Amid China’s slowing economic growth and venture investments, innovation within the world’s largest country is morphing. The focus is shifting into emerging third-, fourth-, and fifth-tier cities and bubbling up from there. China remains the leader in what’s known as “new retail,” and the competition—and corresponding new initiatives—within even such categories as digital video has been impressive. Although it’s not yet clear how the COVID-19 coronavirus outbreak will impact the specific financial health of these companies and the larger Chinese innovation economy overall, the fact remains that the ideas it’s generated thus far are likely to remain highly influential around the globe.
For brewing the tech-centric chain restaurant of the future
Luckin Coffee launched its chain of coffee shops in October 2017, and since then it’s grown remarkably fast, so fast that Luckin surpassed the number of Starbucks outlets in China by the end of 2019, with more than 4,500 outlets. The chain’s distinctive, digital model allows it to learn where its customers are and proliferate its small, pickup-only coffee counters as close to them as possible. Luckin’s focus on data ripples through the rest of its business, informing its decision-making on everything from its staffing to its supply chain. It launched tea and juice last year to offer more choices to its more than 30 million customers, and it introduced a new “partnership model,” which is a new spin on franchising that will allow the company to expand even more rapidly—and globally—while still controlling the data and selling experience. Luckin’s model started to kick in over the course of 2019, with store growth (more than 200%) being outpaced by returning customers (397.5%), and that impressive stat is being lapped by the number of products they buy (470.1%) and the revenue they’re generating (557.6%). “We effectively started as an online model, spending a year setting up the entire operation before opening our first store, so 100% of the transactions give us data,” says Reinout Schakel, Luckin’s CFO and chief strategy officer. “Traditional retailers might have 20, 30, 40%, so you’re always going to have to rely on people making decisions. That’s going to be a big competitive advantage for Luckin.”
Read more about why Luckin Coffee is one of the World’s Most Innovative Companies of 2020.
Update: On April 2, Luckin Coffee reported that the preliminary results of an internal investigation revealed that its COO Jian Liu and people reporting to him had falsified approximately $310 million in 2019 sales. The investigation continues, and we’ll update this story as needed.
For proving the transactional super-app can be profitable by boosting its food-delivery membership program and increasing its ad revenue
The Chinese super-app, which connects more than 400 million customers to such services as food delivery and hotel booking, did what skeptics did not think possible: Show a profit. To achieve this milestone, the company goosed its transaction volume in food delivery with its membership program, with members on average ordering three times more frequently than other Meituan users. In addition, the company increased its efficiencies across its delivery network, improving its gross margins by the end of June last year (its last financial report) to almost 23%, up from 15.8% a year earlier. With its large user base and almost 6 million active merchants, Meituan benefited from offering advertising services for those businesses to try to reach hundreds of millions of customers as well.
3. Alibaba Group
For powering China’s digital transformation with its “business operating system”
The Chinese e-commerce giant continues to push its technological prowess deeper into the real world. Its aggregation of its digital services for branding, channel management, customer service, finance, logistics, marketing, product development, sales, and more seeks to accelerate the digitization of businesses large and small across China. Flagship customers include Nestlé and Starbucks as well as Universal Parks & Resorts, which intends to use Alibaba’s range of services to serve customers from booking their trip to its Universal Beijing Resort (set to open in 2021) to speeding their entry into the park to running everything on Alibaba’s cloud-computing platform.
For curating its short videos to create a healthy space for minors
Kuaishou is a pioneer in short-form digital video, attracting more than 300 million daily users. It first set itself apart from rivals by targeting smaller cities and rural areas, showcasing daily life. In December, Kuaishou launched an app for its younger users, tailoring its content to be more useful and less frivolous. The company reportedly made $7.2 billion in revenue in 2019, off a mix of advertising, e-commerce, and live-streaming, where viewers tip broadcasters and the app takes a cut.
