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Luckin Coffee plans to launch a large-scale overseas expansion from the fourth quarter of 2024 to the first quarter of 2025, focusing on the Southeast Asian and U.S. markets. Currently, Luckin has only opened 38 directly operated stores in Singapore overseas.

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Luckin's overseas expansion plans can be traced back to 2019, when the company was still led by founder Lu Zhengyao. The team planned to start its overseas expansion in the second half of 2020, but this was postponed due to financial fraud and the pandemic, among other factors. After Luckin changed its management team, the management has discussed the overseas expansion plan multiple times but has been cautious, researching various markets including Southeast Asia, Japan and South Korea, and the United States, ultimately choosing Singapore as the first stop for its overseas expansion.

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In April 2023, Luckin Coffee opened its first overseas store in Singapore. A person close to Luckin stated that the company views Singapore as a testbed to enhance its overseas visibility and business model. In the next 3 to 5 years, Luckin plans to establish Singapore as its Southeast Asian headquarters and gradually expand into surrounding countries and regions.

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Abroad, Luckin plans to expand using a large franchise model—headquarters will retain ultimate decision-making authority for growth and marketing, providing support for back-office operations and supply chains, while local franchisees (who will decide on joint ventures, licensing, or franchising models based on each country's situation) will manage local stores and some suppliers. Franchisees may provide suggestions to headquarters.

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In the first half of this year, the Luckin team has successfully engaged with BJ Food in Malaysia to explore the possibility of establishing a new company in the form of a joint venture to enter the Malaysian market. BJ Food is the operator for Starbucks in Malaysia, managing over 340 stores.

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In the Singapore market, Luckin has referenced Starbucks' site selection strategy by opening stores in commercial complexes, transportation hubs, street shops, and intersections. However, Luckin only opens small stores, which are more than half smaller in size than Starbucks locations, ensuring that rent and labor costs remain controllable.

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Operationally, Luckin did not quickly attract new customers in Singapore using the 0 yuan method that was previously implemented in China. Instead, it launched a promotion offering the first cup of coffee for new customers at 0.99 Singapore dollars, with product pricing sold at 60-70% of the original price.

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The practice in Singapore has also strengthened Luckin's determination to invest in its supply chain. Previously, the material costs for Luckin in Singapore were about 1.5 times that of the Chinese market. After further production expansion at domestic supply chain factories, material costs can be reduced to 1.1 times that of the Chinese market.

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Luckin currently has over 20,000 stores in China, making it the coffee brand with the most stores in the country and one of the processing companies with the deepest involvement in the coffee supply chain. Since 2019, Luckin has established three large factories in Fujian, Jiangsu, and Yunnan. The factories in Jiangsu and Yunnan have sequentially commenced production this year, with the Jiangsu factory having an annual roasting and processing capacity of 30,000 tons of coffee beans, bringing the total capacity to 45,000 tons.

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In June of this year, Luckin announced plans to purchase approximately 120,000 tons of coffee beans from relevant coffee-producing areas in Brazil between 2024 and 2025. Brazil is currently one of the most cost-effective coffee bean production areas in the world. Previously, in 2022, Luckin signed a plan to procure approximately 45,000 tons of coffee beans in Brazil over three years.

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Insiders close to Luckin Coffee say that there are many small and beautiful local coffee brands in the Singapore and overseas markets, but Luckin's overseas expansion will not follow the domestic strategies of price wars and rapid expansion, nor will it seek to quickly eliminate local brands. Instead, it prefers cautious expansion and aims for long-term coexistence with multiple brands, striving to gradually embed the brand in people's hearts.

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Luckin also hopes to follow the path of brands like Starbucks, not limiting itself to expanding through stores, but utilizing its supply chain capabilities both domestically and internationally, selling coffee beans to small and medium brands, regional companies, and individual coffee shops beyond its franchisees.

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As of the time of publication, Luckin has not yet responded.

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Tag: #Coffee

Luckin Coffee Plans Large-Scale Expansion, Focusing on Southeast Asia and the U.S.