Image source @ Visual China
Wen | Food Alliance Research, author | Ether, visual | Zhao Yan, editor-in-chief | Ron, producer | Yang Yang
Starbucks, which has always been used as a benchmark, was surpassed by its biggest competitor, Luckin Coffee.
In the recent 2021 financial report released by Luckin, there are two sets of data that stand out.
One set of data is the number of Luckin stores.
As of December 31, 2021, Luckin had 6,024 stores. Among them, 4397 are directly operated stores and 1627 are associated stores, accounting for more than 30% of the joint stores. As of the end of January this year, Starbucks had only 5,557 stores in China.
Another set of data is the contribution of associate stores to Luckin.
According to Luckin's 2021 financial report, the associated stores brought 1.306 billion yuan of revenue to Luckin, an increase of 312.5% compared with 2020.
Luckin was able to catch up with Starbucks, and the partners contributed.
What is less well known is that as early as 2019, Luckin won Starbucks once with a partner.
In the not so long two years, this company that has been exposed to financial fraud, after experiencing delisting, store closure and reorganization, and high-level blood change, has once again shown the trump card of "joint venture".
01, partners do not make money, Luckin does not charge money
0 franchise fee, only need to apply to become Luckin's "partner". Such attractive conditions make Luckin one of the most exciting entrepreneurial projects for young people in the town.
How hot are Luckin's affiliate applications?
Within half a year, a number of cities that opened joint ventures showed that the number of stores in the region was saturated. A number of interested parties said that since the end of October last year, the unified reply received by repeatedly calling luckin's franchise hotline is that it is necessary to wait.
Because he was too eager to open a store, Wu Hao almost fell into a scam by mistake. He said, "The other party claims to be an insider of Luckin, in charge of the operation of that piece." Say that if you pay a deposit of tens of thousands of yuan, you can help me queue up and reserve a place. ”
Similar farces have been repeated in many places. In the end, Luckin officials had to state that they did not authorize any third-party entities and individuals to carry out investment and franchise business.
Why does everyone want to join Luckin?
When Luckin fell from the peak to the darkest moment, Chen Hualin was keenly aware, "The news is not lagging behind, but everyone is still pointing to Luckin, you can feel how powerful the brand is." ”
In her opinion, Luckin has successfully taken root in the hearts of consumers, this loyalty does not need research, cup after cup of orders is the best proof. As long as Luckin can survive, then joining Luckin will "make steady profits and no losses".
Therefore, after learning that Luckin opened the joint venture, Chen Hualin immediately applied for a store in a fourth-tier city in her hometown in Anhui Province, and she spent nearly 500,000 yuan before and after, from site selection and rent payment, to decoration, and purchase of equipment.
Although Luckin has indicated that it does not charge any franchise fees, the actual cost of opening a store is not low. In the third-tier cities and below, we are preparing to open a Luckin joint store, with an initial investment of between 350,000 and 550,000 yuan.
Luckin even split the various fees for the partners in detail.
Among them, 50,000 yuan is the security deposit, after the expiration of the contract period, Luckin will directly refund the full amount to the partners; the decoration investment is between 110,000 and 130,000 yuan; the production equipment is about 190,000 yuan. Rents vary depending on the actual location.
For young people with shy pockets, this is not a dream that can be achieved on tiptoeing.
Before joining Luckin, Chen Hualin ran a coffee shop in the local area. The biggest takeaway from this experience for her was, "You can't think of opening a coffee shop as a petty bourgeois dream, it's a business, no one gives you a bottom." ”
Luckin gave the partners a bottom line that when the total monthly gross profit of a store does not reach 20,000 yuan, Luckin will not share any profits.
The excess part will be divided into 4 other grades, and Luckin will increase the percentage in a certain proportion and sequentially.
Specifically, the profitability of both the affiliate and Luckin depends on the number of cups, and the gross profit of purchased goods such as light food and desserts does not participate in profit distribution.
Under the "profit sharing system", partners do not make money, which means that Luckin also has no income.
It is worth mentioning that on top of the general partner, there are also "super partners". Among them, there are many years of practitioners from yum, McDonald's and other head catering companies, as well as senior people from Internet head FMCG companies.
Through self-recommendation or referral, these super partners join Luckin and exchange the same treatment as the regional leader on the condition of "opening 7-10 stores or even more in one go".
An industry insider said that this "new retail partner" plan, in the end, it is Luckin who wins.
