--- title: "Nestlé in the West, Luckin in the East!" description: "Amid Shanghai's partial lockdown, the author reflects on the resurgence of online fresh food platforms and the growing dependence on coffee. Luckin Coffee's 2021 annual report shows remarkable recovery, with 6,024 stores surpassing Starbucks in China, and a doubled revenue to 7.9 billion yuan, driven by digital operations and strategic store expansion. Meanwhile, Nestlé's historical rise during wars and its adaptation to consumer preferences illustrate the importance of meeting demand and respecting consumer perceptions." author: "晓样" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2022-03-29" language: "en" canonical: "https://xinjignxiao.com/en/articles/nestle-in-the-west-luckin-in-the-east-1f6a6944/" markdown: "https://xinjignxiao.com/en/articles/nestle-in-the-west-luckin-in-the-east-1f6a6944.md" original_source: "https://mp.weixin.qq.com/s/R5yPhV8JVa4XsEcNejEHrQ" translation: "https://xinjignxiao.com/zh/articles/%E9%9B%80%E5%B7%A2%E5%9C%A8%E8%A5%BF-%E7%91%9E%E5%B9%B8%E5%9C%A8%E4%B8%9C-1f6a6944.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/nestle-in-the-west-luckin-in-the-east-1f6a6944/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Nestlé in the West, Luckin in the East! > Amid Shanghai's partial lockdown, the author reflects on the resurgence of online fresh food platforms and the growing dependence on coffee. Luckin Coffee's 2021 annual report shows remarkable recovery, with 6,024 stores surpassing Starbucks in China, and a doubled revenue to 7.9 billion yuan, driven by digital operations and strategic store expansion. Meanwhile, Nestlé's historical rise during wars and its adaptation to consumer preferences illustrate the importance of meeting demand and respecting consumer perceptions. Recently, Shanghai has been in a state of partial lockdown, with consecutive 2+2+N restrictions driving everyone half-crazy and half-awake. Some people work from home in chaos, more intense than office work. Others lie flat and slack off, playing King of Glory while on meetings. But none of that matters; what matters is: did you manage to grab vegetables today? Is today's cabbage more expensive than your salary? Even I, while grabbing groceries on Dingdong, felt like I was back to the days of scrambling for train tickets during Spring Festival. Due to the controls, online fresh food platforms have become active again. Even the stock prices of Dingdong and Meituan have started to recover. Indeed, in the consumer sector, demand is the first priority, the real YYDS! March had many expectations, but this March was mostly spent at home. Isolated at home, I began to realize how dependent I am on coffee, or more precisely, on caffeine. I no longer care about fancy blends, oat milk lattes, or piccolo lattes. I just want a normal Americano to get myself high. Then feed the cat, write articles, and do nucleic acid self-tests. March is also the time when major brands release their financial reports. Luckin Coffee also released its unaudited full-year 2021 financial report. From the report, today's Luckin is no longer what it used to be; it's not the Luckin that was forced to delist. But it's not just about good data; many companies have good data. This time, Luckin has made significant breakthroughs in overall business model, store count, and revenue data. Moreover, the single-store model has become more reasonable and healthier. Even the product strength, which has long been criticized, has seen great improvement. In terms of store count, by the end of last year, Luckin's total number of stores reached 6,024, surpassing Starbucks' store count and becoming the chain coffee brand with the most stores in China. In the fourth quarter of last year, Luckin opened 353 stores, equivalent to 4 stores opening simultaneously every day. **Opening fast and many is never the core highlight, but it's impressive that most stores are profitable or break-even.** **In terms of revenue, last year Luckin's total turnover was 7.9 billion yuan, with an average monthly turnover of about 110,000 yuan per store.** This is a very good figure for coffee stores, especially considering it's the average across all stores nationwide. **Compared to the previous year, Luckin's turnover doubled.** On one hand, it opened 1,221 new stores, but at the same time, Luckin returned to the essence of offline chains, closing many stores that could never be profitable, keeping and opening stores in better locations. On the other hand, it's Luckin's digital operation capability. As early as two years ago, Luckin had over 9,000 WeChat groups; private domain users exceeded 1.8 million, with over 60% being active users, and private domain users directly contributed over 35,000 cups per day. Just in the private domain, based on an average order value of 17 yuan, these 9,000 WeChat groups contribute nearly 600,000 yuan in daily turnover to Luckin. **Having WeChat groups doesn't mean sales, and issuing coupons doesn't mean sales either. Only by accurately sending coupons to consumers who need them can sales be generated more efficiently. Cheapness is never the core factor for consumers to buy.