Coffee startup Luckin to extend discount drive despite losses

Despite losses amounting to nearly RMB 900 million ($130 million), Chinese startup Luckin Coffee plans to continue offering subsidies and discounts to Chinese coffee drinkers, a company spokesperson confirmed to TechNode.

According to a business plan reportedly written for the company’s Series B and obtained by Chinese media outlet QDaily, the Chinese coffee firm operated with a net loss of RMB 857 million for the first nine months of this year.

Luckin expects the number for the entire year to be far higher, the company said in a statement. From its perspective, the huge loss is “in line with the forecast by the management team,” since subsidies play a key role in the company’s plan to seize the Chinese market.

The company expected an annual turnover of RMB 763 million in 2018. It predicts this will increase to RMB 18.5 billion by the end of 2021.

The coffee startup partnered with Meituan for delivery services earlier this month, available through the Chinese mega lifestyle app in 21 cities. The platform serves as a way for Luckin increase its traffic and reach more consumers while moving online sales across China. Since September, its rival Starbucks has forged an alliance with Alibaba-backed Ele.me for takeaway orders in over 30 Chinese cities.

“Thanks to the high-profile presence with significant subsidies, Luckin Coffee witnessed substantial growth in its user base during the summer,” Chinese data service provider JIGUANG said in a report about the company.

According to Luckin, it served more than 12 million Chinese consumers in less than a year of operations, though it hasn’t revealed data about customer loyalty following subsidy drives.

Founded in July 2017, the Xiamen-based coffee chain operator began operating with heavy discounts and subsidies at the beginning of this year. It’s Series B financing, which was announced earlier this month, now values the company at more than $2.2 billion.