The associated companies contribute money, and Luckin is only responsible for building the supply chain and operations. Even if the affiliates do not make money, Luckin will find it difficult to share dividends, but its real purpose has been achieved.
Among the first batch of 157 cities to be opened, Luckin excluded all well-known first- and second-tier cities such as Beijing, Shanghai, Guangzhou, shenzhen, And Chengdu changsha. Leveraging partners to pry open the sinking market under the third-tier cities is Luckin's original intention.
In other words, Luckin is responsible for dreaming, and partners are responsible for fulfilling dreams. With this model, Luckin can greatly reduce the cost of trial and error in the sinking market, and quickly achieve the first scale.
At present, the number of cities opened by Luckin associates has expanded from the initial 157 to 174. The northernmost store opened to Qiqihar in Heilongjiang, and the southernmost store opened to Sanya, Hainan.
02, fawn tea into a bubble, but Ruixing can not put down the "joint venture"
Luckin's joint venture model is the same as the operation of Deer Tea in that year.
In September 2019, Xiaolu Tea, which had only been online for 2 months, was pushed to the front of the stage by Luckin. At that time, Luckin chose to strip Xiaolu Tea from the main body and let it operate independently.
As early as a month before this appearance, Xiaolu Tea had begun to recruit new retail partners nationwide.
This is the first time that Luckin has opened up its associates. As of December 31, 2019, Xiaolu Tea has opened 282 associate stores in more than 40 cities across the country.
It is worth noting that Luckin officials have repeatedly emphasized that this model is different from traditional franchises.
First of all, Luckin does not charge any franchise fees; secondly, the equipment, store rent and labor costs are completely borne by the associates, luckin as the brand, in addition to being responsible for marketing and supply chain, will also provide corresponding training.
Similarly, deer tea also implements a "moisturizing system". When partners don't make money, Luckin doesn't "take advantage of the fire" to rob.
According to Luckin's calculations, a deer tea can recover its investment costs in 3 months at the earliest and 27 months at the slowest.
With the best resources in hand, with the endorsement of Luckin. Within half a month since Xiaolu Tea opened the recruitment of "new retail partners", nearly 40,000 people have submitted cooperation applications.
This is just the bustle seen by the layman, and what the insider sees is that Luckin has reproduced its own powerful operating system to XiaoluCha.
Soon after it was launched, the system of Xiaolu Tea and Luckin were opened. After the data at both ends is merged, users can order Luckin on the deer tea and share the membership system on both sides.
In Luckin's conception, Luckin Coffee's direct stores focus on the fast coffee scene in first- and second-tier cities, and Xiaolu Tea is responsible for reclaiming the fertile soil for tea drinking outside the third line.
Luckin's approach still seems ahead of its time. To this day, there is no other company on the track that dares to open up two brands at the same time, and balances two different businesses to make the two complement each other.
There is no doubt that the joint venture is the best way for Luckin to leverage the best of both worlds in the case that Luckin Coffee, which has not really achieved profitability, does not need to cross the money burning pit again, and can simultaneously leverage the two plates of coffee and tea.
But two documents changed the fate of Fawn Tea, an 89-page short-selling report accusing Luckin of financial fraud by Muddy Water, and a document submitted by Luckin to the SEC acknowledging fake sales.
After Luckin was exposed to financial fraud, its senior management team changed blood, and Liu Jian, then chief operating officer, was out. Xiaolu Tea, which is mainly promoted by him, is almost in a state of suspension, and the "new retail partner" plan is shelved.
More than 100 days later, deer tea stores across the country turned into a different story. Some of the associates chose to liquidate the losses and reached a store closure agreement with Luckin, while another part of the associates decided to live and die with Luckin and convert the Xiaolu Tea store into a Luckin store.
Optimization continues. In the whole of 2020, Luckin closed a total of 1,021 stores with sluggish performance and opened 412 new directly operated stores. In addition to the takeaway stores that can be bought and walked, Luckin has also launched a larger partial guest store.
For Luckin, it is a critical moment to improve the consumer experience in order to produce a stronger stickiness.
Therefore, in less than a year, Luckin has restarted the "new retail partner" program. Only this time, the object changed from deer tea to Luckin coffee.
Luckin had intended to make a comeback of Xiaolu Tea, but because XiaoluCha had previously been involved in trademark squatting incidents, Luckin had to devote some of its energy to appeal. However, it took nearly a year for the second-instance judgment to uphold the original judgment, and Luckin's lawsuit against the Xiaolu Tea trademark was rejected again.
As for the whereabouts of the deer tea, until now it is still undecided.
