What has made Luckin Coffee one of the most innovative technology companies in the foodstuff industry: A case study of a fallen angel

Figure 1: Milestones of Luckin Coffee Cup

The analysis is based on the following features:

· Order only by Phone

Order only by Phone

The only way to buy coffee from Luckin Coffee is to download the Luckin Coffee app and place your order using this app. Ordering without a phone is no longer possible, but this is basically not a big problem as Luckin Coffee’s target group nowadays always carries a phone with them. After the selection of the coffee drink, the product specification, e.g. amount of sugar or warm/cold, is also done via the app. At the end of the ordering process, payment is also made in the app via WeChat, Alipay, Luckin Coffee balance account, or credit card so that any potential cash payment is eliminated. Before you order, you have to choose exactly in which shop you want to pick up the coffee. You will then be given an estimated pick-up time (often around 3 minutes), and a push-up notification will inform you if the coffee is ready for pick-up. A QR code is displayed in the app, which you must scan when you pick up the coffee. The main advantage of this procedure is that the customer saves much time, as he or she can enter the shop immediately after the coffee has been prepared and does not have to stand in line and wait for the coffee to be prepared.

Figure 2: Customer Journey Luckin Coffee

Advertisement, Push notification, Coupons

The registration requirement via the app has the advantage that Luckin Coffee has a direct communication channel with the user. A study has shown that around 50% of people always read the push notification immediately (Statista 2013). Through this channel, Luckin Coffee can send out promotional notifications, inform the customer about new products, provide coupons, or conduct targeted discount campaigns. This possible communication is a very useful tool to keep the connection to the user and to encourage him to get engaged again and again.

Community Approach

To further enhance the user’s interaction with the App and Luckin Coffee’s products, they incorporate community aspects into the app. For example, you can send a free coffee card to a friend or sometimes get the opportunity to invite a friend for a free coffee. You also have a digital membership card that allows you to receive some coupons after a certain period. Another example is that if you bring a new customer to Luckin Coffee who has never used this app before, you and your friend will receive a free coffee drink.

Delivery Service

In addition to the regular pick-up service, the Luckin Coffee app also enables the delivery of all coffee and non-coffee products. As all customer interaction still takes place within the Luckin Coffee app and not in a third-party delivery app, the layout is specifically tailored to Luckin Coffee’s needs. The actual delivery is not handled by Luckin Coffee itself, as the company works on the operational side with the most prominent food delivery companies that pick up and deliver the coffee. This process design is very customer-centric as the customer does not notice that it is an inter-company operation as all interaction takes place within the Luckin Coffee app.

Selling other retail Products

Besides the primary sale of coffee-related products, Luckin Coffee also sells products from partner companies and acts as a marketplace. In addition to pure coffee, they also sell some breakfast and other food products. Some other non-food products are related like coffee cups, but others are completely unrelated, like Apple’s Air Pods. Therefore, the app is not only an ordering platform but also connected to an e-commerce platform to increase the total revenue per customer. As a business customer, you can also apply for a vending machine, which Luckin Coffee will install in your office and operate for you. This also creates a B2B revenue stream for Luckin Coffee. Figure 3 shows the typical user interface for a Luckin coffee customer including non-food items.

User Interface with different Products
Figure 3: User Interface with different Products

Video Livestream

Due to the loose data protection regulations in China, many of the coffee shops also offer a live stream function where you can see how your coffee is prepared. If someone is very suspicious and likes to watch how a Luckin Coffee employee prepares their coffee, they can do so remotely. In countries like Germany, it may be strange that customers can watch employees so closely, but in China this is simply seen as another customer service function.

Conclusion

Luckin Coffee was/is an inspiring example of a young, ambitious Chinese company using new technological approaches to create a unique and better customer experience. As a result, the whole concept was revolutionary on this scale and is likely to be partly responsible for Luckin Coffee’s high growth rate and success. Nevertheless, the company had burned a lot of capital in recent years and was heavily in deficit. The accounting scandal has the potential to lead to bankruptcy as it will be challenging to raise new capital that the company will need in the future. However, the new technological advances will not disappear as, for example, Starbucks has announced massive investments in new technical service products in China (CNBC 2020).

Reference:

CNBC 2020, https://www.cnbc.com/2020/04/27/starbucks-sequoia-china-strike-partnership-to-make-tech-investments.html

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Lukas Tatge

Lukas Tatge

CEO & Co-Founder of CIMK. Together with my Co-Founders, I am building an investment platform consist of automated Chinese company profiles using NLP.