Exploring Luckin Coffee’s Triumph Over Starbucks in China
In a remarkable turn of events, Luckin Coffee achieved a milestone of 10,000 stores across China in June, outpacing Starbucks to claim the title of the largest coffee chain brand in the nation, following an unprecedented expansion spree this year.
Founded merely in 2017, Luckin Coffee swiftly emerged as a formidable contender in the Chinese coffee landscape, challenging the dominance of Starbucks with its budget-friendly coffee options and streamlined mobile ordering system. Notably, China stands as Starbucks’ second-largest market globally, trailing only behind the United States.
The meteoric rise of Luckin Coffee culminated in a staggering count of 10,829 stores across China by the end of June, surpassing Starbucks in becoming the country’s leading coffee chain brand, propelled by what analysts describe as an “assertive” expansion strategy. For perspective, Starbucks managed 6,480 stores in mainland China by the conclusion of the second quarter.
Jianggan Li, the visionary founder and CEO of Momentum Works, a tech research powerhouse, remarked on Luckin’s aggressive expansion tactics, noting, “Their relentless store expansion, coupled with enticing discounts, has become a norm in China, where indulging in a Luckin beverage for $2 or less is commonplace.”
Traditionally entrenched as a tea-centric culture, China has witnessed a steady surge in coffee consumption, particularly in urban hubs and among the younger demographic.
According to projections by analytics firm GlobalData, China’s coffee market is slated to experience an 8.7% compound annual growth rate (CAGR) from 2022 to 2027, underscoring the burgeoning demand for coffee beverages in the nation.
Unprecedented Expansion Efforts
In the quarter concluding on June 30, Luckin Coffee embarked on an ambitious spree, inaugurating 1,485 new outlets at an impressive average rate of 16.5 stores per day. Out of the 10,829 stores dotting the Chinese landscape, 7,181 are directly operated by the company, with an additional 3,648 operating under partnerships, as outlined in the company’s earnings report.
Expanding its footprint beyond the borders, Luckin Coffee made its international debut in March by venturing into Singapore, where it has since established 14 outlets, as corroborated by CNBC’s investigation.
With cumulative transacting customers surpassing the 170 million mark and average monthly transacting customers reaching 43.07 million in the second quarter alone, Luckin Coffee has undoubtedly solidified its presence in the fiercely competitive Chinese market.
Elucidating on Luckin’s remarkable growth trajectory, Jianggan Li emphasized the efficacy of their operational model, blending self-operated stores with franchise partnerships, a strategy that has propelled them to unprecedented heights.
In stark contrast, Starbucks adheres to a company-owned store model globally, refraining from franchising operations. During the quarter ending on July 2, Starbucks unveiled 588 new stores worldwide, accounting for approximately 40% of Luckin’s total expansion tally.
Reflecting on the omnipresence of Luckin Coffee outlets, Vivian Leung, a resident of Guangzhou, attested to the convenience, noting the proximity of two Luckin Coffee establishments within a 50-meter radius of her residence.
Unlocking Rapid Growth through Franchising
Rahul Maheshwari, a seasoned investor in the Asian market, extolled the virtues of franchising in facilitating rapid expansion, citing Luckin’s strategic deployment of smaller-format stores across diverse neighborhoods, a strategy that has catalyzed their proliferation.
“Luckin’s compact store layout, in contrast to Starbucks’ spacious outlets, has augmented their accessibility and convenience,” remarked Maheshwari.
In a comprehensive report, Momentum Works underscored the financial viability of Luckin’s grab-and-go business model, predicated on mobile app-based ordering and swift order pickups, distinguishing it from Starbucks’ emphasis on providing a leisurely ambience for patrons.
As a consequence, Luckin Coffee boasts lower operational overheads and a commendable ability to achieve breakeven within a year, according to Maheshwari.
Catering to the Masses
Luckin and Starbucks adopt divergent pricing strategies, with Luckin positioning itself as an affordable alternative, offering coffee priced between 10 to 20 yuan ($1.40 to $2.75), augmented by generous discounts and promotional offers. In contrast, Starbucks’ pricing starts at 30 yuan ($4.10) per cup, positioning it as a premium offering.
This keen pricing strategy, coupled with commendable quality standards, has garnered Luckin Coffee widespread appeal, catering to a broad demographic spectrum.
Echoing the sentiments of many, Guangzhou resident Leung hailed Luckin Coffee as both delectable and budget-friendly, underscoring its resonance with the masses.
Strategic Collaborations
In a bid to elevate its brand visibility, Luckin Coffee has forged strategic collaborations, exemplified by its recent partnership with Kweichow Moutai, a renowned Chinese distillery renowned for its iconic baijiu.
The introduction of Moutai-infused lattes garnered significant attention, with Luckin reporting a staggering 5.42 million units sold on the inaugural day.
Shawn Yang, managing director at Blue Lotus Research Institute, lauded this strategic move as a means to offset the perception of affordability associated with Luckin’s offerings, leveraging the allure of prestigious Chinese brands to expand its customer base.
Diversifying its product portfolio to resonate with local preferences, Luckin Coffee has introduced localized offerings such as brown sugar boba latte, cheese latte, and coconut latte, resonating with the discerning palate of Chinese consumers.
In summation, Rahul Maheshwari affirmed Luckin Coffee’s pivotal role in shaping China’s coffee landscape, tailoring its offerings to align with the evolving preferences of Chinese consumers, thereby cementing its status as an indomitable force in the coffee industry.