Starbucks China rival Luckin Coffee opens 10,000th shop amid fight for expected 1 trillion yuan m

May 18, 2024

Chinese coffee giant Luckin Coffee opened its 10,000th store in the country on Monday, expanding its lead over American rival Starbucks as the two chains battle for caffeine-addicts’ loyalty in a market expected to consume 1 trillion yuan (US$140 billion) worth of coffee a year by 2025.

Located in the centre of Luckin’s headquarters city of Xiamen, in Fujian province, the store is billed as the brand’s first flagship store. It covers more than 600 square metres across two floors.

The company, which was formerly listed on the Nasdaq before a scandal forced it to delist, accomplished the 10,000-store milestone within six years. It had already surpassed Starbucks in terms of total stores in China in 2021.

Luckin Coffee opened 1,137 mainland China locations in the first quarter of this year, and also added stores in Singapore as it steps up efforts to expand internationally with Southeast Asia as a priority.

The coffee chain’s first-quarter revenue reached 44.4 billion yuan, with a net profit of 564.8 million yuan. The company achieved full-year profitability for the first time last year, with 1.15 billion yuan.

Meanwhile, Starbucks has struggled in China.

The Seattle-based giant has 6,243 mainland China stores, and opened only 153 during the January-to-March period. China revenue grew 3 per cent to US$763.8 million in the quarter, marking the company’s first positive quarter since 2021 in the market.

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By 2025, Starbucks plans to establish 9,000 stores in China, which has the potential to overtake the United States as the brand’s biggest market, CEO Laxman Narasimhan said during a visit to China in May.

China’s coffee consumption per capita is 12 cups per year, Japan’s is 200 cups, and the US’ is 380 cups, he said. “Starbucks’ market will become bigger in the next three years,” Narasimhan added.

From its first store in Beijing in 2017, Luckin expanded rapidly to 4,500 stores in 2019, when it listed on New York’s Nasdaq stock exchange.

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The SEC accused the company of fabricating more than 2.12 billion yuan in retail sales between April 2019 and January 2020, while understating its net loss by as much as 34 per cent. The company also inflated its expenses by more than US$190 million to cover up the fabricated revenues, the SEC said.

Luckin then delisted from Nasdaq under the SEC’s requirement in May 2020, after less than a year on the exchange.

The company finished paying the fine in 2022, and managed to avoid bankruptcy by obtaining a so-called light touch provisional liquidation approval from the Cayman Islands, which allowed a new management team to work with the liquidator to keep Luckin’s business growth going in China.

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Starbucks and Luckin have different pricing strategies, a 473ml cup of Americano-style coffee costs around 30 yuan at Starbucks, but around 20 yuan at Luckin. The Chinese company also has a lot of pickup stores, which offer limited seating, while Starbucks sets up most of its stores as social spaces.

China’s coffee market still has strong potential, according to a report from a Guangdong-based consulting company iiMedia, which says the country’s coffee market will double to 1 trillion yuan in 2025.

More competitors have joined the coffee game in the last year with lower prices. For example, domestic brand Cotti, founded by Lu Zhengyao, one of the founders of Luckin ousted after the scandal, offers a 350ml Americano for 14 yuan.

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