Page 23 - PowerPoint

22 FEATURE THURSDAY JULY 26, 2018 • THEEDGE FINANCIAL DAILY

China’s caff eine war

Fast-growing Luckin as well as other players brew up a threat to Starbucks

BY PEI LI & ADAM JOURDAN its service and the consistent quality which would require higher spend-
Q ian Zhiya may be There is also no sign that Chinese and on decor. On the question of
of the coff ee served.
ing on setting up in better locations

quality, she says that it uses select
Starbucks’ worst consumers have turned against such
arabica beans from Ethiopia.
nightmare. The a very American brand as a protest
42-year-old Chinese over US President Donald Trump’s
Luckin’s expansion comes as
entrepreneur says imposition of punitive tariffs on
dian chain Tim Hortons, are also
she is betting that Chinese exports.
pushing hard in China. Tim Hor-
her fledgling Luck- Starbucks’ global rivals, like Cana-

in Coffee brand will Big promotions tons plans to open 1,500 outlets in
eventually have more cafes in China Reuters spoke to 30 consumers in China over the next 10 years, while
than Starbucks, and she has Singa- Beijing Yin Tai Center, a shopping smaller local chains are also pop-
pore sovereign wealth fund GIC and mall that has Starbucks, Costa Coff ee ping up fast.
other investors bankrolling her plan. and Luckin outlets, among others. As China’s middle class contin-
Luckin, which only officially Half of those polled said they had ues to increase in size and the cof-
launched in January, has opened tried Luckin; most said they liked it, fee chains move into many smaller
more than 660 outlets in 13 Chi- though more than two-thirds said towns and cities, the market is grow-
nese cities thanks to a supercharged their top choice remained Starbucks. A man walking into a Luckin store in Beijing. Luckin, which only offi cially launched in ing at 5% to 7% a year, according to

growth plan based on cheap deliv- The majority drank coff ee in- January, has opened more than 660 outlets in 13 Chinese cities. Photo by Reuters research fi rm Mintel.
ery, online ordering, big discounts store or bought to take away, with Li Yibei, owner of Double Win
and premium pay for its staff . only a small number saying they Cafe, which has a chain of eight

Its assault comes at a crucial time had coffee delivered, a potential coffee shops in Shanghai, said
for Starbucks, which has 3,400 stores challenge for Luckin’s delivery-fo- ing firm Ucar, says Luckin’s focus now Flash mob Luckin would have an impact on

in China — its second-biggest mar- cused strategy. Taste, convenience is all about increasing customers. Still, not everyone agrees the Inter- the market, but there was plenty
ket after the US — and plans to al- and environment were their top “I don’t have a timeline for profi t,” net model translates easily into the of space left.

most double that number by 2022. three priorities, more than price. Qian told Reuters at the fi rm’s Beijing coffee business, given the need for “Maybe they will hit Starbucks
And the speed of the attack is a Luckin’s customers can order cof- headquarters as she sipped her third costly stores and quality control. to some extent, but remember Star-
warning to other established con- fee via an app, watch a live stream of Luckin coffee of the day. “For us, what “It remains to be seen if they can bucks has many die-hard fans. May-

sumer brands in China that they too their coffee being made, and have it we care about now is the number of really hook consumers in and cre- be they can grab some followers
could be vulnerable to a start-up’s delivered to their door in an average users and if they are coming back to ate a monopoly in the market, like from them, but I don’t think that
attempt to reinvent a market, brand of 18 minutes, the company says. us, whether they recognise us, wheth- those we see in sectors like cab-hail- many,” she said.
consultants say. A regular latte, roughly the size er we can take market share.” ing,” said Liu Xingliang, president Starbucks may also soon be mov-

Starbucks’ shares were pum- of a Starbucks grande, costs 24 yuan Th e firm raised US$200 million of tech consultancy China Internet ing more formally into online deliv-
melled in June after it warned that (RM14.21) plus six yuan for deliv- (RM812 million) this month to help Data Center. ery in China.
same store sales growth in China had ery (free delivery for orders of more fund its expansion, including an And some of the consumers Reu- Howard Schultz, Starbucks’ de-
plunged to zero or worse last quar- than 35 yuan), but can be half price undisclosed sum from Singapore ters spoke to in the Beijing mall saw parting executive chairman, said
ter, against 7% growth a year earlier. after promotions. A grande latte at government fund GIC, a funding hurdles ahead for Luckin. in Shanghai this month that he was

Its fiscal third-quarter results are Starbucks costs 31 yuan. round which Luckin said valued Liu Xu, 23, an advertising pro- close friends with Jack Ma, the head
due out today. More than half of Luckin’s stores the firm at US$1 billion. fessional, who compares Luckin of Alibaba Group Holding Ltd, which

