Interview | Qu Lin and Lin Cuiping
Text | Lin Cuiping
Edit | Yin Ming
ET on May 17 (21:30 Beijing time), Luckin Coffee (Nasdaq:LK) was successfully listed on the Nasdaq stock exchange, issuing 33 million ADSs, each priced at US$17 (located at the upper limit of the issuance price range of US$15-17). After the underwriter of
exercised the over-allotment rights, and combined with the simultaneous private placement of US$50 million, raising a total of US$695 million and a market value of US$4.25 billion, becoming the largest Asian company in the Nasdaq IPO this year. At the IPO site, Luckin Chairman Lu Zhengyao first spoke and thanked him. Luckin founder and CEO O Qian Zhiya was a little nervous. She said that the listing of Luckin Coffee is the beginning of equal rights in China's coffee consumption. As of March 31, 2019, in the past 18 months, Luckin Coffee has expanded 2,370 stores in 28 cities in China and accumulated more than 16.8 million users. "We have been working hard for our original aspiration and mission: to make Luckin a part of everyone's daily life."
was registered and established on October 31, 2017 to the IPO. Luckin only took 18.5 months to break the listing record of domestic Internet companies - the previous record holder was Qutoutiao , which was 27 months.
From a certain range, this is a "gamble" where all the chips are placed on the table. The chips include team, capital and coffee version 3.0, and the result is that they are listed or closed down. Now, Luckin has temporarily blocked the win and "going ashore", but this is still a "target that cannot be clearly realized for the time being."
Qian Zhiya, founder and CEO of Luckin from China, and Yang Fei, CMO, Yang Fei, have experience in managing 100,000 cars, more than 40,000 employees and nearly 50 billion yuan in assets. Such a team crosses the border to make coffee, which is the "car" and "horse" that Luckin has placed on the card table. The boss Lu Zhengyao in the rear was in charge, and the capital operation was planned. Among the main investors in Luckin's A and B rounds, Dajin Capital, Yue Capital and Junlian Capital had previously cooperated with Shenzhou Youche to varying degrees.
But no matter how exquisite the capital operation is, it must be converted into value in a timely manner in order to continue to maintain the high valuation of the company. The crazy money-burning subsidies have left Luckin in huge losses. According to the prospectus, Luckin Coffee's revenue throughout 2018 was 840.7 million yuan, with a net loss of 1.619 billion yuan; a net loss of 551.8 million yuan in the first quarter of 2019.
data shows that Luckin’s funds mainly come from 4 equity financings of nearly 740 million US dollars, 4 mortgage loans and financial leasings of a total of 755 million yuan, and 5 shareholder-related loans totaling 529.8 million yuan. This raised nearly $1 billion for it, and Luckin Coffee also mortgaged the coffee machine, company equity, and even the stock of Chairman Lu Zhengyao. But it still needs more money
At present, Luckin is running in a rush to "burning money subsidy" is still within the tolerance of capital, and its operating loss rate has also begun to show a decreasing trend from 966% in Q1 2018 to 110% in Q1 2019, and the unit customer acquisition cost has dropped to 16.9 yuan. But if you burn money crazy and run wildly, how long can capital tolerate it and how long can it last?
In comparison, publicly raised capital (IPO) has much higher tolerance for a "target that cannot be clearly realized for the time being". This may explain to a large extent why Luckin will go public in 18 months.
Luckin's confidence to "run wildly"
Although there are many doubts about Luckin's model, it is undeniable that Luckin has its confidence to run wildly, and there is also rhythm in running wildly.
Luckin Coffee founder CEO Qian Zhiya once publicly stated: "I don't think this thing (opening a store quickly) is crazy."