** What is truly powerful here is Luckin's digital capability. Currently, only Luckin can, based on LBS and digitalization, connect user and store data, integrate user touchpoints from App to WeChat communities, and design different products and promotions for different users. By doing refined operations on WeChat Work, it ensures both profit and meets users' different preferences. So this stems from Luckin being a "digital coffee" from the start, which today has brought great value in new store location selection, product launches, and user operations. It's important to note that Luckin has begun to lay out affiliated stores. In the past two years, Luckin has opened 1,627 affiliated stores. These stores are located in second- and third-tier cities like Ningbo and Shandong. When Luckin first started to lay out affiliated stores, many in the market thought it was Luckin's final blow, harvesting a wave of franchisees. From today's perspective, Luckin made the right move. The initial franchisees who joined Luckin have also recouped their investments and made money. A franchisee from Shandong admitted that it's easy to complete 400 cups a day, with a payback period of about a year, and there are few similar stores, so the competition is not as fierce as milk tea franchises. You should know that these 1,627 stores not only contributed 2 billion yuan in revenue but also did not occupy Luckin's cash flow. If Luckin had opened 1,627 stores itself, it would have been a huge expense. Then this year's financial report would definitely not look so "good." Using the affiliated model in specific areas solves the problem of rapid store expansion, but more importantly, China is a society of relationships, and franchisees' local resources and connections are something Luckin cannot solve. At the same time, for each affiliated store opened, Luckin also profits from brand licensing, equipment, decoration, etc. After the affiliated store opens, every cup of coffee and every cold food package sold is real profit for Luckin. Luckin's rebirth is a return to the essence of offline chains, not just relying on the internet playbook of Boss Lu. As mentioned earlier, Luckin closed many stores that could never make money and opened new stores in better locations. The essence here is whether the surrounding consumers' demand is sufficient to support the store. Luckin's rebirth also validates that Chinese consumers' demand for coffee is increasing. Once coffee was business, sophistication, and photo-worthy. But now, for more and more consumers, coffee is just coffee, a refreshing drink, a catalyst for the "inner volume" (rat race). Consumer demand has changed. A cheap, decent, and convenient cup of Luckin naturally becomes the new favorite of consumers. But many say Luckin will defeat Starbucks; I completely disagree. First, the logic of the two is completely different, and the consumption scenarios and price ranges are also different. Luckin is fast coffee, while Starbucks is space. Consumers have different needs for them, and there is no question of one defeating the other. From today's perspective, coffee is a huge market, especially for China, it's a huge increment. Let me ask a question: Do you know where coffee originated? Coffee did not originate in the United States or Europe. Coffee originated in the Middle East, because a shepherd's sheep became unusually excited after eating coffee berries. Eventually discovered by people, coffee's initial function was as a medicine or pure functional drink to help Muslim companions stay awake during early morning prayers. You see, coffee's birth was neither artistic nor romantic; it was born to help people better face pain. What made coffee a global beverage was not Starbucks or those specialty coffees, but Nestlé. **Nestlé's Global Expansion Leveraging the World Wars** Nestlé truly popularized coffee globally, and currently, Nestlé is also the world's largest coffee distributor. If Luckin popularized freshly ground coffee in China, then Nestlé is the first cup of coffee for several generations of Chinese people. Nestlé was not originally in the coffee business. In 1867, German pharmacist Henri Nestlé developed and launched "farine lactée" infant food in Switzerland, thus Nestlé was born. At that time, the infant mortality rate in Switzerland was as high as 20%, and Nestlé's infant food helped babies who couldn't be breastfed solve nutritional problems, so it was sought after. **It can be seen that a necessary condition for a consumer product to circulate widely is to meet demand.** Later, Nestlé merged with a condensed milk company to form the predecessor of today's Nestlé - Nestlé Anglo-Swiss Milk Company. Here comes the key point! World War I broke out. Due to the long shelf life and easy transport of condensed milk and canned milk, Nestlé products gradually became important military supplies for various countries. With the flames of war, the name Nestlé began to spread worldwide. By the end of World War I, Nestlé had as many as 40 factories, spread across the United States and Australia. But with the disappearance of military demand and the saturation of the milk food market, Nestlé began to face inventory backlog problems and suffered its first economic loss in history. This is similar to everyone hoarding vegetables during the pandemic. In the early stage of the pandemic, people frantically grabbed vegetables, causing supermarket shelves to be emptied. Then supermarkets will definitely restock, but at this time consumer demand has not expanded synchronously; instead, it will decrease because of the hoarded supplies. Next, I estimate many supermarkets will face the problem of product backlog and inventory. History tells us that crises often hide opportunities. The journey of coffee globalization started from here. Although Nestlé is currently the world's most successful coffee distributor, the largest coffee producer and exporter has always been Brazil. Around 1930, Brazil had consecutive bumper harvests, overcapacity, and a large backlog of coffee beans. Therefore, the Brazilian government consulted Nestlé on "supply-side" reform measures - seeking ways to preserve coffee freshness for a long time. **Nestlé took this opportunity to develop a coffee powder in 1938 that could both maintain coffee quality and dissolve quickly in hot water. This is our most familiar Nescafé brand.