China’s embattled Luckin Coffee adds lifestyle products to its menu

The Luckin saga continues as the Chinese coffee challenger searches for solutions to the undesirable consequences of a $ 310 million fraud. On Tuesday, the company announced the layoff of chief executive officer Liu Jian, allegedly behind the fraud, and chief executive officer Qian Zhiya, a rare female leader of a Chinese Internet company. Despite the scandal, the company is reportedly booming, opening ten stores per day in the second quarter.

China’s embattled Luckin Coffee adds lifestyle products to its menu
China’s embattled Luckin Coffee adds lifestyle products to its menu

Another recent attempt to start coffee delivery offers a reminder that the NASDAQ-listed company isn’t just aiming to hire Starbucks but he also has his eyes closed on hundreds of thousands of convenience stores, as stated at the beginning of his IPO prospectus. On Thursday, the coffee chain announced a one-week (in Chinese) sales campaign to promote its lifestyle product line, ranging from beauty masks and hand soap to Apple Airpods and Beats headphones. Most non-beverage products are third party, except for a small collection of Luckin brand items such as coffee mugs.

Luckin started advertising lifestyle products in the third quarter of 2019 and gradually expanded the variety of its offer. These elements are easily identified on the app by touching the “Trend elements” icon (潮 品) located right next to the entrance to the coffee menu. Luckin’s share of non-beverage items, which also includes packaged snacks, went from 14% of total revenue to 23% between the third quarter of 2018 and the third quarter of 2019.

It may seem strange that a coffee chain sells sanitizing wipes and garbage bags, but the approach could indicate a long-standing strategy in the Internet business in China: quickly build a user base through a competitive product and monetize later through a peripheral but profitable business.

The heavily subsidized coffee was the acquisition engine of Luckin’s users. His lifestyle and daily products currently also offer deep discounts, so the question is whether they will include the company’s cash cow when the benefits are gone. After all, why should consumers buy basic necessities daily from an app to order coffee when dozens of larger e-commerce items arrive with more selection and more mature logistics service?

Luckin received an unexpected push in the wake of his accounting fraud. With patriotic drinkers gathering around the home-grown coffee brand and thrifty consumers rushing to redeem coupons before a potential corporate collapse, Luckin’s daily users jumped four times overnight to 4.4 million when the scandal emerged in early April, according to data obtained by ProWellTech from the third-party analytics firm Aurora Mobile. Growth was short-lived, however, since then his SAD has fallen and below 1.5 million at the time of this writing.

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