For alleviating rural poverty by connecting farmers to its 500 million-plus buyers
Pinduoduo, or PDD for short, is a commerce platform that brings group buying to China’s lower-tier cities and countryside, though as it’s grown, PDD is increasingly reaching more customers in first- and second-tier cities. A hallmark of PDD’s roots, though, has been its commitment to connect rural growers directly with buyers. In 2019, Pinduoduo expanded these efforts to such staples as coffee, tea, walnuts, mushrooms, and peppercorns, and it began its education program to teach farmers directly how to market their wares online. During an agricultural festival PDD hosted last August, the company drove “110 million orders for 20,000 farmers and merchants across 500 agricultural areas,” according to David Liu, the company’s VP of strategy during its Q3 earnings call in November. Overall, the five-year-old company, while still unprofitable, grew its gross merchandise volume by 144% for the 12-month period ending in September 2019 compared to a year earlier, and revenue has increased 123%, to more than $1 billion in the third quarter.
For mainstreaming its video platform from anime and games to music and education
Bilibili is among the least known of the emerging Chinese tech players in the West, but it is rapidly becoming one of the more intriguing digital media platforms in a crowded market. The service originally carved out a niche by focusing on anime and gaming content, with the bulk of it being user-generated. But 2019 marked Bilibili’s expansion into a more full-service video service, a “YouTube for China,” by expanding to attract musicians (in part through a deal with Tencent’s QQ chat platform) with the promise of more exposure and adding comics, e-commerce, and live-streaming. Last fall it also experimented with education courses. These efforts have been the fastest-growing part of the company’s revenue, which hit $260 million in the third quarter of 2019, a 72% increase over a year earlier, though the company’s expansion efforts are increasing its losses. Monthly active users reached 128 million in that quarter, a 38% year-over-year boost.
7. Yum China
For catering to fans with personalized mobile menus and 300 new menu items, such as single-bone chicken
Although it’s the spinoff of the American fast-food conglomerate, Yum China aggressively makes technological enhancements to the customer experience, and new menu items are the secret herbs and spices for its business. It introduced 300 new menu items last year, including a chicken dish for KFC where it butchers around a bone located between the breast and wing to offer single-bone chicken. The company has also gone all in on “new retail”—the merger of digital services to enhance real-world experiences. It uses AI to personalize its mobile menu for customers. More than 215 million people have digital loyalty accounts at KFC and 70 million at Pizza Hut, and mobile orders accounted for 61% of company sales in the fourth quarter of 2019. All these efforts led to 4% revenue growth in 2019, to almost $9 billion.
For serving the 70% of China’s population in lower-tier cities with physical stores
The Chinese conglomerate set a goal in January 2019 of opening 15,000 stores, seeing an opportunity to create its own offline-to-online strategy, pushing into lower-tier cities and towns with “Suning Cloud Stores,” franchises that allow small businesses running convenience stores (which average about 1,000 to 2,000 square feet) to access Suning’s supply-chain intelligence and logistics. The company also acquired the Circle K stores in China, as well as 80% of the Chinese business of Carrefour, the French grocery giant. It even started to put Suning stores inside its Carrefour locations, to sell electronics and appliances within them.
9. DeepBlue Technology
For launching its autonomous buses across 10 cities
This AI startup made significant strides in bringing its intelligence to autonomous driving, launching Panda Bus in January 2019 and rapidly rolling it out to several cities that offer a kind of “perfect transportation infrastructure,” as its site notes, such as airport shuttles or a park environment. The buses, cleverly wrapped in panda-like black and white, use AI for everything from “palm vein” recognition for boarding access to in-cabin advertising and vending machines to the actual operation of the vehicle. DeepBlue’s Panda Buses have expanded beyond China to both Greece and Thailand.
10. Palace Museum Beijing
For translating its collection into branching-narrative movies, WeChat games, and funky souvenirs
Also known as the Forbidden City, the Palace Museum in Beijing holds centuries’ worth of the country’s treasures and history. The museum has embraced that deep trove of material to engage audiences of all ages. It partnered with Tencent to expand the digital version of the museum experience and launch products such as clothing and cosmetics based on famous artifacts, and through Tencent’s entertainment production arm, it also made an interactive film called Glory of the Forbidden City, about the architect who helped build it. In addition, the museum worked with Huawei to create a virtual-reality mapping experience called Cyberverse, which allows a patron to see the environment in which a palace originally resided and receive additional educational information simply by looking at the palace through her smartphone camera. Due to the COVID-19 coronavirus, the museum is temporarily closed, but the ideas it has pioneered remain free to propagate to other cultural institutions worldwide.
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