Luckin surpasses Starbucks in China

Luckin Coffee, the Chinese rapid delivery coffee company, now enjoys more locations and more quarterly revenue from Chinese operations than Starbucks, which had long based its strategy on country expansion.

Why the Chinese coffee market matters

As the transition from tea culture to coffee guzzler accelerated, catching a wave of growth in China has been a critical strategic aim for Starbucks. While China is its second largest market – in stores and revenues – after its native US, that growth trajectory is under fire as competition intensifies. Currently, it appears to be a game about scale, as Luckin Coffee seeks to promote its way to vast scale, before it becomes a profit driver. 

What’s going on

Luckin now has 13,300 stores across China while Starbucks has proceeded with more caution at 6,800, and this has now resulted in the local upstart pulling away from the American giant in terms of quarterly revenue, the Wall Street Journal notes, with the gap first emerging in the quarter ending June and then widening in November.

Starbucks’ adventures in China

Novelty had been very important to Starbucks’ initial rise in China, beginning in 1999, and its growth was strengthened by a willingness to look beyond tier one cities.

However, with pandemic-era mores diminishing people’s appetite to go to a coffee shop and hang around for a few hours, the ‘third place’ model is under pressure in China. Still, the American company believes in its expansion plans and continues to target 9,000 stores by 2025.

The story of Luckin

Luckin’s fast delivery, mobile payment, and a closer connection to local tastes for swift and effective product development have been crucial to growth. 

Luckin Coffee has a storied history, to put it mildly. Exploding onto the scene in 2017 with an aggressive business model based not on a love of coffee but an understanding of data, the company hit the rocks in 2020 when it was found to have faked sales, resulting in its de-listing from the NASDAQ stock exchange in New York. 

With leadership changes and an injection of private equity, the company got back to business soon after. What remained, however, was a lightweight location model based around fast delivery through its mobile app rather than an in-store experience.

Sourced from the Wall Street Journal, WARC