Luckin Coffee, a Chinese beverage chain, has reported continued strong sales growth, surpassing its competitor, Starbucks, in the important market of China.
Specifically, in 2023, Luckin generated a total net revenue of 24.9 billion Chinese yuan (3.5 billion USD), a 87% increase compared to the previous year.
Currently, Luckin does not break down revenue by geographic regions, but the majority of its revenue comes from China. Internationally, Luckin only has 30 stores in Singapore, with the first store debuting in March of last year.
Meanwhile, according to CNN’s calculations based on quarterly results, Starbucks reported a total revenue of 3.05 billion USD in China for the fiscal year 2023 ending on October 1. The US coffee chain has not reported full-year sales figures in China.
Luckin stated that its unaudited net profit in 2023 reached 2.85 billion Chinese yuan (396 million USD), compared to 488 million Chinese yuan (68 million USD) in 2022.
Luckin, which claims to be the largest coffee chain in China, said it surpassed Starbucks on the Chinese mainland in terms of store count in 2019.
Luckin’s sales skyrocketed last year partly due to the rapid expansion of the company. By the end of 2023, Luckin had 16,218 stores in China, nearly doubling the figure of over 8,200 stores in 2022.
In contrast, Starbucks had 6,975 stores in China as of the end of January, according to the company’s latest published quarterly results earlier this year. That number increased by 14.5% compared to the previous year.
Some of Luckin’s stores are self-operated, while others are operated by partners. Starbucks’ stores in China are fully owned by the company.
Globally, Starbucks remains the largest coffee chain with 38,586 stores worldwide. The US and China are the company’s two largest markets.
China, once a country with a tea-drinking tradition, has become a global coffee powerhouse, despite grappling with economic issues in recent years. Data from the International Coffee Organization last year showed domestic coffee consumption increased by 15% in the year ending in September.
The majority of this demand is driven by young people. According to a 2021 survey by Daxue Consulting, a Chinese market research company, 36% of domestic coffee consumers are aged between 25 and 34 and 30% are aged between 35 and 44.
According to a December report by World Coffee Portal, the number of branded coffee chain stores in China increased by 58% in the past 12 months, reaching 49,691 stores. That helped China overtake the US to become the world’s largest branded coffee shop market.
Despite optimistic business results, Luckin acknowledges fierce competition.
Jinyi Guo, Chairman and CEO of Luckin Coffee said in a statement accompanying the company’s financial results: “We remain focused on our pricing and expansion strategies to maintain our growth pace and market share.”
Luckin was founded in 2017 and was backed by Chinese private equity firm Centurium Capital. They focus on serving young people, primarily with takeout and cashless payment options. Their drinks are about 30% cheaper than Starbucks’.
Luckin’s basic stores usually only offer the most basic services, allowing the company to expand rapidly at a lower cost. They also require consumers to use mobile phones to place orders, allowing them to collect extensive customer data.
According to the company, by 2019, the company surpassed Starbucks in terms of store count in China, with over 4,500 stores.
In 2019, Luckin IPO in New York and received a warm welcome as investors believed it could be a heavyweight rival to Starbucks.
However, the company had to withdraw just one year later after admitting that its financial numbers were fabricated. Luckin was ultimately delisted from the Nasdaq, and both the Chairman and CEO at the time were fired. The company was also fined $180 million by the US Securities and Exchange Commission.
Afterwards, the company pledged to rebuild its business operations. Centurium Capital, the initial investor in the coffee chain, became their controlling shareholder.
Although currently overtaken in terms of store count and sales, Starbucks still leads Luckin in terms of profitability. The Chinese company’s profits have been affected by rapid expansion.
To cope with the competition, Starbucks announced collaborations with Alibaba and Meituan in 2018 and 2022 respectively, expanding online access to Chinese consumers.
While Luckin gained attention last year through its partnership with Chinese liquor brand Kweichow Moutai, Starbucks is also attracting attention with its innovative new beverages.
The US giant recently launched a pork-flavored coffee variety earlier this month, to cater to local tastes and traditions. Priced at $9.45, the drink combines syrupy pork-flavored sauce with brewed espresso and steamed milk, topped with pork belly for garnish.
Source: CNN
