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Luckin Coffee expects to become biggest coffee chain in China in 2019, surpassing Starbucks

A deliveryman leaves a Luckin Coffee store with a takeout box for online sales in Beijing on July 17, 2018. Photo: Reuters

China's up-and-coming coffee brand Luckin Coffee has set forth an ambitious plan, aiming to surpass US rival Starbucks in 2019, irrespective of previous news reports about its massive loss which was confirmed by the Chinese coffee chain.

The 2019 goal was put forward a little more than a year after Luckin Coffee started its operation in China, one of the world's biggest coffee markets.

This year, the Xiamen, Fujian province-headquartered coffee chain is planning to open 2,500 new outlets in China, taking the total number of its stores in the country to 4,500, according to the plan.

As of the end of last year, Luckin Coffee operates about 2,000 stores in 23 cities across China, with sales of 89 million cups of coffee to more than 12 million consumers, said the company. Currently, Starbucks has about 3,400 stores in China, after entering the Chinese market two decades ago.

The "reckless" expansion of Luckin Coffee has long been a major concern of industry experts which have worried that the money-burning store expansion and subsidy-for-consumer makeshift strategy would deplete the young coffee brand one day, citing the dilemma of bike-sharing company Ofo, which is unable to repay users' deposits due to capital chain rupture. Ofo has blindly expanded presence domestically and globally before it met the financial problem.

Two weeks ago, domestic media reports revealed that Luckin Coffee suffered a net loss of 857 million yuan ($123 million) in the first nine months of 2018, which created doubts about the sustainability of its business model and future development potential.

The coffee startup shrugged off the reports at the time, saying in a statement that "grasping the market share rapidly through subsidies" is its established strategy.

Luckin Coffee joined the ranks of unicorns within a very short period, roughly a year, during which it expanded its valuation to $2.2 billion through several fundraising rounds, with the latest one led by venture capitalists including Singapore sovereign wealth fund GIC and China International Capital Corp Ltd.

At a press conference in Beijing where the new store expansion plan was announced, Yang Fei, chief marketing officer of Luckin Coffee, again downplayed concerns about the subsidy-for-consumer strategy, saying that what they want at the moment is "scale and speed". "There is no point talking about profit," said Yang, adding that using subsidies to attract more consumers would be an important part of the company's strategy for the next few years.

At the press conference, Luckin Coffee's founder Qian Zhiya distinguished Luckin Coffee from Ofo, noting the fact that consumers are not required to pay deposits for a cup of coffee. Qian went on to say that the subsidy strategy would last for 3-5 years, which is already supported by investors. In addition, the money raised would also be used for new product development and technology upgrade.

Last month, Luckin Coffee said that it would offer different subsidies to customers at different phases, hinting that it would cut the subsidies contingently.

The company is also trying to apply the Internet of Things, which will help to greatly improve the quality of every cup of coffee, according to Qian.

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