China's 'Luckin Coffee' wants to take down Starbucks

Channel: Fox Business
Published: 05/17/2019 07:06 PM

Luckin Coffee Chief Financial Officer Reinout Schakel on the company's expansion plans and business model. FOX Business Network (FBN) is a financial news channel delivering real-time information across all platforms that impact both Main Street and Wall Street. Headquartered in New York — the b...

The coffee chain mucking ghosts poverty. Today, it's a chinese company which wants to use american money to compete with starbucks. An american company in china, joanie is now is run out shake or he is locking coffees chief financial officer and chief strategy officer to boot. So welcome to pro good program good to have you with us. Thank you so much for having me. Thank you. Am i right in saying ...
hat at the moment in china, you've got 2,300 stores and you want to double that in the next 12 months. Is then accurate yeah? So i think if you look at the numbers, as of q1 close to 2,400 stores, we are growing relatively quickly. Andi think we've communicated that we want to get to that target by the end of this year. That'S correct! So by the end of this year, so in the three and eight months, you're gon na build 2,400 stores right yeah, that's right and i think, when you think about sort of our model and how we are different than, for example, your traditional retailers. I think, first of all, the store footprint we have is relatively small. That'S what we do to save, also rental expenses and also by using technology.

We'Ve got a very good assessment of where we can find demand. So we're more. I guess if a demand driven business and supplemented of our our networkwithin, the stores that we require - and i think by the end of this year, based on the demand that we're seeing we thought i'm gon na get quite close to the number. Your losses have quadrupled in the first quarter and your model according to some, it's just about price discounting. Can you keep this up, but this kind of cash burn yeah? I guess how we look at it is, is as follows. I think what we're doing is we're trying to disrupt the industry by using technology, differentiated approach and locations and really sort of try and bring that perk up cost down. I think we've been very successful and bringing that down and the way we lookat it is. We we set our target price episode around 16 to 17 r mb over time, which we think is probably the right price for our products and at these levels we can actually be very, very profitable. So when you think about subsidies from maybe the listing price, you see, of course, we're giving subsidies, because we think the price should be good enough to drive really that mass market demands yeah. When you look at our cost base there, you see that going down very, very you're under pricing starbucks by 25 % in the market, and some would say that, given the us-china trade concerns, you know luck, it might be benefiting from nationalist, fervor, inchina many anti-american. So they'll get a luck in instead of starbucks. Do you think? That'S true.

Well we're very focused on sort of your own model. I think the trade war for us is something that we monitor, but that's not something that i think is gon na drive the success of our model. But we're trying to chinese nationalism would drive your model in a straight fight with america and you're going up against an american coffee champion starbucks. I would surely suggest that nationalism could drive your business yeah. Well, that would be a tailwind. I think we would obviously favor, but i think the way we look at our model is really looking at the fundamentals ofthe model and i think, with that, with the positioning we have high quality, high affordability and high convenience. That'S really what's going to drive our success, but you can't ignore politics here. You can't ignore that you are raising american money american dollars to use against an american champion starbucks in china, so you can expand and beat them. There'S a political angle to this. Well, i think, when you look at sort of obviously were listed on the us exchange, i think what we've done is also getting a sort of a very global sort of investor base, including several wealth funds and long-only funds that obviously have global pockets. So i think we are trying to getto a place where we will be very well capitalized, which i think we've reached today, to really to be able to grow and continue our success. That we've seen in the last 18 months and really build on that success.

Right out, i do have to ask this question: i've heard that you serve coffee with cream cheese in china. Is that accurate well walk to me? Actually, it's not coffee, it's actually a tea product. So it's it's a it's a very popular product in china, where you have effectively fruit jews with a small portion of cream cheese. On top of it - and it's probably one of the the more popular products in china today, you totry the grapefruit cheese jasmine tea, which is their premier drinks, yeah grapefruit, it's great jasmine, mr. shake, oh, perhaps you could arrange for delivery of no problem. I think we can make it have fun i'll, try it on camera. I really will. I would do that. Make that happen. The good luck with the ipo today. Thank you very much indeed. So.

Thank you. Thank you. Thank you.

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