Luckin Coffee, striving to become the queen of milk tea

The tea drink market battle between Luckin and Master Kang Princess is escalating. Luckin challenges the afternoon market with "Gentle Jasmine," while Master Kang Princess holds its ground with "Boya's String Break." Who will have the last laugh in this tea drink war?

During the just-concluded Paris Olympics, domestic tea drink brands leveraged the event to engage in fierce competition. Master Kang Princess, who correctly predicted the women's singles tennis champion Zheng Qianwen of the Olympics, undoubtedly became the biggest winner in this battle for traffic. Seeing Master Kang Princess gaining momentum, Luckin Coffee, unwilling to fall behind, quickly reacted.

On the first day after the end of the Paris Olympics, Luckin Coffee made headlines due to an unexpected blunder — its online customer service mistakenly spelled the name of Yi Yangqianxi in an automated reply. The "typo" incident caught the attention of Yi Yangqianxi's large fan base, inadvertently bringing Luckin a level of popularity comparable to that of popular athletes.

Skilled in marketing, Luckin did not settle for the unexpected traffic but took the initiative to launch a series of topic offensives.

As early as June this year, Luckin collaborated with the hit drama "The Story of the Rose" to launch co-branded products, successfully verifying the popularity of the "fairy sister" Liu Yifei. On August 11, Luckin Coffee officially announced Liu Yifei as its global brand ambassador, praised by netizens as "instantly becoming like a luxury item." On August 12, Luckin kicked off the "100 million cups of 9.9 yuan afternoon tea" event, inviting consumers nationwide to taste its new product "Gentle Jasmine."

It is worth mentioning that this new product "Gentle Jasmine" is very similar to a product from Master Kang Princess called "Boya's String Break." Clearly, the coffee giant Luckin has begun to enter the tea drink field and has directly targeted the strong competitor Master Kang Princess in the tea-milk track.

Luckin's Version of "Boya's String Break"

In the new poster where Liu Yifei holds a blue cup, Luckin shouts out the new slogan "Morning Coffee, Afternoon Tea." To cultivate user awareness, after 4 p.m. every day, consumers can purchase a cup of "Gentle Jasmine" with a 9.9 yuan coupon.

Priced much lower than most light milk teas on the market, coupled with Liu Yifei's star effect, it has become an excellent combination for Luckin to capture the afternoon tea market. When netizens shared their new experiences on social platforms, a screenshot of a WeChat moment post by Yang Fei, co-founder and chief growth officer of Luckin Coffee, circulated online, where he claimed, "Gentle Jasmine's first-week sales have exceeded 11 million cups, becoming the best-selling new product of the year."

Although the performance is commendable, it is not difficult to notice that this new product bears a high resemblance to Master Kang Princess's "Boya's String Break."

The main ingredients of Gentle Jasmine are jasmine tea, pure milk, light milk, green coffee liquid, and original flavor syrup; while Boya's String Break consists of jasmine snow buds, milk, ice Blang non-hydrogenated base milk ingredients. The difference lies in the fact that Gentle Jasmine offers two versions, one with coffee liquid and one without.

In terms of product selling points, both emphasize health attributes. Qinqin Jasmine emphasizes the "Four Zero" standard on the product page, namely 0 plant fat powder, 0 aspartame, 0 trans fatty acids, 0 hydrogenated vegetable oil. This is in line with the "Three Zero" standard proposed by Tea Princess (no artificial flavors added to the tea base, no trans fatty acids in the whole cup, no milk essence in the milk).

The combination of "tea + milk" makes the two drinks have a certain similarity in taste, but from consumer feedback, Boya Juexian seems to be more popular. Many users have conducted comparative evaluations on social media, with some users thinking that the two products are highly similar, "can't tell who is who by closing their eyes"; more users point out that there are differences in taste and flavor, believing that Qinqin Jasmine has a light taste, more like ordinary milk tea, while Boya Juexian has a richer tea flavor.