** And coincidentally, the next year, in 1939, World War II broke out. Again, with the flames of World War II, Nescafé officially brought coffee to the world. Because instant coffee was easy to carry, preserve, and brew, soldiers could enjoy a brief moment of relaxed and pleasant taste experience during tense war intervals. Nescafé gradually became a common military supply and cultivated a large number of loyal consumers during the war, laying the foundation for the rise of the post-war coffee market. It must be said, this was Nestlé's luck! **Never Go Against Consumer Perceptions** Nestlé's instant coffee did not initially follow today's affordable route but a high-end route. At that time, people mostly drank traditional handmade coffee, which they had to brew themselves. Nestlé believed that with its convenience, it could quickly conquer consumers. If nothing unexpected happened, then something unexpected was about to happen. Instant coffee was loved by soldiers on the battlefield because of its convenience; in the brutal battlefield, it was a cup that hit the spot. But after the war ended, the general public was not interested and didn't buy instant coffee. At that time, coffee was a symbol of refined living, and a good wife in a family would not choose coffee used on the battlefield for convenience. In the social concepts of the time, a good mother would brew a good cup of coffee. But women who bought instant coffee were seen as lazy and incompetent. Nestlé stepped on a pit, so really, don't fight against consumer perceptions. Later, Nestlé adjusted its strategy. In advertisements, it no longer emphasized the time-saving and effort-saving features but highlighted the pure taste and the ability to save energy for meaningful things, thereby showcasing a higher social status. Nestlé made adjustments in endorsers and marketing strategies. Eventually, it broke consumers' prejudice against instant coffee, making it a product that swept the world. This marketing strategy has been used to this day. Nestlé's advertising slogan in China is: "Tastes great." In the TV commercial era, Nestlé's ads also featured red cups, refined white-collar workers, warm family scenes, etc., creating a warm and harmonious atmosphere. **Why Can Nestlé Be the World's No.1 Coffee Merchant?** By this time, Nestlé had gradually established its empire. Although Nestlé repeatedly claimed its flavor was pure, even pure coffee is still bitter! Especially after freeze-drying, the coffee powder has already lost the different flavors of coffee beans. To understand the beauty of American coffee, you really need some courage! When it comes to taste, coffee definitely can't beat cola. What truly popularized coffee globally was not the coffee powder Nestlé promoted after World War II, but the later better-tasting three-in-one coffee. Today, the best-selling coffee is still milk coffee like lattes, not American coffee. Luckin's hit coconut latte this year is also a milk coffee. The most popular must be the easiest to accept. For a consumer product to circulate widely, it must be very easy for most people to accept. It's like King of Glory and League of Legends. Although LOL players naturally look down on King of Glory, thinking King doesn't understand MOBA games, it's precisely because King doesn't understand MOBA but understands the needs and mentality of most gamers, so it made King of Glory simpler and easier to get started, thus having a huge player base. Nestlé also discovered this problem back then. People weren't really drinking coffee; they were drinking coffee with sugar and milk. Whether in Europe or America, everyone's first cup of coffee had a lot of sugar and milk added. So in 1985, Nestlé spent $3 billion to acquire the American company Carnation, bringing brands like Carnation and Coffee-mate into the Nestlé coffee portfolio. What we see today from Nestlé is three-in-one coffee, as well as coffee powder and the white coffee creamer (non-dairy creamer). It is precisely the existence of coffee creamer that made it more convenient for more people to drink their first cup of coffee. And caffeine is highly addictive; once you start drinking it, you'll become hooked. With the golden combination of coffee + coffee creamer, Nestlé officially began its journey to make coffee a global beverage. Every step of Nestlé coffee has followed the times and the needs of current consumers, providing consumers with a practical product that meets their needs. Every powerful brand has stories, and many stories. Some are true, some are fabricated. Nestlé has experienced two world wars, seizing opportunities each time to expand better. This is also a very deep brand heritage. It's truly impressive! Nestlé coffee rose by seizing the opportunities of the times, but it was also whipped by the times. Once, Luckin blindly pursued the internet growth marketing playbook, ignoring the essence of consumption. It didn't treat consumers as real "people" but as valuable data. It believed data was everything and could be fabricated out of thin air. Of course, it paid a heavy price for this. But today's Luckin shows great hope. From the moment Luckin was born, it was destined to be a digital coffee. With more precise marketing and under massive data, the success rate of store location selection is higher. This has also allowed Luckin to turn losses into profits in just two years. Even Starbucks took 9 years to achieve profitability in China. Source: Lemon Brand Club (ID: lemonclub2031) Author: Xiao Yang **Are you "watching" me?** --- ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. Contact: zhaobo258@gmail.com · +86 158 5481 7671