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Luckin Coffee’s rise over Starbucks reflects changes brewing in China
- Luckin’s meteoric rise reflects a market shift as Chinese spend more carefully, and increasingly prefer local brands with more efficient service to slower, more expensive foreign names
Both companies announced their results on April 30, providing a good rear-view mirror comparison of their performances and market strategies.
Luckin Coffee, which doubled its stores last year to 18,590 – including 30 in Singapore, its only other market – added 2,342 more in the first quarter, all but two of which were in China.
This rapid expansion hit Luckin Coffee’s margins and same-store sales dropped by 20 per cent year on year. But it also doubled its customers to 60 million every month on average and boosted revenue to nearly 6.28 billion yuan (US$869.5 million) for the quarter, up 41.5 per cent year on year.
In just one year, Luckin Coffee has opened more stores in China than Starbucks managed to over 25 years – and now has more than twice as many stores as Starbucks’ 7,093.
![Takeaway bags of Luckin’s limited-edition Tom and Jerry mascarpone lattes at a Luckin Coffee shop in Beijing on October 24. Photo: Simon Song](https://cdn.i-scmp.com/sites/default/files/d8/images/canvas/2024/05/16/3460c025-7f94-4857-912a-031860d93b44_7e6d4324.jpg)
They create buzz and position Luckin Coffee as a trendy and innovative brand, helping it stay relevant and top of mind in a highly competitive market.
This divergence in performance between the two coffee giants can be attributed to several factors influencing consumer behaviour and market trends in China.
Secondly, the shift towards working from home and satellite offices has also changed consumer behaviour. More are favouring the no-frills takeouts offered by Luckin over the more luxurious sit-in experience Starbucks offers, especially as the pace of Chinese society picks up.
The growing consumer preference for the efficiency of takeouts and pickups, coupled with a penetration pricing strategy, has driven Luckin Coffee to rapidly open small stores. This has made it much easier for customers to find a Luckin Coffee store, helping the chain to capture market share fast.
This has given local brands a competitive edge in terms of convenience and customer experience. Luckin Coffee’s app ecosystem, which integrates orders, loyalty programmes and promotions, enhances customer engagement and loyalty, a critical factor in its rapid growth.
Starbucks, on the other hand, has been slow to adapt to these changing market dynamics. Its traditional sit-down model, which focuses on providing a premium coffee experience in a comfortable setting, is less appealing to cost-conscious, convenience-seeking consumers with a fast-paced lifestyle.
![When the Starbucks Reserve Roastery opened in Shanghai on December 6, 2017, it was Starbucks’ largest cafe in the world. Photo: AFP](https://cdn.i-scmp.com/sites/default/files/d8/images/canvas/2024/05/16/3e9e0c09-81cc-47e6-8ef7-224083f2b0f3_5ecb501a.jpg)
While Starbucks has made efforts to introduce delivery services and digital payment options, it has struggled to match the pace and scale of Luckin Coffee’s digital initiatives.
This shift in consumer sentiment has provided an additional boost to local chains such as Luckin Coffee, which have successfully positioned themselves as modern, innovative and distinctly Chinese alternatives to foreign brands.
China’s coffee-drinking market is a microcosm of the broader economic and social transformations taking place in the country. The rapid rise of local brands like Luckin Coffee underscores the dynamic nature of the Chinese market and the opportunities it presents for businesses that can navigate its unique challenges and leverage its growth potential.
In conclusion, while Starbucks has long been the symbol of premium coffee culture in China, the rise of Luckin Coffee and other local brands signals a significant shift in consumer preferences. As the market continues to grow, driven by both increasing consumption and evolving consumer behaviour, competition will intensify.
Coffee is a major battleground for many investors due to its nature of recurring consumption and its reach. The coffee-drinking market in China is just heating up, and those who can adapt to the trends brewing will be the ones to watch.
Kok How Lee is a seasoned economist, consultant and strategist. He does not hold any positions in Luckin or Starbucks
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