|

Luckin Coffee is Coming to Starbucks’ Home Turf

China’s biggest coffee chain, Luckin Coffee, is eyeing an American expansion that could undercut the market for $10 chai lattes.

Photo of a Luckin Coffee shop
Photo by Amin via CC BY-SA 4.0

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

Coffee isn’t mentioned anywhere in Made in China 2025, Beijing’s state-led industrial policy to dominate strategic technology sectors. But Luckin Coffee is thinking big. 

China’s biggest coffee chain is eyeing an American expansion that could undercut the market for $10 chai lattes, according to a Financial Times report. It’s something of a comeback for Luckin, which was kicked off the Nasdaq in 2020 for an accounting scandal — and timed just as Starbucks is stuck in a rut.

Luckin Charms

Luckin was founded in 2017, and grew fast enough to IPO in the US by 2019. Just months later, it was caught inflating revenues, hence its Nasdaq ouster. But instead of fading into obscurity, the group booted its founder and fortified its position back home. At the time of the scandal, Luckin had roughly the same number of Chinese locations as Starbucks, around 4,000. It’s since exploded, now outnumbering Starbucks’ Chinese locations, around 20,000 compared to just 7,300. 

Last year, it generated sales of around $3.5 billion, surpassing Starbucks’ China business for the first time ever. And starting next year, it wants to take the fight to Starbucks’ home turf:

  • The company plans to make waves in the US by offering competitive pricing, around $2 to $3 per cup of coffee, the FT reported, marking the latest shot in fast-dining’s ongoing Value Wars.
  • Sources also told the FT that Luckin will first launch in US cities with high populations of Chinese students, immigrants, and tourists. Eagle-eyed basketball fans may have already spotted Luckin advertising during NBA events.

Star-bust: The coming US invasion is just more bad news for Starbucks. Last week, the company reported a 25% drop-off in profits in its latest quarter. Its comparable store sales in the US fell 6%, and in China they plummeted 14%. It’s been enough for new CEO Brian Niccol, who took the job in September, to declare his priority is restoring growth in the home market. His first order of business: simplifying the job for baristas. Starting Nov. 7, the chain will remove its olive oil-based Oleato coffee drinks, a Howard Schultz favorite, as well as toffee-nut syrup, according to an internal memo seen by Bloomberg on Tuesday. It’s one Tall step toward fixing some Grande problems.