China’s Coffee War Escalates as Tencent Joins Hands With Luckin

Bejing-based coffee chain Luckin Coffee and Internet giant Tencent openly challenge the Starbucks-Alibaba alliance by announcing their strategic agreement on September 6.

SEE ALSO: Luckin Coffee: the Newest Unicorn after First Funding Round

The two will reportedly collaborate on Luckin’s marketing practices, including brand promotion and user engagement through WeChat Pay as well as additional methods to leverage WeChat’s mini programs as intelligent marketing tools.

In addition, the two announced that they will work on offline applications of new retail technologies such as image recognition, facial-recognition payment, delivery drones, and AR interactions to explore the possibilities of business expansion. Furthermore, the two will develop personalized services including product recommendation and menu customization.

“We hope the cooperation with Luckin Coffee will create a new lifestyle of ‘smart retail’ through tie-up on user traffic, technology exploration, application scenarios and management abilities,” exclaims Lei Maofeng, deputy general manager of Tencent‘s payment platform WeChat Pay. “Coffee has become a popular drink for young people nowadays and there are more coffee industry practitioners.”

The announcement came out about one month after Alibaba‘s food delivery arm, Ele.me, teamed up with Starbucks to deliver coffee and other menu offerings to Chinese customers.

Although Starbucks remains China’s dominant coffee provider with a market share of about 58.6 percent, Luckin has not backed down from the challenge. Instead, the young coffee unicorn has thrown down the gauntlet with its massive market expansion. The company currently has around 525 branches in 13 cities to serve 1.3 million customers, and uses the popular Chinese delivery service SF Express rather than a proprietary courier service.

SEE ALSO: Starbucks Partners with Alibaba to Start Coffee Delivery Amidst Fierce Competition

The market for on-demand local delivery services has become a wildly contested field among China’s Internet giants as it is considered an entry point to other services such as mobile payments, and provides further insights into consumption preferences.

The coffee market in China is really heating up as tech giants are competing to expand into new retail, a new business model spreading rapidly into supermarkets, restaurants and convenience stores.

As one of China’s best known startups, Luckin managed to reach unicorn status in less than one year as it secured $200 million in Series A funding this July. The coffee startup is now growing at an alarming rate and has ambitious plans to open 2,000 branches by the end of this year.