored latte" is also being tested. According to a previous report by Jiefang Daily's Shangguan News, if the alcohol concentration per cup of coffee was around 0.2 to 0.3 degrees, combined with a daily sales volume of 5.42 million cups, Luckin would have used nearly 25000 bottles of Maotai on the first day.

According to Yan Jianguo, chairman of Cezanne Dairy, a supplier of Baijiu flavored thick milk with "Maotai Latte", Moutai Distillery escorted Moutai worth 30 million yuan during the production of thick milk. At a factory price of 969 yuan, nearly 30000 bottles of Feitian Maotai can be purchased for 30 million yuan. That is to say, this batch of Maotai can only support sales of "sauce flavored latte" for over a day. If the production capacity of the subsequent supply chain cannot keep up, the "sauce flavored latte" will be sold out for a long time.

There are still many unknowns about "sauce flavored lattes", but it can be clearly stated that Chinese coffee brands are indeed achieving a comeback against overseas brands through price strategies and localized marketing. In August of this year, Luckin Coffee announced its revenue for the second quarter of 2023, equivalent to nearly 850 million US dollars, exceeding Starbucks China's revenue of 820 million US dollars in the third quarter, completing a single quarter revenue comeback for Starbucks. From the current momentum alone, "sauce flavored latte" will not be the end of the beverage industry's internal competition, but only the beginning of a new pattern.