Chapter 1: What is Luckin Coffee?

What is Luckin Coffee?

The Coffee Shop That Changed Everything

Imagine walking down a busy street in a big city like Beijing or Shanghai in China. You see people rushing to work, cars honking, and shops opening their doors for the day. But then you notice something interesting - young people walking past traditional coffee shops without stopping. Instead, they're looking at their phones, tapping on a small picture of a white coffee cup on a blue background. A few minutes later, a delivery person on a bicycle zooms by, carrying a small bag with that same white cup logo. Inside the bag is a steaming hot cup of coffee!

This is the story of Luckin Coffee - a company that changed how people in China think about coffee. But to understand why Luckin Coffee became so famous (and later, so controversial), we need to start from the very beginning.

The Beginning of a Big Dream

Luckin Coffee was officially founded in June 2017 in the city of Xiamen, which is located in Fujian Province on the southeastern coast of China. The company was created by two very important people: Qian Zhiya (also known as Jenny Qian) and Liu Hap. Qian was the CEO (Chief Executive Officer), which means she was in charge of running the whole company. Liu Hap was the chief strategist, which means he helped figure out the big plans for how the company would grow and succeed.

But wait - let's think about this for a moment. Coffee had been around for hundreds of years. Starbucks had already been selling coffee in China since 1999. So why would anyone start a new coffee company? What made Qian and Liu Hap think they could succeed where others had already been working for almost twenty years?

The answer lies in something very special that Qian and Liu Hap noticed about China in 2017. At that time, China was changing rapidly. More and more people were using smartphones. Mobile payments through apps like WeChat Pay and Alipay had become incredibly popular. Food delivery services were booming. And most importantly, a new generation of young Chinese consumers was emerging - people in their twenties and thirties who were willing to try new things and who loved convenience.

Qian and Liu Hap saw an opportunity. They thought: "What if we could combine coffee with all these new technologies? What if we could make getting coffee as easy as ordering food delivery? What if we could offer great coffee at prices that everyone could afford?"

These questions led to the birth of Luckin Coffee.

Understanding the Luckin Business Model

To understand how Luckin Coffee worked, let's first think about what a "business model" means. A business model is basically the way a company makes money. It's like the rulebook for how a business operates - who pays for what, how products get to customers, and how much money the company earns.

Traditional coffee shops like Starbucks had a specific business model. Customers would walk into a store, wait in line, order their coffee, wait for it to be made, and then enjoy their drink either inside the store or while walking away. The stores were usually in prime locations - expensive shopping districts, busy downtown areas, or near office buildings. The coffee was good, but it cost money to rent those locations, pay employees to work there, and provide a comfortable space for customers to sit.

Luckin Coffee decided to do things differently. Their business model had several key features that made them unique:

The App-First Approach

Instead of walking into a store, Luckin Coffee customers had to download an app to their phone first. This app was available on both iPhones (through the App Store) and Android phones (through various app stores in China). The app was like a magic wand - once you had it installed, you could do almost everything related to ordering coffee without ever talking to another person!

When customers opened the Luckin Coffee app, they would see a menu of different drinks. There were traditional coffees like lattes and cappuccinos, but also creative drinks that combined coffee with tea, milk, fruit, and various flavors. Customers could customize their orders - choosing the size, the type of milk, how sweet they wanted it, and various other options.

Once the order was placed through the app, the customer didn't even need to pick it up! Luckin Coffee offered two delivery options. The first was "self-pickup," where the customer could choose a nearby Luckin store and go there to collect their coffee. The second was "delivery," where the coffee would be brought directly to the customer's location - whether that was their home, office, or anywhere else.

This app-first approach was revolutionary because it meant several things:

1. No waiting in line: Traditional coffee shops could get very busy, especially during morning rush hours. With Luckin, customers could place their order while walking to work and have it ready (or delivered) exactly when they arrived.

2. No cash or cards needed: All payments were made through the app. Customers could link their credit cards, debit cards, or mobile payment services like WeChat Pay and Alipay. Sometimes, the app would even give away free coffee or special discounts!

3. Data collection: Every time a customer ordered something, the app would remember it. This helped Luckin understand what drinks were popular, when people ordered coffee, and what each customer liked. They could then use this information to send personalized recommendations and offers.

The "Ghost Kitchen" Strategy

Here's where things get really interesting. Traditional coffee shops needed beautiful, large spaces where customers could sit and enjoy their drinks. They needed comfortable chairs, nice tables, art on the walls, and music playing. These "third places" (places that were neither home nor work) were a key part of the Starbucks experience.

Luckin Coffee thought differently. Instead of spending lots of money on fancy store locations, Luckin opened small stores that were mainly for making coffee and preparing orders. These stores didn't need to be in expensive shopping districts. They didn't need comfortable seating areas. They didn't need expensive decorations.

Many Luckin stores were barely larger than a small bedroom! They were often located in office buildings, residential areas, or even inside other businesses like convenience stores. Some people called these "ghost kitchens" or "dark stores" because they existed mainly to fulfill app orders, not to welcome walk-in customers.

This strategy saved Luckin a tremendous amount of money. Real estate in major Chinese cities is extremely expensive, especially in central locations. By avoiding these prime locations, Luckin could open many more stores for the same amount of money.

The Low Price Strategy

Perhaps the most important part of Luckin's business model was their pricing strategy. When Luckin first started, they sold coffee at incredibly low prices. A regular latte that might cost 30-40 yuan (about $4-6 USD) at Starbucks would cost only about 12-15 yuan (about $2 USD) at Luckin.

But how could Luckin sell coffee so cheaply? Weren't they losing money?

The answer is yes - at first, Luckin was definitely losing money on every cup of coffee they sold. But this was part of their plan! Qian and Liu Hap believed in a strategy called "penetration pricing" or "growth at all costs." The idea was simple: offer coffee at such low prices that people couldn't resist trying it. Once people got used to drinking Luckin coffee and discovered they liked it, the company would eventually be able to raise prices and become profitable.

To make this work, Luckin needed lots of money to cover their losses. They raised this money from investors - people and companies who believed in Luckin's vision and gave them money in exchange for a share of the company. More on this later.

The Rapid Expansion Strategy

Luckin Coffee didn't grow slowly. They grew at an incredibly f