Luckin Coffee has overtaken Starbucks to become China’s largest coffee chain, and it’s employing the same determined strategies to conquer the American market.
Since opening its first U.S. location in May, Luckin has expanded to five in New York City.
The coffee shops operate without cashiers — instead, customers place their order on Luckin’s mobile app to collect.
While base prices are similar to Starbucks, the company’s strategy is to throw discount codes and coupons at customers to use in the app.
Usually, these discounts range from 30 to 50 percent off the sticker price.
While this concept is appealing to customers who are sick of paying for overpriced coffees, experts say this strategy is not sustainable.
Bernstein research shows the initial stores are operating at a loss, and the current pricing model will likely need adjustment as the chain scales.
‘In the case of Luckin, the idea is I want to grow in awareness,’ said Bernstein US restaurant equity research analyst Danilo Gargiulo.
Luckin Coffee dethroned Starbucks as China’s largest coffee chain, and now the company is using the same savvy sales tactics to seize America too
Luckin made its US debut in July when it opened two locations near the campus of New York University
‘Their aim is to ensure the brand gains national recognition, even if initially, this means enduring some minor losses at each store,’ the company emphasizes.
Conversely, Gargiulo mentions, ‘Starbucks consistently aims for profitability on each visit… Typically, we predict they strive for a minimum of a 15 percent profit margin per store,’ said Danilo Gargiulo, a restaurant equity research analyst at Bernstein U.S.
Luckin made its US debut in July when it opened two locations near the campus of New York University.
The chain celebrated its opening with free tote bags with for the first 100 guests and $.99 drinks for early customers.
In China, the no-frills coffee chain has consistently pulled in young shoppers, with aggressive TikTok campaigns and low prices.
The strategy of Luckin is straightforward: keep it affordable and basic. With lattes, matchas, and cold brews priced between $2 and $3 after discounts, they are much cheaper than those at Starbucks.
It also has a small assortment of pastries. Diners can order some fruit-forward refresher drinks, too.
In China, the brand has leaned into aggressive TikTok marketing and a grab-and-go model that caters to students and professionals on the run.
The actual price of Luckin’s beverages aren’t far from Starbucks pricing – but they shower customers with discounts
Luckin’s approach is straightforward: keep it affordable and basic. Offering lattes, matchas, and cold brews at just $2 to $3, the cost is considerably lower than at Starbucks.
Luckin also has a small assortment of pastries. Diners can order some fruit-forward refresher drinks, too
The chain has a history of undercutting Starbuck’s value. A standard cup of Starbucks coffee will typically cost New Yorkers around $6 to $7.
In China, Starbucks drinks are typically 30 percent more expensive than Luckin’s.
Luckin has used its simple, easily-scaled restaurants with bargain basement prices to become one of China’s biggest restaurant chains.
The company was founded in 2017 and went public on the Nasdaq two years later – its share price surged in its market debut.
By 2019, the brand had overtaken Starbucks as the largest coffee chain in China.
Luckin currently has over 26,000 locations, most of them in China. Starbucks has around 8,000 stores in China.
Meanwhile, Starbucks’ venture in the Chinese market seems to be losing momentum. The company is combating claims that it is contemplating selling its entire portfolio of Chinese store locations.
The Daily Mail has reached out to Luckin Coffee and Starbucks for comment.