She even gave an example, "Earlier, there was a news that Chinese builders undertaken to build the first tallest tower of Malaysia , more than 400 meters. It took 32 months to build this building. It was a super fast speed, but in fact, this super fast speed is based on a very good building foundation. Another very core is the continuous upgrade of construction technology.I remember when I was a child, everyone would build houses with , one brick, one , one brick, one brick, and one brick. Now it is similar to building Lego, moving up at a speed of two or three floors a day. However, the important task in the early stage is to lay the foundation. After the foundation is laid, it is very fast. "
As Qian Zhiya said, the premise of speed is to be prepared and lay the foundation. Luckin, the "Roman City", was not built in one day. According to Liu Erhai, the founder and managing partner of Yueyue Capital, as early as around 2010, Lu Zhengyao and Qian Zhiya had considered entering the coffee market and continued to pay attention.
"Making a product that can affect trillions of consumers is particularly meaningful in itself. Mr. Qian is not just about feelings. She is very practical and wants to do something, so she is very cautious and thinks about it for a long time. "Liu Erhai told Chuangyebang. It was not until mid-2017 that Qian Zhiya made up his mind to "execute" the idea.
(Picture left: Liu Erhai Picture right: Lu Zhengyao)
Luckin's rise seized the opportunity well. In Liu Erhai's view, Luckin Coffee's model might not be able to be done five years earlier. After all, the infrastructure that supported the smooth operation of this model was not perfect at that time, and payment and logistics were not popular. "Without model innovation, it would be no different from Starbucks . In addition, if the cost structure is similar to others, why do you win others? "
On the other hand, from the perspective of consumer habits, drinking coffee has gradually become more daily from the original high-end symbol of "style".
In Qianzhiya's preset, Luckin wants to seize the more inclusive mass incremental market, with the goal of making Chinese consumers affordable and able to drink (convenient) a cup of cost-effective coffee.
" Starbucks' positioning makes its price too high, limiting the expansion of the coffee market, and Luckin hopes to expand the entire coffee market. "In terms of convenience, Luckin has designed four different types of stores: flagship, Youxiang, cache, and takeaway kitchen, in order to meet consumers' needs for drinking coffee in various scenarios such as dine-in or takeaway.
In May 2017, Qian Zhiya and Yang Fei crossed the ocean to the United States, and then flew to Taiwan, China. They brought Starbucks in the United States, Him Hortons in Canada, and City in Taiwan Cafe has researched to explore the "model" that coffee can become a big business in China.
Before the official opening of the store, Luckin team held a full three-month meeting to study the links, processes and specifications needed for the entire business in detail. Lu Zhengyao also joined the discussion. They need a network system that operates in a data-based manner, and builds a large number of underlying technologies in the early stage to achieve the connections and information of the overall data and information from the front-end to the back-end. At the same time, a quick store opening process is also needed, modularly processing the building materials needed for opening a store in the factory, so as to ensure that a store can be decorated in a few days.
"From the beginning of our idea of making coffee to the preparation and preparation to the present and future strategies and directions are very clear. Sometimes we see that we are expanding very quickly, but in fact, we have done a lot of work behind it, including products, user experience, supply chain and the entire information system. "In Qian Zhiya's view, Luckin Coffee's entire style of play has been very smooth since it surfaced.
In addition, after finding the right direction, you must dare to all in and put it in the right place. Obviously, Luckin's team has fought a war, is experienced, the fastest speed, the most effective way... It can be clearly seen from Luckin's crazy subsidy policy and its unique and tough marketing methods.
Luckin's subsidy is continuous and vigorous, and there is no timetable yet. From the previous taxi war subsidy that allowed users to develop taxi habits, to the takeaway war subsidy that allowed users to develop the habit of taking food, it is obvious that Luckin is also continuing the same routine, trying to use subsidies to develop the habit of drinking lucky coffee.
In terms of marketing, most fast-moving consumer goods or catering brands in China often regard marketing as a post-position work. With products, they will consider the brand and appearance. However, Luckin has implanted brand concepts from the beginning, and quickly occupied the minds of consumers with celebrity endorsements and overwhelming advertising.
In Liu Erhai's view, subsidies and marketing are all routines in themselves, but the key to success lies in whether you have the spirit of devoted yourself and practical experience. "If you have skills, you need strength. Just like in a war, if you use skills to surround others, the key is to have strength to annihilate the other party. If you punch without pain or itch, what is the value? The key is to have strength."