"Boya Juexian" is the signature product of Tea Princess. In the competition between the new product and the competitor's "hot-selling item," pricing and promotional strategies are crucial. In terms of pricing, Qinqin Jasmine is originally priced higher, with large and extra-large cups priced at 26 yuan and 29 yuan respectively, while Boya Juexian is priced at 16 yuan and 20 yuan.

However, in terms of actual payment prices, Luckin Coffee, in its promotional period, offers more discounts. In addition to the 9.9 yuan discount on the official mini-program, Meituan offers a special large cup discount price of 8.9 yuan, and Douyin has launched a 10.9 yuan choose-one-out-of-eight discount activity.

In the first week of the new product launch, Luckin Coffee also provided additional discounts, but some users encountered situations where they could not redeem them at the store. Li Fei told "Leopard Transformation" that she purchased a Luckin new product coupon for 1.89 yuan on a social platform, but when she went to the store to pick it up within the specified time, the coupon could not be used. According to the store staff, this situation is not uncommon. Finally, after Li Fei contacted Luckin's customer service twice, the coupon was successfully used.

Turning Losses into Profits, Hidden Worries Revealed

The launch of Qinqin Tea Milk marks Luckin Coffee's official entry into the tea milk market. At the same time, the competition between Luckin Coffee and Tea Princess has become public. This move not only reflects the need for tea drink brands to maintain competitiveness by expanding their product categories but also demonstrates Luckin Coffee's confidence in its own strength.

Looking back at the first half of this year, Luckin Coffee's performance in the first quarter made the industry sweat. According to the financial report, after two consecutive years of profitability, Luckin Coffee recorded a net loss of 83.2 million yuan in the first quarter of this year, a sharp contrast to the net profit of 564.8 million yuan in the same period last year.

Facing the plummeting performance, Luckin Coffee CEO Guo Jin attributed it to "seasonality and intense industry competition" during the conference call. The general consensus is that this is related to the price war in the tea drink industry.

Just as the industry worried that tea drink brands might be dragged down by low prices or even backfire, Luckin Coffee turned losses into profits in the second quarter. According to Luckin Coffee's second-quarter financial report, the company's total net revenue was 8.4026 billion yuan, a year-on-year increase of 35.5%, reaching a new high in quarterly revenue. At the same time, on July 18th this year, Luckin Coffee opened its 20,000th store Last year, on June 5th, Luckin Coffee surpassed 10,000 stores. This means that Luckin Coffee took six years to open 10,000 stores, but doubled that number in just 13 months, equivalent to opening nearly 770 stores every month.

Having a sufficient number of stores has promoted user growth and product sales, providing a scale advantage to cope with price wars. As indicated in the latest financial report, the growth in net revenue in the second quarter was mainly due to an increase in the quantity of products sold, an increase in the number of operating stores, and an increase in monthly transaction customers.

However, this seemingly growing performance also has hidden concerns. According to Generally Accepted Accounting Principles (GAAP), Luckin Coffee's operating revenue in the second quarter was 1.0507 billion RMB, with an operating profit margin of 12.5%, a decrease from 18.9% in the same period last year; net profit was 871 million RMB, lower than 998 million RMB in the same period in 2023.

Although turning a profit in the second quarter, the growth rate has significantly slowed down. In addition, Luckin Coffee has been actively promoting the franchise model in the past six months, even launching a "store-in-store franchise." However, self-operated stores remain its main source of revenue. According to the latest financial report, Luckin Coffee's second-quarter revenue from self-operated stores was 6.277 billion RMB, while revenue from joint venture stores was 1.85 billion RMB, meaning that over 70% of profits come from self-operated stores.

At the same time, Luckin Coffee's store expansion speed is also slowing down. Compared to a net increase of 2,342 stores in the first quarter, the second quarter saw an addition of 1,371 stores, a decrease of nearly 1,000 stores. Overall, Luckin Coffee returned to profitability in the second quarter, but its profitability has not yet recovered to the level of the same period last year.

