The Chinese coffee chain that's muscling In on Starbucks's turf

Mint

6 days ago

Luckin Coffee could have opened its first stores anywhere in America. China's biggest coffee chain chose a New York City spot less than 200 feet from a Starbucks.
From there, Luckin is serving up coffee drinks from a flat white to a raspberry cold brew, really fast, ordered on its mobile app whose coupons may be as addictive as caffeine.
Armed with iced coconut lattes, it has the makings of a deliciously audacious corporate rivalry. Luckin has just two U.S. stores, which opened June 30 in Manhattan, compared with Starbucks's 17,000 U.S. locations. Then again, in China, Luckin didn't exist when Starbucks arrived and spread coffee culture—and it overtook Starbucks in six years.
'This is just the beginning," Luckin said on Instagram. 'NYC, we're here."
That Luckin has appeared in New York is pretty amazing. The company was left for dead in 2020 after an accounting scandal during which it faked more than $300 million in sales. That was the last time it made news in the U.S. Now, it's on Starbucks's home turf just as the American coffee giant is trying to turn around under new leadership after five consecutive quarters of declining same-store sales.
Founded by Chinese tech entrepreneurs, Luckin is a master of the gamification that is common among Asian retailers. Luckin customers must order on its app, where they are showered with coupons, including $1.99 drinks for first-timers in New York. The app gives a pickup time and texts when the drink is ready (three-minute and five-minute waits on two recent morning orders). Customers pick up their drinks at the counter without having to interact with another person.
'This is just the beginning,' Luckin said on Instagram to mark the opening of its stores, including this one in Greenwich Village in Manhattan.
Mobile app orders have been maddening for Starbucks leadership. Customers coming in to pick up their mobile orders were overwhelming its cafes ('a mosh pit," as Starbucks founder Howard Schultz complained) and spoiled the leisurely, premium vibe Starbucks thrives on. Still, they fueled much of the chain's business.
When new Starbucks CEO Brian Niccol joined the company almost a year ago, he was frank: Mobile orders needed a makeover. Niccol said that he would better separate mobile pickup queues from cafe dwellers, and place some limits on how much people could doctor their drinks. More than 30% of Starbucks pickup orders are placed digitally.
Trainer Unsworth, a 23-year-old tech salesman, tried Luckin in New York. He returned the next day for an iced latte. The latte had more of a milky taste than a coffee taste, but he didn't mind. He plans to come back as long as the app keeps feeding him coupons.
'Coffee is getting a little too expensive right now," said Unsworth, who usually pays about $6 for his coffee elsewhere. His Luckin iced latte was closer to $2.
Luckin didn't respond to requests seeking comment. Starbucks declined to comment.
Luckin likely wouldn't even exist if not for Starbucks. The American chain spread the idea of sipping lattes and lounging in cafes to China when it opened its first store in Beijing in 1999, bringing coffee culture to the traditionally tea-drinking country.
About two decades later, in 2017, entrepreneurs from ride-hailing platform UCAR, Jenny Qian and Charles Lu, founded Luckin, part of a Chinese tech funding boom that propelled companies like TikTok-parent ByteDance and Jack Ma's Ant Group. Luckin's Chinese name, Ruixing, generally translates to 'auspicious luck."
From the start, Luckin was a tech native. It built its strategy around a mobile app with the idea of having coffee available at any moment, through grab-and-go stores and speedy delivery. Stores were smaller than Starbucks's locations and they offered steep discounts.
Profitability was less a concern than grabbing market share. It opened thousands of shops across China at a blinding pace—many just feet away from a Starbucks—and went public in less than two years.
'The market won't only have Starbucks. Every country has their own coffee brand," Qian told Chinese state media in 2018.
Its meteoric rise came crashing down when the accounting scandal forced it to delist from the Nasdaq Stock Market in 2020 and pay a $180 million settlement with U.S. regulators. Luckin ousted Lu and Qian, its then chairman and chief executive, and later filed for bankruptcy.
Jinyi Guo, an executive in charge of product and supply chain, took over as CEO. Beijing-based private-equity firm Centurium Capital, Luckin's largest shareholder and one of its earliest financial backers, poured money into the company to clean up the mess.
'We are trying to redeem ourselves because we want to repair the reputation of Chinese companies," Guo told The Wall Street Journal in a 2022 interview.
By 2023, Luckin overtook Starbucks as China's biggest coffee chain by sales. That year, Luckin had about 16,200 stores in China—more than double Starbucks's 6,800 locations in the country.
