Starbucks is no longer the first in China

Starbucks has lost its top spot among chains competing to meet China’s growing demand for coffee.

According to company reports, China’s Luckin Coffee has surpassed Starbucks as China’s largest coffee chain in terms of sales and units. Luckin currently operates approximately 13,300 stores, all but a handful of them in China. This figure is approximately double the size of the 6,800 Starbucks stores in the country.

China, a traditionally tea-drinking society, consumes very little coffee compared to many other countries, but companies say Chinese demand is growing. Analysts expect China to become the world’s largest consumer market in the coming years. Major Western brands selling to Chinese consumers face increasing competition from local brands as consumers begin to favor these brands.

LOSS IN THE SECOND LARGEST MARKET

Seattle-based Starbucks, the world’s largest coffee chain, has for decades considered expansion in the world’s second-most populous country among its top priorities. Although a complex place to do business, China represents one of Starbucks’ biggest growth opportunities, said former CEO Howard Schultz. China is currently Starbucks’ second-largest market in terms of stores and revenue, after the United States.

Starbucks attempted to gain first-mover advantage after opening its first coffee shop in China in 1999. The chain has expanded from the country’s largest cities to smaller cities, building hundreds of new stores in the country each year. The pandemic severely affected Starbucks’ business in China, with sales in the country falling 17 percent in 2020 compared to 2019.

COMPETITION INCREASED AND SALES DECREASED

Luckin generated sales of $855 million in the three months ended June 30, ahead of Starbucks’ $822 million in revenue from its China business in the three months ended July 2, according to filings. the company. Luckin’s sales superiority increased further in the company’s November reports.

Despite increasing competition and declining sales, Starbucks executives remain resolute about China. In its November statement, the company said it aims to open approximately 1,000 stores a year in China and increase this number to 9,000 by 2025. China will one day become Starbucks’ largest market, executives said. “I’m very sure this is just the beginning,” Starbucks China co-CEO Belinda Wong said at an investor event in November.

LUCKIN WAS FORMED AROUND THE MOBILE APP

Founded in 2017, Luckin shaped its strategy around its mobile app and integrated takeout option early on, which Starbucks later added to its China operations. Luckin had 3,680 stores in fall 2019, closing in on the 4,130 stores Starbucks had built over the two decades prior to that year.

Luckin went public in 2019. In 2020, Luckin admitted that they overstated their sales by approximately $310 million the previous year. The Nasdaq Stock Exchange delisted the company that year. Luckin has committed to restructuring by bringing in new executives and attracting investment from Chinese private equity firm Centurium Capital. The chain opened its 10,000th store in China this summer.

Another emerging rival is China’s Cotti Coffee, founded last year by Luckin founders who are no longer with the company. Cotti Coffee offers low-cost drinks aimed at young people and said in August it had opened 5,000 stores in about a year.