Venturing into New Tea Beverages

To the public, Luckin Coffee's entry into the tea beverage market is a novelty. However, as early as July 2019, Luckin Coffee launched a new product called "Xiaolu Tea" and made a high-profile announcement to enter the new tea beverage market. At the strategic new product launch event that year, co-founder Guo Jinyi clearly stated that entering the new tea beverage market was a set strategy for the company.

In July of this year, Luckin Coffee introduced new classic lemon tea and matcha lemon tea products without coffee liquid. Simultaneously, during the opening of the 20,000th store, they launched a single clump latte based on Guangdong single clump oolong tea, laying the foundation for introducing more non-coffee beverages in the future.

To change consumers' perception of Luckin Coffee as only a coffee brand, since March last year, Luckin Coffee has successively launched various tea and coffee products, including Biluochun Spring Latte, Xinghua Oolong Latte, Steamed Green Hinata Summer Latte, Lan Yun Tieguanyin Latte, Camellia Latte, Huangshan Maofeng Latte, and more.

With the recent launch of Light Tea Milk, following the success of Master Kang Tea, Luckin Coffee's intention to officially enter the tea milk market is now very clear.

In fact, the boundary between coffee and tea beverages has long become blurred. On one hand, the consumer groups and consumption scenarios of coffee and tea beverages highly overlap. In the past, coffee's main advantage was to refresh and awaken the mind, but now products like Master Kang Tea's tea milk can also provide similar effects. On the other hand, amidst the price war in the tea and coffee brand market, both coffee and tea beverages are priced at 9.9 RMB. To compete for a larger market share, brands need to broaden their product lines Therefore, the integration of coffee and tea drinks is an irreversible trend.

In this process, the BaWang Tea Empress has become the target pursued by many brands. Although in terms of the number of stores, brands like HEYTEA and CHABADAO are more leading, in terms of brand growth rate, BaWang Tea Empress is a force that cannot be ignored.

In May of this year, BaWang Tea Empress founder Zhang Junjie revealed at the "Modern Oriental Tea Innovation Forum" that the total sales of BaWang Tea Empress will reach 10.8 billion in 2023, with total sales exceeding 5.8 billion in the first quarter of 2024 alone, and also announced plans to "surpass Starbucks" this year.

In addition to revenue growth, BaWang Tea Empress's confidence also comes from the rapid expansion of the number of stores. Data from Narrow Door Restaurant Eye shows that as of July 14, 2024, BaWang Tea Empress has reached 4,714 stores.

Compared with other similar brands, the expansion speed of BaWang Tea Empress is particularly significant. As of July 9, the number of new stores opened by BaWang Tea Empress in 2024 was 1,521, while during the same period, brands like HeyTea, CHABADAO, and GUMING opened 1,178, 1,030, and 525 stores respectively.

With BaWang Tea Empress holding popular products such as "Boya Jue Xian" and "Wanli Mulan," and successfully appointing Zheng Qinwen as the first "Health Ambassador," there is an opportunity to further boost brand sales. In the fierce competition in the tea drink market, BaWang Tea Empress, as a brand that has caught up later, undoubtedly becomes a strong competitor in the industry.

Before Luckin's Jasmine Tea was launched, BaWang Tea Empress had already become the target of imitation by many tea drink brands. HEYTEA introduced a new light milk tea Xiaonai Mo in January this year, and in July released the "Four True Seven Zero" healthy tea drink standard, followed by the upgraded "Fat Reduction Version" Xiaonai Mo in August, aiming to dominate the healthy light milk tea market. GUMING also launched a low-calorie fresh milk tea in July, marking the calorie content per cup just like BaWang Tea Empress.

Although BaWang Tea Empress is currently on a strong momentum, Luckin's capabilities in product marketing and creating explosive products should not be underestimated.

In the future, a direct confrontation between Luckin and BaWang Tea Empress seems inevitable. And for all tea and coffee brands, the greater challenge they face is the industry-wide price war. As long as the price war continues, the market situation remains uncertain.

Author: Gao Yu Zhe, Source: Leopard Change, Original Title: "Luckin, Striving to Grow into BaWang Tea Empress"