Competition intensifies in the coffee market as Luckin Coffee opens five cashier-less outlets in New York City, marking a significant expansion in the US for China's biggest coffee chain.
Luckin Coffee, China's largest coffee chain, is making waves in the United States by challenging Starbucks' dominance. Originating from China, this coffee chain has attracted significant venture capital investment, including from Sequoia Capital.
With over 26,000 stores worldwide, Luckin Coffee has rapidly expanded its market presence, even undergoing a corporate overhaul following an accounting fraud scandal in 2020. The company admitted to fabricating over $300 million in sales, leading to fines, executive firings, and bankruptcy proceedings. However, under new management and a focus on transparency, Luckin Coffee has recovered, reporting a net revenue of $3.5 billion by 2023.
Luckin Coffee's strategy involves accepting early losses to build brand recognition and increase market presence. All orders at Luckin stores are placed via a mobile app, offering a cashier-less experience. To attract American customers, steep app-based coupons with discounts of up to 50% are offered.
This move directly targets Starbucks' legacy model of in-store ambience and experience. Bernstein U.S restaurant equity research analyst Danilo Gargiulo stated that Luckin Coffee aims to make the brand recognized on a national basis, even if it means suffering smaller losses per store.
Luckin Coffee has already launched five cashier-less locations in New York City, expanding into the U.S. market. Starbucks, on the other hand, is focusing on operational profitability, targeting a per-store minimum margin of 15%.
Relatedly, Starbucks is revamping 1,000 locations, while Luckin Coffee offers a diverse menu that includes Americanos, matcha drinks, fizzy drinks, and creative lattes, such as the popular coconut and velvet varieties.
As Luckin Coffee continues to grow, it will be interesting to see how it challenges Starbucks' dominance in the U.S. coffee market.
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