Luckin Coffee closed at $44.37 on January 9, 2016, Eastern time, up 161% from the $17 issue price when it was listed eight months ago. Its market value broke through $10 billion for the first time, which is equivalent to 1 / 5 Baidu, 1 / 4 Pinduoduo, 1 Vipshop and 20 Sohu.

Since October 2017, Luckin Coffee's first store opened in Galaxy Soho, its lightning expansion strategy has been controversial all the way. Just this week, Luckin Coffee's CEO Qian Zhiya sent out two key messages: Luckin Coffee announced that it had 4507 direct stores, becoming the largest coffee chain brand in China; meanwhile, Luckin Coffee launched the unmanned self-service coffee machines "Luckin Coffee EXPRESS" and the unmanned vending machine "Luckin Pop Mini".

The former is the report card of the existing business, while the latter is a new development path of the second curve. After the strategy was released, its market value exceeded 10 billion, which undoubtedly means the recognition of the capital market. But unmanned retails is not a new chance, and there are a lot of people with broken halberds defeat. How can Luckin Coffee fortunately survive in this fierce competition? Is Luckin Coffee's layout a short-term stimulation of stock price or a long-term support of market value and value? It still needs careful analysis and time test.

What's the difference in Luckin Coffee's unmanned retail ?

Back in 2017, when Luckin Coffee's first store just opened, unmanned retails were in full swing. At that time, Chinese startup F5 Future Stores completed the 30 million yuan A + round financing. Bingo Box completed the 100 million yuan A round financing. Meanwhile, Alibaba's own unmanned retail store "taocoffee" landed at Taobao creation Festival.

There were two key characteristics that made unmanned retail popular:

First, through self-service or automatic settlement, it can reduce the dependence of retail on people, save human cost, and improve management efficiency;

Second, it can further analyze consumer behavior by collecting and recording consumer consumption data, and bring a more customized and demand fitting purchase experience.

Just as it happens, the driving force needed by the unmanned retail industry is all satisfied. Artificial intelligence and Internet of Things RFID technology are gradually commercial. Smartphones and mobile payments are also widespread. These factors coupled with the background of online traffic saturation and rising labor costs in the retail industry, the industry calls for a new way to play.

However, the ending is clearly on the wall. There were few winners and countless losers in the last wave.

Some potential pitfalls also emerge: for example, unmanned shelves need enough offline laying to obtain big data, but also need technology research and development and strong flexible supply chain as support. Without offline and supply chain experience, it's hard to develop unmanned retails. In addition, the selection is also very particular. The threshold of common categories is too low. Fresh food is more likely to form differentiation barriers with its features like higher consumption frequency, customer unit price and gross profit rate. What's worse, it's bad dishes rate  is very high, and the shelf sanitation is not easy to control.

This time, what's the difference in Luckin Coffee's layout? Or is there any ability to break through the plight of others in the last wave of upsurge?

First, Luckin Coffee launched the "Luckin Coffee EXPRESS" and "Luckin Pop Mini", which are the long-standing proven areas of the "vending machine" in the unmanned retail. Compared with the unmanned shelf and the unmanned convenience store, its controllability is much stronger, and the relevant elements are not so complex.

Second, these unmanned retail terminals will cover locations including office buildings, campuses, airports, bus terminals, gas stations, highway service stations and residential communities. And it will complement with the existing network of Luckin Coffee stores. In this way, Luckin Coffee's unmanned retail network, offline stores and e-commerce channels, together form its proprietary omni-channel customer traffic network.

Actually, in the past, whether the retail or new retail, the flow source was almost from the offline, which relied on offline store drainage. For example, Heytea and NaiXueCha still 100% relied on store drainage, while the online trading volume of HiShop accounted for about 27.4%, that is to say, most of the consumption of HiShop  still depended on offline.

Luckin Coffee is strange, it only supports consumes take it away themselves: customers must place an order through Luckin Coffee app, and then go to the machine to take it away themselves. This is a completely different path from the traditional vending machine. The purpose of traditional vending machine is to do the real-time purchase business by using the terminal’s characteristics. Luckin Coffee's "Luckin Coffee EXPRESS" and "Luckin Pop Mini" both adopt the mode of self fetching under the single line of app.

In such a setting, perhaps "Luckin Coffee EXPRESS" and "Luckin Pop Mini" should not be regarded as vending machines, but as micro Luckin Coffee stores that reduce labor cost and rent cost.

In fact, this online and offline self-own flow system breaks the long-term dependence of the retail industry on offline drainage. And at the same time, it liberates the value of the retail company from the physical store.

Third, under the triple encirclement of Luckin Coffee's unmanned retail network, offline stores and e-commerce channels, user data and material data are very clear. These user profiles and transaction data will be the important basis for Luckin Coffee to further optimize the configuration. With the data, Luckin Coffee can make full use of artificial intelligence to choose its locations and adjust its cost structure accordingly to maximize the benefits.