But Luckin couldn't wait for the opportunity to come. If you want to choose between scale and profitability, then the joint venture may be the only weapon that Luckin can beat Starbucks in scale and truly sit at the top of the Chinese coffee market.
At the same time, Luckin can also put more energy into improving the profitability of directly operated stores.
The relevant financial report data in 2021 also directly proves that the potential of this model is huge, and there is enough room for imagination for capital.
Compared with traditional franchises, "new retail partners" obviously have more stories to tell.
In addition, the current re-entry tea drink is really not a suitable time.
The first echelon of Xicha and Naixue self-descended, pulling the price back to the middle end; many waist players were taken under the command of the players of the first echelon, and some brands chose to go to the sea to make a living in order to reverse the inner volume; in the sinking market, the only giant Honey Snow Ice City has exceeded 20,000 stores, and its long-brewing lucky coffee has begun to gradually enter the good situation.
Luckin does not need to go to the tea industry to find a seat to prove himself for the time being, but in the increasingly crowded coffee circuit, once the city is lost, it will be difficult to regain it.
The first to target the coffee takeaway business, precipitated 5 years of users, because of Luckin's aggressive playing style and self-chaos, revitalized for 2 years before returning to the table of Lian Coffee is the best example.
03, when the "direct" Starbucks, began to learn from opponents
Had it not been for that thrilling financial fraud incident, would the scale battle between Luckin and Starbucks have been cut in half?
For Luckin, surpassing Starbucks was the first thing it put on the "to do list" from the day it was founded.
At the beginning of 2019, Qian Zhiya, then the helmsman of Luckin, said, "Whether in terms of store and cup volume, Luckin's goal is to surpass Starbucks in an all-round way and become the largest chain coffee brand in China."
Johnson, then CEO of Starbucks, said when asked if Luckin Coffee could replace Starbucks' position in China in late 2019, he said it was "unlikely" because Starbucks had a "first-mover advantage" in China.
Although Starbucks delivered its worst performance since its inception the previous year, Wall Street analysts were disappointed. But in the Chinese market, Starbucks is still full of ambition.
In fact, Luckin did deliver on its promise. Its 2019 financial report data shows that Luckin has a total of 4789 stores across the country, of which 4507 are directly operated stores of Luckin Coffee and 282 are associated stores of Deer Tea.
In terms of the number of stores, Luckin far exceeds the data of more than 4,300 Starbucks stores in the same year.
Track shifting, such shouts in the Internet, technology industry, is not strange.
Because while starting companies are improving market matching, they must also focus on "benchmarking".
An organization needs to find another organization with higher performance than itself to compare, so as to motivate itself to constantly break through and surpass the benchmark, in order to ultimately achieve organizational innovation and process reengineering.
This is "benchmarking management" and is considered one of the three most outstanding management methods since the 1990s.
As early as 2018, when it was born, Luckin had an air conversation with Starbucks.
At that time, Luckin founder Qian Zhiya questioned Starbucks' monopoly, saying that Luckin encountered a number of cases in which there were exclusive clauses in property contracts during business expansion, because Starbucks pressured suppliers to take sides. In this regard, Luckin intends to file an anti-monopoly lawsuit with the court.
Starbucks responded that "the Chinese coffee market is huge, has no intention of participating in the hype of other brands, and welcomes orderly competition."
This is the first meeting between Luckin and Starbucks.
To some extent, Luckin is not simply hype, exclusive agreements are common in the restaurant industry. A brand with a large voice can put pressure on it to sign an exclusive or exclusive agreement when entering the business circle and getting goods from suppliers.
Leaving aside the exclusivity, Starbucks' position in the Chinese coffee market has been difficult to shake. What Luckin did seemed to the outside world more like touching porcelain, provocation and eyeballs.
Until Luckin skyrocketed and landed on the NASDAQ in only 18 months, becoming the fastest IPO company in the world, Starbucks, which was calm and self-assured, could not sit still.
Soon after Luckin said that it was necessary to comprehensively surpass Starbucks, Starbucks launched the "Brown Express" business, where users can pick up their own stores after ordering online.
Subsequently, Starbucks officially launched the "Brown Express" store on the basis of this service. Different from the large guest-type stores with hundreds of square meters, this kind of small shop with only ten square meters mainly focuses on take-away scenes.
It is worth mentioning that Starbucks' first "Brown Express" concept store was opened next door to Luckin Coffee's pick-up shop. It is not an exaggeration to say that Starbucks "stole the art of learning".
