Chinese beverage chain startup Luckin Coffee has launched a tea brand called Xiaolu Tea (Xiaolu means “deer”) on Monday, to take advantage of cross-selling opportunities, 36Kr reports.
The company also unveiled ten tea-based products, such as jasmine tea with mango and a cheese top, under the Xiaolu brand today.
Guo Jinyi, co-founder of Luckin Coffee, which raised USD 561 million in its IPO in May, was quoted by 36Kr as saying that tea and coffee are “not contradictory to each other,” but are in fact complementary in workplace environments.
He added that tea is in demand—more so than coffee—during summer, adding that Luckin’s consumers have provided feedback to the company that they would like to see tea-based drinks on the chain’s menu.
Before this move, Luckin Coffee conducted a one-month trial at one of its stores in Beijing in March. The following month, Luckin placed four Xiaolu-branded tea-based beverages on its online menu.
Luckin had opened 2,370 stores at the end of March. Now, the company is operating more than 3,000 stores, Guo said.
“The stickiness and high frequency of coffee consumption make coffee shops a natural hub to sell other food and beverage products, among others. For example, freshly made tea drinks, which are drinks combining tea with other ingredients such as milk, fruit, and tapioca pearl, have become very popular in China,” said Luckin in its IPO prospectus.
The company cited research by Frost & Sullivan to say that “freshly made tea drinks had a market size of RMB 68.0 billion (nearly USD 10 billion) in 2018. Coffee shops in China with strong customer loyalty are in good position to leverage their customer base and tap into the non-coffee products market, such as freshly made tea drinks market, and capture additional growth.”
Luckin is still far from being profitable. It incurred net losses of RMB 1.6 billion (USD 241.3 million) in 2018, then RMB 551.8 million in the first three months of this year, mainly due to high marketing spending, including steep discounts.
36Kr is KrASIA’s parent company.