Nasdaq-listed Luckin Coffee announced plans today to split off its tea-based beverage line known as Xiaolu Tea, or “Fawn Tea” in English, as an independent operation. Officially known as Luckin Tea, the new unit will boast its own branding and physical stores. Luckin will also launch a separate app as well as mini-program for online orders and delivery.
Why it matters: The move coincides with the Xiamen-based beverage giant’s expansion into China’s lower-tier cities.
- Luckin has been looking for ways to steal a march amid intensifying competition with Starbucks. The firm is also looking to tea-based beverages to diversify revenue streams and find new growth.
Details: Luckin Tea will focus on second, third, and fourth-tier cities in casual-leisure scenarios, while the coffee brand will concentrate on first and second-tier markets, focusing on workplace orders.
- Luckin Tea will adopt what it calls “new retail partnership model,” which is a franchising model to help it expand across cities in China, but it will not charge a franchise fee.
- The company also plans to add more items to its existing tea menu. The company hinted that there would soon be more than 30 new beverages available, including bubble tea, milk tea, fruit tea, macchiatos, Calpis-based drinks. It will also sell coffee, snacks, and branded merchandise.
- The company also announced that actor-singer Sean Xiao will be the face of Luckin Tea.
Context: The Chinese coffee chain, commonly referred to as “Starbucks’ China rival,” operates nearly 3,000 physical shops spanning 40 Chinese cities. Despite beating revenue expectations, the company reported widening losses in the second quarter.
- The company has been spending heavily on sales and marketing as it enters new markets.
- Last month, Luckin Coffee rolled out a lineup of branded merchandise in a bid to replicate Starbuck’s success in selling drinkware and other coffee themed accessories.