Fourth, Luckin Coffee's unmanned retail also combines the advantages of offline and e-commerce to reduce channel costs and make profits to customers. The biggest characteristic of "Luckin Pop Mini" is "e-commerce prices in vending machines". By working closely with global suppliers and achieving significant economies of scale through large volume procurement and customization and significantly reducing channel costs with Luckin Pop Mini terminals, Luckin Coffee enables customers to enjoy the convenience of vending machines and low prices comparable to e-commerce at the same time. 

Unmanned coffee machine market experienced a round of reshuffle in 2018, but based on the above breakthroughs, Luckin Coffee has some advantages at this time.

The strategy of capital

From the perspective of capital, Luckin Coffee's unmanned retail strategy also has many benefits.

Since its birth, Luckin Coffee's core strategy contains the following aspects: First is to get more consumers by rapidly opening stores and increasing the density of distribution points; Second is to produce high-quality coffee by standardizing equipment and processes and adding high-quality coffee beans and accessories; third, it wants to reduce the cost of opening a single store by takeout store and sendout  kitchen, and at the same time to transfer the saved expenses to the consumer level. In this way, Luckin Coffee's products have a high cost-effective advantage. This kind of business mode can reduce the time of site selection and store opening, so as to further improve the speed of store opening.

Luckin Coffee's business model of fast store + small store makes it form a benign closed-loop. This time, Luckin Coffee launched the "Luckin Coffee EXPRESS" and "Luckin Pop Mini" unmanned coffee machine, which is to give full play to the advantages of the above strategies.

Compared with the main store types of Luckin Coffee, the location selection of the unmanned coffee machine and the unmanned vending machine can be faster and more flexible. It can further improve its expansion speed and distribution density rapidly.

For the cost side, compared with ordinary stores, the unmanned retail machine saves high decoration and personnel costs, and greatly reduces the rental cost. Therefore, the unmanned retail machine has a more optimized cost structure.

On the other hand, thanks to the geometric multiple growth of Luckin Coffee's sales volume in the past two years, the company can cooperate more deeply with global product suppliers, and the large-scale customized purchase enables the company to obtain more favorable purchase prices.

"Luckin Pop Mini" sells through the way of unmanned vending machine. It replaced the traditional sales channels such as supermarket and convenience store, which can greatly reduce the channel cost. The company reduce channel costs and make profits to customers.

Luckin Coffee entered the unmanned retail industry through the introduction of unmanned coffee machine and vending machine, which can be said to be an important optimization improvement in its business model.

With the continuous and rapid opening of the shop and the large-scale introduction of the unmanned coffee machine, the distribution density of Luckin Coffee can be further improved rapidly in a short time. It means that Luckin Coffee can come into contact with more diverse consumers in more consumption scenarios, so as to accelerate the acquisition of new consumers.

With the increase of the distribution density and the number of consumers, the user data and portraits that Luckin Coffee can obtain will be more accurate. It will also provide more data support for its future store location and the launch of the unmanned coffee machine. And the unmanned coffee machine, the selected coffee beans and other auxiliary materials make the quality and taste of coffee reach the same standard as the store.

Because it does not need labor, rent, and decoration costs, its profit margin can be far higher than the level of the store, which can improve the cost performance of a cup of coffee again.

According to the third quarter performance report previously disclosed by Luckin Coffee, the company's overall financial model shows a trend of continuous optimization in many aspects.

In the third quarter, the company achieved its first historic profit at the store level, with operating profit of 186 million yuan and operating profit margin of 12.5%, far higher than the market expectation. The company's front office gross margin representing the profitability of product sales also reached 37%, far higher than the 21.3% in the same period last year.

Thanks to the company's business model, Luckin Coffee's rent and depreciation accounted for 51.1% of its revenue in the third quarter, down more than half from 104.5% in the same period last year.

The continuous improvement of the front office gross profit and the continuous decrease of the store operation cost are the most critical factors that lead to the realization of the profit. The launch of the vending machine will further optimize Luckin Coffee's gross profit and operating cost.

British management master Charles Hendy has a famous second curve theory: when the first curve is still in the rising stage, the second curve should start. There is only one way for an enterprise to survive, that is to cross the second curve through creative destruction. The second curve innovation mode is transition and discontinuous innovation.

In the past, Luckin Coffee has achieved lightning expansion in online and offline, and the first curve is growing. However, in Shen Shuaibo's book "Luckin Coffee blitz", Qian Zhiya confessed, "at present, Luckin Coffee's mission has been completed less than 10%, and it still have 90% of the way to go."

Now, whether it's Luckin tea or unmanned retails, there is no doubt that the second curve innovation has been launched. On the one hand, it proves the innovation ability of Luckin Coffee; on the other hand, it also provides double fuse for Luckin Coffee's long-term development.

This is an article from from WeChat official accounts Deep Echo(ID:deep-echo),  written by Wang Xiange, translated by Chris Yuan.