Since then, several confrontations between the two sides have also been related to the opening of stores.
For the scale of the battle, Luckin showed great fanaticism.
After all, almost all the members of the founding team are from the "Shenzhou System", and they have experienced a larger money burning war in the online ride-hailing market. The practice of financing first, and then exchanging "subsidy" users for "scale" is a routine operation.
It's just that Luckin's approach is too radical in the eyes of the catering industry.
At least Starbucks won't agree.
In the more than 20 years since entering China, Starbucks has never opened up to join. And in the rhythm of opening a store, it is also after encountering Luckin that it is only after opening the double speed.
Initially, in order to comply with China's market system and quickly take root in China, Starbucks chose the same route as KFC and McDonald's, introduced a franchise model, and successively cooperated with Unity, Master Kong, Maxim's and other parties.
Starbucks' franchise businesses include business alliances, international retail store licensing, and direct sales joint ventures. At present, in addition to all stores in China are directly operated, Starbucks accounts for nearly 30% of the franchises in other markets around the world.
When China allowed foreign companies to open stores on their own, Starbucks decided to change its strategy and began to spend a lot of money to acquire shares in the joint venture, trying to unify its market in China with "direct operation".
Since 2005, Starbucks has successively withdrawn more than half of its equity interests in joint ventures with Shanghai Unified Starbucks, Guangdong Maxim's, Beijing Sanyuan Group and some funds.
In 2017, Starbucks acquired another $1.3 billion in its remaining 90% stake in its joint venture with Unity in the East China market. So far, Starbucks has completed all the direct operation of stores in East China, South China and North China.
Why is Starbucks overwhelmed by direct operation, and Luckin chooses both direct operation and joint operation? In the face of the Chinese market, is Luckin too aggressive, or Starbucks too conservative?
One reason is that under the franchise model, Starbucks can only charge a brand franchise fee, allowing more profits to slip through the fingers. For Starbucks, which wants to build China into the largest market in Asia, this model has become the biggest barrier.
Therefore, even if the road ahead is uncertain, Starbucks must take the risk and insist on direct operation in China.
More importantly, the birth of a system often comes from the top-level design of the company and those who really hold the power.
Today, in charge of luckin's "partner" project, it is Cao Wenbao, senior vice president and chief operating officer of Luckin. He was previously Vice President of McDonald's China and spent more than 23 years at McDonald's. For the chain business, Cao Wenbao can be described as handy.
But Starbucks has been living in a troubled way lately.
The first is at the group level, where founder Schultz returns and becomes CEO again. However, Schultz's return is quite helpless, looking around, the great Starbucks can not find a suitable successor, can only hope that Schultz successfully put out the fire and cultivate a new baton.
The existence of the Starbucks godfather level has been praised by industry insiders because of its advanced layout of the Chinese market. Schultz has repeatedly affirmed Starbucks' strategy of tightening its rights in China and sticking to its direct operations.
Back to the senior management team of Starbucks China, in August last year, Starbucks China underwent a major high-level change, Wang Jingying stepped down as CEO, and COO Cai Delin took over. At the same time, Liu Wenjuan became the chief operating officer of Starbucks China.
Cai Delin is one of the elders of Starbucks China, who has worked for Procter & Gamble and PepsiCo China, and after joining Starbucks, he was mainly responsible for expanding its retail footprint in China.
Liu Wenjuan is one of the few female executives within Starbucks China. Previously, she was mainly responsible for Starbucks' "digital innovation" business, and the special star delivery, brown fast, and star talk were all from the hands of the team she led.
Starbucks' round of personnel changes is enough to show that in the face of the continuous emergence of fierce enemies led by Luckin in the Chinese market, Starbucks cannot just defend and not attack. After all, the "digital innovation" that Starbucks has repeatedly emphasized in the past two years has been completed by Luckin at the beginning of its establishment.
Worryingly, Starbucks even uses its experience in the Chinese market to feed back its business innovation in other markets around the world. That said, the Chinese market has become Starbucks' strategic pioneer, and this impact is likely to continue to expand.
It's hard to say that Luckin and other rising coffee brands in China haven't provided innovative inspiration for Starbucks.
On the other hand, Luckin has brought the biggest change to the entire industry: players don't have to be bent on becoming Starbucks, they can find another way to surpass it.
It is foreseeable that the battle of scale between the two giants of Luckin and Starbucks will eventually evolve into a model battle between joint venture and direct operation.
If one day, Luckin will temporarily lead into permanent, then Luckin church industry, there will be another thing.