Starbucks said some new cafe are larger “relax” outlets or pick-up “In the future we will have more to a “flash mob” that came out of controls food delivery platform Ele.
openings were cannibalising cus- stores with some seating. Th e rest cafes than Starbucks,” she declared. nowhere, said he tried the firm’s me, and suggested the two could
tomer visits at nearby stores and are delivery kitchens. One of the investors in the lat- coffee out of curiosity but prefers work together on Starbuck’s online

it also blamed a drop-off in orders The speed of Luckin’s growth is est fundraising said it is the logical hand-drip single-origin coff ee. delivery in China.

through delivery fi rms. extraordinary — it took Starbucks time for there to be a shake-up of And Lian Yiheng, 22, a student, Schultz also said he was not wor-

While it did not mention in- about 12 years to open as many the coffee world in China. said she was attracted by Luckin’s ried about the China slowdown.
creased competition, investors and stores. In many ways it echoes the The use of online ordering and promotions and the convenience “The more good coffee and

analysts said it is clear that Luckin way in which some major Chinese delivery should be enough to un- of delivery, but felt it needed to im- competition that comes into the
does represent a threat. technology firms, such as ride-hailing nerve many established brands, prove its selection of coff ees and market, the more the Chinese

However, they also point out that platform Didi Chuxing, have burned said Bruno Lannes, Shanghai-based store decoration to lure people in people will be exposed to good
Starbucks’ brand has been very resil- through cash to grab market share partner with consultancy Bain & Co. the longer run. coffee,” he said.
ient to challenges from rivals around and been valued highly as a result. “It’s a big threat; that’s why west- Qian said the plan was to have “Emerging new players that are
the world over the years, largely be- Qian, who was previously chief ern brands need to pay attention,” more sit-in stores and reduce the coming into the market will actually

cause of the ambience of its stores, operating officer at Chinese ride-hail- he said. proportion of delivery-only outlets, benefit Starbucks.” — Reuters

How dominoes helped make me a mathematician
I even remember the moment I were an even number of rows. With squares or tiles sticking out. Th en Cathy,” he said. “What you just de-
BY CATHY O’NEIL
decided to become a mathemati- seven rows, you would have an ex- I noticed something in the pattern scribed was a proof. And when you
cian. My dad and I were playing with tra square sticking out. of the board. Because the squares prove something you should put
dominoes on a chess board. Th e tiles In other words, the tiles demon- alternated between black and white your money behind it. You just lost
were just the right size to cover two strated visually why odd numbers in every direction, the tiles always 20 bucks!”

WHEN I was about nine years old, squares, one white and one black. are not divisible by even ones. covered one of each. This meant that I was hooked. Math was beauti-
my father taught me how mathe- First he asked me if we could cov- The seven-by-seven board had 49 the whole board could be tiled only ful. Proofs were powerful, elegant,

matical proofs work. At a time when er the whole chessboard. Of course, squares. Since 49 is odd, I said, you if it had equal numbers of white and and at times even incontrovertible.
governments around the world are I said. The board had eight rows of cannot tile such a board with dom- black squares. But when my dad re- As the math I worked on became in-

struggling to narrow the gender eight squares each, so I could just inoes. Each domino takes up two moved the opposite corners of the creasingly complicated and diffi cult, I
gap in math and science, I fi gure cover each row with four tiles laid squares, so they can tile only boards chessboard, he had taken away two doubted my proofs plenty, but I nev-
the experience is worth sharing end to end — effectively solving with even numbers of squares. white squares. er doubted the beauty and power of
— because I have never felt more eight independent problems. My Satisfied with this answer, he “You can’t tile this,” I pro- logical argument. And I never again
empowered by anything since. dad found that convincing. asked me one last question. What if claimed, “because there are more lost a bet to my dad. — Bloomberg
Both my parents are mathema- But what if, he asked, we cut the we remove opposite corners of the black squares than white squares.
ticians. As they raised me and saw board down to seven rows of seven original eight-by-eight chessboard? Nobody can tile this.”
what a math nerd I was becoming, squares? I thought for a moment. OK, I thought. Take away two “How much do you want to bet?” Cathy O’Neil is a Bloomberg Opin-
they did a good job of not forcing it. You could not just fi t tiles along squares and you have 62. That is an said my dad. “Do you want to bet ion columnist. She is a mathemati-

They knew that the more I thought each row independently. You could even number, so it passed the fi rst US$20 that I can’t tile this right now?” cian who has worked as a professor,

of it as a fun game, the more likely put down three, but then there’d be test I figured out. But on the board, I My allowance at the time was US$3 hedge-fund analyst and data scientist.

I would love it as much as they did a square left over. You could transfer could not get it to work. Cutting the per week, so this was pretty attractive. She founded ORCAA, an algorithmic
and actually want to do it. Th is strat- that extra square to the next row, board down to four by four did not Even so, I chickened out. auditing company, and is the author
egy ended up working really well. but that would work only if there help — I still had either uncovered “You should have made the bet, of Weapons of Math Destruction.