Produced by | Tiger Sniff Commercial Consumer Group
Author | Chen Yaoge
Edit | Miao Zhengqing
Header | Visual China
After Singapore, Luckin set its sights on Malaysia.
On June 20, Malaysia media The Edge broke out that Luckin is looking to enter the Malaysia market, plans to cooperate with local listed companies, and implement store expansion plans in the next five years.
Since 2018, Chinese tea and coffee brands such as Mixue Bingcheng, Bawang Chaji, Luckin, and Cudi have gone overseas one after another. These brands have created more than 1,000 new stores in Chinese mainland every year, but so far only the total number of stores in Southeast Asia has exceeded 1,000.
Regarding Southeast Asia's going overseas, "Southeast Asia is China ten years ago" is perhaps the most common phrase mentioned by entrepreneurs. Under the influence of Son's "time machine theory", many people believe that China's Internet experience can produce dimensionality reduction blows in "underdeveloped" Southeast Asia.
Edward Tirtanata, CEO and founder of Kopi Kenangan, known as "Indonesia's Luckin", told Tiger Sniff, "The time machine theory is only partially applicable in Southeast Asia, and general experience and local wisdom can only work." ”
The rate at which Chinese coffee and tea brands are expanding is unusual. So, can Luckin replicate the miracle of 10,000 stores in Southeast Asia?
Luckin's Southeast Asian layout
Luckin's first stop was Singapore, and the first store opened in March 2023. As of press time, Google Maps shows that Singapore already has 35 Luckin stores.
Singapore is the preferred destination for many tea and coffee brands to expand into Southeast Asia. As an investment center in Southeast Asia, Singapore not only has strong spending power, but also has a wide range of work culture and coffee consumption habits, reducing the cost of market education.
However, the Singapore market is highly competitive. In 2023, at least two coffee chains closed all of their stores in Singapore, including Spinelli, which has been operating in Singapore for 27 years, and Flash Coffee, which only entered the market in 2020.
The world's largest coffee shop chains, such as Starbucks, have long been established locally. At the same time, there is an influx of new brands and a large number of independent and traditional coffee shop competitors in the region.
Freshly made coffee shop chains in Singapore are broadly divided into two categories: chain coffee brands like Starbucks and Luckin, and traditional coffee shops represented by Kimly. Starbucks and The Coffee Bean & Tea Leaf have more than 140 and 70 stores respectively in Singapore. According to an article published on the official website of the Housing and Development Board (HDB) in Singapore in July this year, there are 776 HDB coffee shops in Singapore. Coffee shops here mostly refer to traditional local coffee shops that sell both food and coffee at a good price. HDB will subsidize the rent of such restaurants and require them to provide customers with discounted meals.
Traditional coffee shops have a long history in Singapore. Golden Taste is Singapore's largest traditional coffee shop operator, listed on the SGX in 2017. Golden Flavor's expansion strategy is very solid, and it has been sticking to Singapore for 33 years. As of the end of 2023, Jinwei has a total of 66 coffee shops, with only 3 stores opened in 2022 and 2023. Goldtaste is more likely to lease from the Housing and Development Board (HDB) and stakeholders when expanding, or buy the ownership of the property outright. At Golden, a 500ml serving of traditional coffee costs only S$1.7.
After 2020, chain brands such as Flash Coffee, Fore Coffee, and Kopi Kenangan have entered Singapore one after another. Flash Coffee opened 11 stores in the three years since its entry into Singapore; Fore Coffee entered Singapore in November 2023 and currently has only one store; Kopi Kenangan entered Singapore in November 2023 and currently has 6 stores. In China, the rate of opening 30 stores a year may be insignificant, but in Singapore, Luckin has become the fastest-growing coffee chain.
At the end of 2023, Moten Ventures conducted a survey of 1,300 residents living in Singapore, and the results showed that 54% of respondents thought Luckin's performance in Singapore was "unexpectedly good".
Among the new entrants in Singapore's coffee industry, Luckin has a high level of recognition and the fastest expansion. Singapore's local media The Business Times noted that Singapore is a highly competitive market, but "if you gain a foothold here as a foreign brand, it's almost a sign of honor." This may also be the reason why Luckin is ready to enter other markets in Southeast Asia.
Among the 11 ASEAN countries, Luckin chose Malaysia as the second stop in Southeast Asia for multiple considerations.
Malaysia is a market with great growth potential.
According to the United Nations, by 2025, Malaysia will have the highest urbanization rate among the 10 ASEAN countries excluding Singapore, with an urbanization rate of 79.9%. Moreover, according to the International Coffee Organization (ICO) report in April 2023, Malaysia has ranked third in coffee consumption growth in the Asia-Pacific region in recent years, behind Korea and Australia. From 2020 to 2021, coffee consumption in Malaysia increased by 73%, from 344783 bags of coffee beans to 597064 bags (60 kg per bag).
The giants are cold in Malaysia, which also gives Luckin a chance.