Today, Luckin has more than 24,000 stores across mainland China, Hong Kong, Singapore and Malaysia. Many, especially in smaller cities, are just the size of kiosks. Luckin this year secured the exclusive rights to coconuts from a group of islands in Indonesia to use in its signature coconut latte.
'While cultivating coffee consumption habits, we aim to allow more customers to conveniently enjoy high-quality coffee experiences at very competitive prices, striving to make high-quality coffee become a part of everyone's daily life," Guo said on an earnings call in February.
Its New York menu includes an iced coconut latte, pineapple cold brew, iced matcha latte, iced velvet latte and Pink Sunrise, made with coconut milk, mango juice and strawberry sweet cold foam.
Like Starbucks, Luckin lets customers customize their drinks, but has somewhat fewer options. The Luckin app offers six types of milk for an iced latte, for example, and Starbucks has 11.
Luckin has plotted its U.S. entry since at least last year, when it told investors that it was evaluating opportunities to expand to America. The company said it knew the U.S. would be a tough market to crack.
'Given the maturity, saturation and the competitiveness of the U.S. coffee market, we are intending to approach our expansion strategies there with careful consideration," Luckin's Guo said in an October 2024 investor call.
Luckin recently hired or was seeking to fill at least a dozen corporate roles in Secaucus, N.J., and the broader New York metropolitan area, according to LinkedIn profiles, posts and job listings.
China, Starbucks's second largest market, has become a headache for the company. Its market share fell to 14% in 2024, from more than 40% in 2017, as competition from Luckin and other local rivals grew, according to Bernstein Research. Starbucks is evaluating alternatives for its business, such as bringing on a local partner to help run it. Executives have said they remain committed to China and efforts to turn around the operation are starting to work.
Adding to the competition, ousted Luckin co-founders Lu and Qian started a new coffee chain, Cotti Coffee, in 2022 and it now has more stores in China than Starbucks, according to Bernstein. Cotti has also entered the U.S., including a few stores in New York it opened weeks before Luckin.
In China, Starbucks last month cut prices for more than 20 beverages, with the average decrease of a grande drink declining by 70 cents. The cuts are working, Starbucks said. New drink styles, like sugar-free options, are also broadening Starbucks's customer base and increasing sales, particularly in the afternoons and evenings.
'We try not to get distracted by things we can't control, like who's entering the market," said Brady Brewer, CEO of Starbucks International, in a prior interview. 'If we do our best to deliver coffee, our coffeehouse environment and great customer service, we usually win."
For fiscal year 2024, Starbucks logged $36.2 billion in revenue, while Luckin reported $4.7 billion. Starbucks has a market value of about $106 billion; Luckin's is around $10 billion.
In the U.S., Starbucks is pushing to return to being a place where people will pay premium prices for a cafe experience. Starbucks has struggled with speed, particularly as an increasing number of consumers have customized their drinks with syrups, foams and other additions. Niccol said earlier this year that about half of in-store orders take longer than four minutes. Technology rolling out in the U.S. is helping it shave an average of two minutes off wait times for in-store orders, helping it reach service time goals of four minutes for its cafe and drive-through business.
On a recent Thursday morning in New York, Hailey Schindler and Tracy Fernandez tried Luckin for the first time. Schindler, 26, got a 'Pink Sunrise," a mango, coconut and strawberry drink. Fernandez, 27, ordered a blood-orange cold brew. The two, who work together at a creative agency across the street from Luckin, typically go out for coffee at Starbucks or Dunkin' a few times a week. Both said they would go back to Luckin.
'They have a lot of really neat flavors I've never had," Schindler said.
A sign advertising $1.99 coffee lured Danny Goldberg, a 31-year-old motivational speaker, into the store the week after it opened. He downloaded Luckin's app and ordered a coconut cold brew. He liked the quick, cashierless system.
Enticed by more coupons in the app, Goldberg returned the next day with his wife, 8-month-old baby and golden retriever to get another coconut cold brew, also for around $2. Since then, he has made six more visits and told his friends about Luckin.
Bernstein analysts noted the number of repeat customers they found at the two New York pilot stores, and Luckin's heavy discounting. They estimate Luckin will be able to achieve profitability in the U.S. at the store level in the next 12 to 18 months if sales volumes increase and discounts moderate. The store number of its second U.S. location—written on the corner of the counter—wasn't 2. It was 00002. That, the analysts said, is a hint that Luckin has ambitions to become bigger in the U.S.
Write to Hannah Miao at [e-mail] and Heather Haddon at [e-mail]