Kudi Coffee Expands Rapidly, Mimicking Luckin’s Strategy
A new Kudi Coffee location recently opened near Hangzhou’s Xitian City, offering cups for as little as 9.9 yuan, directly across from a Luckin Coffee shop. The competitive dynamic is already apparent, with Kudi Coffee staff observing Luckin’s operations closely, noting their earlier start time – 7 a.m. Compared to Kudi’s 7:30 a.m. Opening and normal 8 a.m. Service.
This opening is part of a broader, rapid expansion by Kudi Coffee. Within four months of launching its first store, the company has opened over 1,000 locations across more than 20 cities nationwide, and continues to add new stores at a brisk pace. The company’s growth strategy is characterized as “satellite-style,” indicating a swift rollout across multiple locations.
Kudi Coffee’s approach closely mirrors that of Luckin Coffee, including low-price promotions, celebrity endorsements, internet celebrity marketing, and product design. The similarities have led to observations that Kudi Coffee is attempting to become the next Luckin.
The man behind Kudi Coffee, Lu Zhengyao, is returning to familiar territory after previous ventures in the small noodle and pre-made dish industries. However, some observers question the sustainability of Kudi Coffee’s asset-light model, suggesting that Lu Zhengyao’s team may be facing financing challenges. It generally takes six months to a year for a single-store model to become established, and Kudi Coffee’s rapid expansion raises concerns about its financial backing.
Franchise Model and Convenience Store Strategy
Kudi Coffee is employing a “store-in-store” franchise model, which is described as low-threshold and asset-light, making it more attractive to potential franchisees. This strategy aims to help Kudi Coffee secure premium offline locations and expand its store coverage. The company is also exploring a convenience store model, characterized by small footprints, low investment costs, and low break-even points.
These convenience stores are designed to be “embedded” in existing convenience stores, chain restaurants, and vacant spaces at transportation hubs, offering flexibility in location selection. However, the feasibility and sustainability of the convenience store model are under scrutiny, particularly as the “light asset franchising” concept has encountered implementation challenges.
Concerns About Kudi’s Business Model
Some analysts suggest that Kudi’s convenience store strategy resembles a “carefully designed capital game,” focused on quickly raising funds through franchising while transferring operating risks to franchisees. This approach allows Kudi Coffee to maintain a position as a “cash flow harvester,” potentially at the expense of its franchisees’ success. The performance of franchisees is reportedly a growing concern.
The rapid expansion and asset-light model raise questions about Kudi Coffee’s long-term viability and its ability to replicate Luckin Coffee’s success without encountering similar financial difficulties. The company’s reliance on franchising and its focus on quick capital raising suggest a different approach than Luckin’s earlier, more capital-intensive strategy.
