00:00There is a bit of a price war that's
brewing up in China when it comes to
00:03coffee.
Now, according to a Bloomberg
00:04intelligence report, some popular chains
are now selling a cup for as low as, get
00:08this, less than ten renminbi or a little
over just 1 USD.
00:13Among them is a name you might know
Luckin, the once bankrupt coffee chain
00:18that is now seen as China's answer to
Starbucks.
00:21For more on this, let's bring in one
half host of our big Tech Asia podcast
00:25and why we've heard this story and what
a comeback story for Lucky.
00:29Let's start with this price war.
Tell us more about what's going on in
00:31China.
A crazy price war.
00:33There is an intense battle brewing on
the mainland to basically win a win over
00:38all of these, you know, tea drinkers.
Right.
00:40And at the heart of it is obviously this
price war that was instigated by Luckin
00:45Coffee.
I mean, when it started in 2017, it was
00:47seen as this cheap imitation to
Starbucks.
00:50And now it's overtaking Starbucks
despite coming back from, you know,
00:53major fraud scandal and from the brink
of collapse, really bring bankruptcy.
00:58It's now got more than 18,000 stores,
locations all throughout China.
01:03That's double what it had in 2023.
And of course, that's way ahead of
01:06Starbucks, which has just over 7000
locations.
01:09How did it and you remind us, of course,
of one of the dark periods of the
01:12company's history, how did it bounce
back from that accounting scandal?
01:16It's such a comeback story.
I mean, when the accounting scandal
01:19happened in 2020, the SEC found that the
company basically had fabricated about
01:24$300 million of sales.
So it overinflated its sales numbers and
01:27everybody thought it was dead.
But, you know, there were still
01:31investors.
It was it was delisted from the Nasdaq
01:34stock Exchange and it got rid of of the
founders of the company of Luckin.
01:40And there was still a very much an
investor who really believed in the
01:43company.
But, of course, then the pandemic hit.
01:46And what was interesting to the pandemic
was so many companies struggled,
01:49including Starbucks, during the
pandemic.
01:51But Luckin's model actually insulated it
from the lockdowns.
01:55You know, they do well, You know, they
have this very lean, barebones model.
01:59It's basically a kiosk, employs very few
employees.
02:02Most of the ordering and cash payment
system, you know, is done on the app.
02:06So it's all cashless.
And it's already had this takeout and
02:10delivery model that was quite
sustainable.
02:12So it really works during the pandemic.
And now it's been able to leverage off
02:16of that really lean model.
It's found a way to obviously entice
02:20people with really local tastes.
I mean, we actually tried we got dealer
02:23special delivery from Shenzhen and tried
their, you know, coconut latte which was
02:29not gotten to try that.
Yeah, yeah, yeah.
02:31Hopefully a cold one I can imagine.
Oh yeah Yeah.
02:34If you ordered something warm, lukewarm,
I guess.
02:37It was about 2 hours after it came, but
we had ice cream.
02:41Where does the price war go from here?
That's a great question, because really,
02:46when you offer something for cheap,
somebody else is going to offer it for
02:49cheaper.
And that, of course, is what is is
02:51happening right now.
I mean, you've got the ousted founders
02:55of Luckin.
They themselves have started a competing
02:57company also based on cheap model, you
know, cheap pricing model.
03:02And they've have stores now nationwide.
You also have K Coffee, which is KFC's
03:07brand, as well as McDonald's also
competing to get these low prices.
03:11It's now 9.9 and just under ten ¥10 or
over a dollar for a cup.
03:15I think the biggest takeaway here, you
know, off of the story for
03:18multinationals is that you can't just
dismiss these local brands because
03:22they've got the cheaper price and
because you think you've got the bigger
03:25brand or you've got the value right.
Because at the end of the day, as we've
03:29seen in this case, this cheaper price is
really driven by a very different
03:33business model that comes with
innovation on its own.
03:36Overall, though, I mean, what happened,
I thought when Starbucks entered China,
03:40the big challenge I want to ask was
you're not going to be able to convert
03:42all these tea drinkers to drink coffee.
Why?
03:45What led to this shift, do you think,
now?
03:47I mean, it's still it's it's such a huge
market.
03:49I mean, the number of coffee drinkers in
the U.S.
03:52or anywhere else is so much more than
than what you have in obviously, in
03:56China.
But people really love these mixed
03:58coffees.
And I think that's what Luckin and some
04:00of the other ones have really struck
upon is that they know how to cater to
04:04local tastes and more importantly, they
know how to make that coffee so that
04:08that it's, you know, instagrammable or
be able to put on, on, on, you know,
04:12Wang sandwich.
And they're the ones that do the maotai.
04:16They've got it's infused with, with
maotai courses.
04:19Yeah.
Alcohol grain alcohol are made by buy by
04:23now.
Surprised that you didn't get that
04:25delivered?
I'm surprised you guys picked me.
04:28It was cocktail hour somewhere.
So course we had we had we tried the
04:33whole array.
Yes, we did.
