A HUGE CHINESE coffee chain giant is expanding in America sparking a rivalry with Starbucks.
Luckin Coffee has claimed the title of top coffee chain in China with 26,000 locations compared to Starbucks’ roughly 8,000 stores.
The company has now expanded into the United States with five locations.
The coffee shops, all located in New York City, opened as part of the company’s global expansion strategy, with the goal of “becoming a world-class coffee brand,” the company said in a July press release.
“The United States, as the world’s largest coffee consumption market with a rich coffee culture, is a strategically important market for Luckin Coffee’s global expansion,” Luckin Coffee CEO and Co-Founder Jinyi Guo said.
Luckin Coffee’s operation differs significantly from Starbucks as the stores do not have cashiers.
Instead, customers place their orders on the brand’s mobile app.
Starbucks is taking a different approach, renovating about 1,000 locations with new tables and chairs, which is opposite of Luckin’s grab-and-go model.
“It’s creating comfortable seating where people want to come in, it’s not just the quick grab and go concept, Starbucks Chief Operating Officer Mike Grams told CNN.
PRICE FIGHT
While Starbucks and Luckin Coffee’s prices are close in range, Luckin offers frequent discounts to customers using their app.
Users can find coupons in the app that range from 30% to 50% off their purchase.
The chain also entices new users by offering your first drink for 99 cents after you download the app.
Starbucks offers a loyalty-based rewards program where customers can make a free account, order ahead, and earn points that can be redeemed for qualifying items.
The Stars points can be redeemed on food, drinks, protein boxes and coffee tumblers sold at the chain.
You can earn one star per dollar you spend at Starbucks and two stars per dollar when you preload a digital Starbucks Card or gift card.
You can redeem a free coffee, tea, snack or bakery item once you’ve reached 100 points.
NATIONAL RECOGNITION
While consumers enjoy the discounts, experts say that Luckin Coffee’s operations may not be sustainable with their pricing levels and store numbers.
“Starbucks is always striving to be profitable on a single occasion… Usually, trying to target a minimum of 15% margin per store is our estimation,” Danilo Gargiulo, a research analyst for Bernstein U.S restaurant equity told CNBC.
“In the case of Luckin, the idea is I want to grow in awareness. I want to make sure that the brand gets recognized on a national basis, even though at the beginning, this means that I might need to be suffering from some smaller losses on a per store basis.”
MORE OPENINGS
In July, Luckin reported a 47.1% year-over-year total net revenue increase. The company also saw a store level operating profit.
Over 2,000 stores opened over the course of three months, with the bulk of those stores being in China, including Hong Kong.
New locations opened up in Singapore and Malaysia, with six and 16 stores, respectively.
The two new locations in New York are near Washington Square Park and Midtown Manhattan, optimizing on high-traffic areas.
It remains unclear if the company will expand to other states throughout the U.S.
One social media user called upon the company to open a store in Texas, which prompted the admins of the Luckin Coffee’s Instagram account to like the post.
