The Chinese chain of coffee houses Luckin Coffee, which was founded in 2017, is confidently pushing a more powerful American competitor in the Chinese market.
According to the Nikkei Asian Review, the results of 2019 showed that Luckin Coffee occupies a leading position in the country in terms of the number of opened coffee shops. The Chinese network has 4,500 outlets, and Starbucks has opened 4,300 coffee shops in China so far. It should be noted that the number of new establishments in both companies is increasing rapidly.
Chinese coffee chain is pursuing a strategy to expand in areas where there is no presence Starbucks, and these are mainly remote regions, due to this, the company managed to bypass its main competitor in terms of the number of coffee houses by November 2019. The outlets of the Chinese chain are often smaller than Starbucks coffee shops, some of them do not even have seats, customers take their coffee with them or use delivery services. And besides, at Luckin Coffee points, customers can drink freshly brewed tea, which is very popular in China. Also, the Luckin Coffee strategy includes significant marketing expenses and all kinds of promotions.
The ability to order coffee in advance via a mobile app and simply pick it up at a coffee shop is attracting more and more customers to Luckin Coffee who do not want to stand in lines, as is often the case in much more traditional Starbucks establishments. And although recently the American company began test the new Starbucks Now format, it is not yet possible to make a really serious competition to a young competitor.
Starbucks' strategy has traditionally been more focused on conquering major cities. The first chain store was opened back in 1999 in Beijing, in the China World Trade Building. Since then, the company has regarded China as one of its most attractive markets and has been actively working to conquer it. One of the steps in this direction was cooperation with Alibaba Group Holding, in the field of testing delivery services.
The financial results of Luckin Coffee allow us to talk about the success of the path chosen by the company. Earnings for the third quarter of 2019 were $208.9M, up an impressive $557.6% year-over-year. The value of the network's shares after the announcement of financial results increased by 124% since the initial public offering in May 2019. Today, Luckin Coffee has taken the position of the largest coffee house chain in China in terms of the number of outlets.