So although the scale of burning money is questioned, it is precisely with this determination to make Luckin quickly stand out in the track. After running wildly, Luckin's challenge will only be more
. Facing Luckin's speed, Luckin Coffee co-founder senior vice president Guo Jinyi explained in an interview with Chuangyebang: "I didn't think about whether this business can slow down. In this business environment in China, big fish used to eat small fish, but now fast fish eat slow fish. If a business model can be run, there will be many followers soon, and Chinese companies are not short of money. So for a good business model, you must run very quickly."
But in addition to technology, products, business models and operational capabilities, the absolute advantage of achieving Luckin's speed is capital. However, from the perspective of capital operation alone, Luckin’s model is not a precedent. "There is data first, then go public, and then make money." Whether it is , , , , , Facebook, , or the BAT era in China, such a model has been defaulted to be the conventional development path of Internet companies. That is, becoming bigger is a prerequisite for a company to make money, and only then will there be expectations of valuation first. Luckin, which is well versed in capital operations, has significantly accelerated this process.
In the view of Yang Ge, founding partner of Xinghan Capital, the reason for this model is that it is very difficult for any company with rapid growth to have high net profits, because the cost of early expansion will basically cover all operating profits. Only when an enterprise enters the maturity stage from rapid growth, it will gradually begin to show its operational capabilities and profitability.
Over the past decade, BAT has gradually proved this to the market. Of course, there are also companies like LeTV. Although they have done a lot and have high expectations, they have not realized their value in the end. So today, while people are following the example, they also begin to doubt this model.
This refers to the subtle critical point of a company from rapid development to mature stage. In the process of capital boosting, for all companies, whether valuation and growth can be realized as value is the core point. If it has not been fulfilled in time after a certain point in time, capital will doubt and disappoint the original expectations, and the company's valuation will also decline accordingly. But the subtlety of this time point is that it depends on "the average estimated time for this matter (valuation value) in all these boosted capitals."
Even if this subtle critical point cannot be defined, Luckin, which has been established less than two years ago and is still developing rapidly, is obviously still within the capital tolerance period, and it is of course not a problem to burn money. But in the future, whether capital can always support it to enter the mature stage and show investors its true operational capabilities and profitability.
"In fact, the shorter the cycle of growth and value realization after each round of financing will be, especially the capital in the top, the more specific the value they pursue will be." In Yang Ge's view, this is also the reason why many Internet companies choose to go public in the rapid growth period, and the shorter the time period, the better.
Obviously, in comparison, the degree of tolerance for publicly raised capital (IPO) has a relatively high degree of tolerance for a target that cannot be clearly realized. However, the high tolerance for temporary does not mean that investors vote with their feet. The role of capital boosting is always limited, and ultimately, it depends on their hard power to speak.
In Yang Ge's view, retail sales are generally divided into three stages: one is quality is brand, quality is brand; the second is management is brand, management is brand; the third is brand is brand, brand is brand.
For traditional old brands, its characteristics are first quality and word of mouth, then the company grows bigger, its operational capabilities are enhanced, and then it continues to expand in the form of chain stores. Finally, the brand determines whether the company can retain it for a long time. This is the growth path of traditional brands. But in the Internet era, this path has been completely reversed, "first build a brand, then do operations, and finally do product quality." Luckin is a typical representative of this development path. Since its establishment, it has not lost any marketing, brand building, and rapid store chain stores.
Yang Ge believes that these two paths do not matter whether they are good or bad. The traditional form takes time, but the brand is stable, and the new gameplay may become famous immediately, but it may also be short-lived. Whether it can be achieved in the end depends on doing all three points of "quality, operation and brand". Whoever comes first and who comes later is not the focus.
"If you have strong capital and media operation capabilities, first build the brand and operation, this is your level, but if it is operated without quality, and the user experience and loyalty cannot be achieved, there will be problems. What can truly support a brand value in the long term is to make the fundamentals good."
So even if you temporarily "get ashore", how to go from a "target that cannot clearly realize the value" to a "target that has clearly realized the value" is the final explanation that Luckin wants to give capital.
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