2023年11月份巴以冲突以来，星巴克、肯德基、麦当劳等美国品牌在马来西亚受到抵制，业绩大幅下跌。 星巴克在马来西亚的特许经营商Berjaya Food集团2023年第四季度、2024年第一季度的营收同比下降38.2%、48%，并将营收下跌归因于“持续的抵制”。 原本的咖啡顾客转向新品牌，马来西亚本土咖啡品牌如ZUS Coffee, Eight Ounce Coffee, Gigi Coffee, Richiamo Coffee, Bask Bear Coffee and Mukarami Coffee获得欢迎。
Perhaps it is against this backdrop that Luckin sees an opportunity to gain a foothold in the Malaysia market.
Can China's 10,000-store experience be replicated in Southeast Asia?
Over the past decade or so, Chinese internet companies have quickly captured the market with huge financing, low costs, fast store launches, and large subsidies. Many people enter Southeast Asia with this set of "playing styles" and the imagination that "Southeast Asia is China ten years ago".
There is no shortage of losers who learn this style of play. One of them is Flash Coffee, known as "Singapore Luckin".
Flash Coffee was co-founded in 2019 by David Brunier, former Foodpanda Asia Pacific CMO, and Sebastian Hannecker, a former consultant at Bain & Company. Since its inception, the company has completed a total of 6 rounds of funding totaling $70 million. Flash Coffee mimics Luckin's small store model, where users can place orders and pay through the app, and buy and go. At its peak, Flash Coffee had more than 250 stores and 1,400 employees in Southeast Asia, with a 50% month-over-month growth rate across markets.
However, after only three years of operation in Singapore, Flash Coffee suffered a massive employee strike and eventually withdrew from the Singapore market. According to Murten Ventures' analysis, a key reason for Flash Coffee's failure was that its founders were stuck in a vicious cycle of "having to spend more time raising capital = > therefore less time spent on products and operations = > operations deteriorated when unsupervised = > potential investors became more cautious = >founders had to spend more time raising capital". ”
The applicability of this approach to the real economy, as well as in the Southeast Asian market, has also been questioned. Fang Xin, an associate professor at Lee Kong Chian Business School at Singapore Management University, told Tiger Sniff, "This strategy works in e-commerce because of scale effects and network externalities. But in the real economy, both are weakened. For example, in the tea and coffee industry, the number of stores is not a direct reason for consumers to choose a brand. Once in Southeast Asia, economies of scale will be greatly weakened. Southeast Asia is not like China as a big market, and the supply chain is much more fragmented than China. After China's e-commerce companies went overseas to Southeast Asia, they did not easily become the hegemon of Southeast Asian e-commerce, and the main problem is that the economies of scale of the unified market have lost in Southeast Asia. ”
Edward Tirtanata, founder and CEO of Kopi Kenangan, shared a similar sentiment, telling Tiger Sniff, "The low-price strategy may work in e-commerce, but not in the coffee industry." There will always be coffee at a lower price, convenience store coffee, tricycle coffee for half the price we have, but I don't see them becoming a big business. ”
Kopi Kenangan, Southeast Asia's first coffee unicorn chain, was established in 2017 and currently has more than 900 stores in Indonesia, 45 in Malaysia and 4 in Singapore. Kopi Kenangan has already entered 68 cities in Indonesia and plans to enter more cities in the future. In 2023, Kopi Kenangan's same-store sales growth rate reached 20%. It is worth mentioning that the CTO of Kopi Kenangan is Zeng Fengping, who used to work at Microsoft Research Asia and Flash Silver.
"Time machine theory is only partially applicable in Southeast Asia, where general experience and local wisdom work," Edward Tirtanta told Tiger Sniff, "The most important lesson is that Southeast Asia is not a homogeneous market. We are made up of 11 different countries, each with its own unique tastes, preferences and habits. He said Kopi Kenangan has newly designed menus in each country, and with a drink, Singapore is 50 percent less sweet than Indonesia. He also said that the preferences for payment methods in various markets in Southeast Asia also vary. In Singapore, because consumers don't like to deal with store staff, some consumers resist downloading a separate app, and Kopi Kenangan has set up a special in-store ordering machine. 50%~55% of Kopi Kenangan's consumers use electronic payments, and payment channels include WhatsApp, QR code payment, online aggregation platforms, etc.
Businesses in Southeast Asia will face detailed localization adjustments for each country, and the way the team is managed will also be crucial in this process. Previously, Chinese milk tea brands Bawang Chaji and Gong Tea, and Spain yogurt ice cream brand llaollao all experienced a "name change turmoil" in Singapore and were "stabbed" by agents. Professor Fang Xin said, "When Chinese brands go overseas, they must first establish a local management team that can not only have strong control but also have a rich cultural background. The overall market in Southeast Asia is large, but there are significant differences within each small market. At this time, the management team needs to have a cross-cultural understanding, as they have different views and understandings of each market, so as to coordinate the company's operations in Southeast Asia. ”
The time machine theory undoubtedly encouraged the first batch of Chinese Internet companies to go overseas, but now the market is different.
Professor Fang Xin pointed out that "the statement that Southeast Asia was the China of 10 years ago has become anachronistic. What Chinese companies are facing in Southeast Asia is not a 'dimensionality reduction attack', but a 'another dimension' of competition. ”
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