China’s coffee war moves up a notch as Luckin and Tencent ink strategic agreement

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Luckin Coffee

Bejing-based Luckin Coffee and internet giant Tencent have entered into a strategic agreement, according to 36Kr (in Chinese). The two will reportedly collaborate on the marketing side of their businesses—which includes promoting the adoption and user engagement of WeChat Pay and exploring more ways to leverage WeChat mini program intelligent marketing tools as well as developing new retail solutions.

The two will also jointly work on offline applications of new retail technologies such as image recognition, facial-recognition payment, delivery robots, and AR interaction. Additionally, the two will develop personalized services including product recommendation and menu customization.

The coffee shop market in China was worth over $4.5 billion last year, and it is still growing. Not so surprisingly, tech giants have been scrambling to get a piece of the big market pie. Forging a strategic partnership with Luckin not only gives Tencent a leg-up in the new retail race, but also an edge in its rivalry with Alibaba. In July, Starbucks announced a tie-up with Alibaba-owned food delivery platform Ele.me hoping to roll out its own coffee delivery service. Facing rising competition from young startups like Luckin, Starbuck’s revenues have suffered.

Prior to the partnership, Tencent has appeared as an ally to Luckin. In April, Luckin opened a pop-up shop at Tencent’s headquarter in Shenzhen. Luckin has also been leveraging Tencent’s messaging app WeChat to drive traffic and gain traction on social media.

With tech giants aggressively moving into new retail–a new business model that is pervading into supermarkets, restaurants and convenience stores–the coffee shop market in China is heating up. Luckin is one of China’s hottest startups. It managed to reach unicorn status in less than a year after securing $200 million in Series A funding round in July. The coffee startup is growing at an astonishing pace and has plans to open 2,000 outlets by this year.