China is a country where tea has dominated for thousands of years, but what about coffee? Do Chinese people like coffee? How has a new coffee brand managed to overtake Starbucks to become the country’s largest coffee chain brand, and capture a large slice of the market despite ferocious competition? Check it out from #ChinaExplained .
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00:00 (upbeat music)
00:02 Everybody knows that China is traditionally
00:07 a tea drinking country, but how about coffee?
00:10 Is this as popular in China as it is elsewhere in the world?
00:14 Starbucks dominates the world's coffee market,
00:17 but in China, a new brand recently knocked them
00:20 off the top spot, and their success says a lot
00:24 about coffee culture in China.
00:27 Starbucks operates over 6,500 stores in China.
00:32 Luckin Coffee, a homegrown brand founded in 2017,
00:36 overtook Starbucks in June 2023,
00:39 and became the largest coffee chain in China
00:42 with 10,000 stores.
00:44 But wait, in June 2020, Luckin was delisted
00:47 from the NASDAQ because of accounting fraud,
00:50 for which the company had to pay a penalty
00:53 of $180 million US.
00:56 So how did the tables turn, and how did Luckin
00:59 manage to capture China's heart?
01:02 First, who drinks coffee in China?
01:05 The earliest coffee house in record was set up
01:07 in 1836 by a Danish person in southern China's Guangzhou.
01:12 It was called by the Chinese then as black wine.
01:17 But it was only when millennials and later Gen Z
01:20 became the main consuming group that coffee,
01:23 especially freshly ground coffee,
01:25 became a leading beverage.
01:27 Coffee's market value is expected to exceed
01:30 30 billion US dollars by 2025,
01:34 and Luckin is dominating that market with cheap,
01:37 innovative, and fun products mainly appealing to Gen Z.
01:41 80% of coffee drinkers are aged between 20 and 35,
01:46 and they either drink it to wake up
01:48 or to socialize with friends.
01:52 For Gen Z, like everywhere else in the world,
01:55 times are difficult, but they still love their social life.
01:58 Luckin coffee definitely comes in first for affordability,
02:03 at around $1.5 a cup, or at most $3,
02:07 while at Starbucks, a cup starts over $4.
02:11 Luckin also has a heavy coupon strategy.
02:14 I'll let you into a secret here.
02:16 I mean, everybody loves coupons, especially in China.
02:19 Look at all of those coupons.
02:22 Luckin stores also key into the fast pace of Chinese life.
02:26 Unlike Starbucks, which provides a cozy
02:28 and comfortable environment to sit and chat,
02:31 Luckin's stores are usually quite small and are more...
02:35 Here we go, grab and go.
02:37 But they are much more accessible,
02:39 scattered in every corner of the city.
02:41 For young commuters in China who travel long distances
02:46 and are often in a hurry to their workplaces,
02:48 the closer the store is, the better.
02:51 Coffee culture has also embraced the digitalization.
02:54 Consumers order from mobile apps
02:56 so that drinks are ready when they arrive,
02:59 and they can also get them delivered to their workplace.
03:02 And you can get your coffee anywhere at any time.
03:04 By tracking customized coffee orders digitally,
03:09 the company obtains useful feedback to develop new flavors.
03:13 The Chinese market's love of innovation
03:16 has embraced Luckin's co-branding partnerships.
03:19 In September, the company introduced a liquor-flavored latte
03:23 together with China's most high-end alcohol brand, Maotai.
03:27 Liquor-flavored coffee is nothing new,
03:30 but this specific one contains a jolt of Baijiu,
03:33 which costs over $400 a bottle.
03:37 That's far beyond what most people can afford.
03:40 But with this innovative drink,
03:42 Luckin can offer a taste of the high life for around $5.
03:46 That has captured many young Chinese commuters' hearts.
03:50 On launch day, over 5 million cups were sold,
03:53 and that single-day turnover exceeded $13 million.
03:58 They haven't forgotten the more traditional Chinese consumers either,
04:02 offering them a series of tea-flavored coffee.
04:05 These fresh, multi-sensory stimulations have been a hit too.
04:09 Can they stay on top?
04:12 Well, who knows?
04:13 In the lightning speed of change in the Chinese consumer market,
04:17 you always need to stay ahead of the game.
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