Is Joining Luckin Coffee in 2023 a Pitfall That Leads to Losses? What Are the Requirements for Luckin Coffee's Instant Purchase Franchise?

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Yesterday, Luckin Coffee officially announced the launch of its 2023 recruitment plan for a new round of new retail partners. According to the introduction, this recruitment covers 80 cities in 15 provinces including 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's total number of stores had reached 7,846, of which 2,473 were joint-operated stores. Over 70% of these stores are located in first-tier and new first-tier cities, while the coverage in second-tier, especially third, fourth, and fifth-tier cities, is relatively low.

All of the 80 key cities covered in this recruitment already have franchised stores, but the number of stores is not dense, with each city having no more than 10 stores on average. From this latest recruitment, it's clear that Luckin is accelerating its expansion into下沉 (lower-tier) markets.

The Shift to Lower-Tier Markets

In the past two years, due to the ongoing and recurring pandemic, lower-tier markets have become a key focus of the coffee industry. On one hand, this is because the coffee market in first and second-tier cities is approaching saturation and faces severe internal competition. To deepen brand recognition and attract new customer bases, the only way is to expand into third, fourth, and fifth-tier cities.

On the other hand, the high pressure of life and work in major cities has led more and more people to move to smaller cities. Many people who have lived in big cities have developed a demand for coffee. Even if coffee is not a necessity, they will become repeat customers.

Additionally, third, fourth, and fifth-tier cities are not blank markets. Before this, many independent coffee shops with strong regional characteristics had already appeared. County-level coffee has also become a persistent hot topic on social media platforms in the past two years.

Therefore, whether it's domestic chain coffee brands, new-style tea brands, or international chain coffee brands, all are eyeing the cake of lower-tier markets.

Challenges in Lower-Tier Markets

However, getting a piece of this cake is not easy. One challenge is that consumer habits in third, fourth, and fifth-tier cities differ from those in first and second-tier cities. Compared to convenience and speed, lower-tier markets not only need to focus on product cost-effectiveness but also require more space experience.

Although Luckin Coffee is known for its affordability, it is at a disadvantage when it comes to store space. However, observations show that many Luckin stores in various regions already provide dining areas.

For things that are taken for granted in big cities, many consumers are still waiting for the day when they can enjoy the same convenience. Compared to the urban workforce's demand for caffeine, consumers in third, fourth, and fifth-tier cities have a stronger demand for situational experiences.

Innovation in Retail Formats

In addition to store development, from what netizens share on social media, Luckin's promotion of "Luckin Express" (unmanned coffee machines) has been quite successful. In first and second-tier cities, you can see "Luckin Express" machines in large venues such as shopping malls, hospitals, office building lobbies, and subway stations.

As early as January 2020, Luckin Coffee announced the launch of its intelligent unmanned retail strategy at a strategic conference, introducing the unmanned coffee machine "Luckin Express." It can produce master coffee series including Americano, latte, cappuccino, as well as non-coffee beverages. The coffee machine sells uniformly sized 16oz large cups, with product variety and flavor meeting the same standards as Luckin Coffee stores, and operates 24 hours a day.

Looking Ahead

Whether it's Luckin Coffee reopening franchise opportunities or the "Luckin Express" unmanned coffee machine strategy, it means that Luckin is once again extending the business of selling coffee to unlimited scenarios and achieving higher density coffee service coverage nationwide through continuous store expansion and terminal deployment. The competition for market share in the domestic coffee market will also be pushed to a new climax.

Image source: Internet

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