Why Luckin Bought An Island

Famous for their coconuts, Indonesia’s Banggai Islands Regency have a new name and owner. The name is “Luckin Exclusive Coconut Island.”

With a coconut latte its flagship drink and a whopping 500,000 coconuts used daily, Luckin added an island to its competitive toolkit.

Coffee Competition

Luckin just opened what it calls store #0004 in NYC. Implying many more to come, the Chinese chain sounds rather different from Starbucks. Instead of a comfy welcoming shop, their lure is tech (and a coconut island). (Reputedly) lacking cashiers, the stores use their app to speed the customer experience. Their menu’s selection is more limited than Starbucks while the discounts are not. Customers report leaving with a coupon after every visit:

Starbucks instead is a “third place.” As our home away from home, it asks us to visit and enjoy a drink as we work or talk with friends. While we appreciate the voluminous alternatives on the menu, the tradeoff is longer waits.

When Starbucks arrived in New York 31 years ago, its unique strategy called for a store on every block. Many of us wondered if they would compete with themselves. The rest of the story is history. But now, its cleverness is being tested. Starbucks has had declining quarterly numbers. New leadership is supposed to inject life to a tiring business model.

Our Bottom Line: Monopolistic Competition

With more than 26,000 stores worldwide, Luckin surpassed Starbucks in China. Bouncing back after an accounting fraud crisis and Chapter 15 bankruptcy, Luckin entered the U.S. market. In monopolistically competitive markets, we have the competition half with many participants. However, the monopolistic part is what lets companies compete. Each one has something unique that distinguishes it from everyone else. A beauty salon could have a special stylist and a supermarket might have the best produce.

Looking at the four basic market structures, we can see that coffee chains occupy a spot left of center because of their multiple small shops. Their competitive strategies differ from the firms on the right like Apple’s oligopoly:

With coffee, we can certain identify how Luckin and Starbucks are different. Few coffee companies own a coconut island.

My sources and more: Thanks to yesterday’s NY Times for inspiring today’s post. Then, looking up Luckin’s coconut supply MSN had the details. I should note that I will personally check out Luckin soon but have not visited a shop. I also could not discover precisely what Luckin bought from Indonesia. It might have been purchasing rights, or an archipelago, but they say that they got an island.

Our featured image is from The Wall Street Journal.