Luckin Coffee, the Chinese coffee giant, has achieved a significant milestone by reaching 10,000 stores in China in June. This accomplishment has catapulted Luckin Coffee ahead of Starbucks as the largest coffee chain brand in the country. Luckin Coffee emerged in 2017 as a key competitor to Starbucks, offering affordable coffee options and convenient mobile ordering. It is worth noting that China is Starbucks’ second-largest market after the United States.
At the end of June, Luckin Coffee had expanded to a total of 10,829 stores in China, surpassing Starbucks in terms of the number of outlets. This rapid growth has been attributed to what many analysts describe as an “aggressive” expansion strategy. In comparison, Starbucks operates 6,480 stores in mainland China as of the second quarter. Jianggan Li, the founder and CEO of tech research company Momentum Works, explains that Luckin Coffee’s success can be attributed to their aggressive store expansion efforts, as well as their ability to offer heavily discounted drinks for $2 or less. The stores operated by Luckin Coffee are smaller in size compared to Starbucks’ larger outlets.
Despite China being a traditionally tea-drinking market, the consumption of coffee has been steadily rising in recent years, especially among urban areas and younger professionals. According to analytics firm GlobalData, China’s overall coffee sales are projected to grow at an 8.7% compound annual growth rate (CAGR) from 2022 to 2027. This growth trend has provided a favorable market for Luckin Coffee’s expansion.
Luckin Coffee has been expanding aggressively, opening an average of 16.5 new stores per day in the quarter ended June 30. Out of the total 10,829 stores, 7,181 are self-operated, while the remaining 3,648 are partnership stores. The coffee chain also entered the international market in March, opening 14 stores in Singapore. In terms of customer numbers, Luckin Coffee boasts over 170 million cumulative transacting customers, with an average of 43.07 million monthly transacting customers in the second quarter.
According to Li, Luckin Coffee’s operating model, which includes self-operated stores and franchises, has enabled them to expand rapidly. In contrast, Starbucks operates solely company-owned stores and does not franchise its operations. These differences in business models have allowed Luckin Coffee to achieve a higher density of stores, with outlets located in nearly every neighborhood.
The lower prices offered by Luckin Coffee have contributed to its mass market appeal. A cup of coffee from Luckin costs between 10 and 20 yuan ($1.40 to $2.75) due to heavy discounts and promotions, whereas a cup of coffee from Starbucks starts at 30 yuan ($4.10). Li notes that Luckin Coffee has successfully differentiated itself in terms of price and quality compared to both high-end and low-end coffee brands.
Luckin Coffee operates a grab-and-go model, where customers order through their app and pick up their orders at the store. This approach has allowed the company to keep operating costs low and achieve profitability within a year, according to Maheshwari. Starbucks, on the other hand, offers a cozy environment for customers to work and socialize.
To further raise its brand profile, Luckin Coffee has pursued collaboration and partnerships. Recently, the company launched a new drink in collaboration with Kweichow Moutai, a renowned Chinese liquor maker. This strategic move has helped offset the perception of low prices associated with Luckin Coffee, allowing them to attract a wider customer base. Other localized drink options, such as brown sugar boba latte, cheese latte, and coconut latte, have also resonated well with the Chinese market.
In conclusion, Luckin Coffee has made impressive strides in the Chinese coffee market, surpassing Starbucks as the largest coffee chain brand in the country. Its aggressive expansion, focus on affordability, and innovative business model have positioned it as a formidable competitor in the industry. As coffee consumption continues to rise in China, Luckin Coffee’s unique approach and strategic partnerships are likely to solidify its position in the market.
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