Who's Luckin's real Rivalry

Starbucks, Lattes, or Bubble Teas？

Luckin Coffee has made an impressive comeback with strong year-on-year revenue increases in 2022Q2 and 2022Q3, despite the Covid headwinds in China in year 2022. In contrast, Starbucks, Luckin's biggest competitor, experienced two consecutive quarters of year-on-year revenue decline in China in the second half of 2022. So, how did Luckin achieve this impressive feat? We took a deep dive into China's unique coffee consumption landscape. Here's our perspectives on what the future holds for this coffee giant.

Go beyond the number of stores

Coffee culture has been growing in China over the past decade. Twenty-years ago there was only Starbucks---getting a cup of Starbucks was a trendy thing among young Chinese. Over the past decades, coffee shops have gradually saturated the metropolitan cities in China, among them emerging the local coffee giant Luckin as well as a variety of brands and boutique cafes. It's already not news that Luckin has surpassed Starbucks in the number of stores opened since March 2022. But Luckin's successful growth is more than the mere total number of stores. Let us break it down for you:

Once we break down the stores by city tiers, we clearly see Luckin's growth is driven significantly by its expansion into lower-tier cities, where its rival Starbucks has almost remained stagnant over the past two years.

*The Chinese city tier system refers to an unofficial hierarchical classification of Chinese cities. First-tier and new-first-tier cities comprise of the top 19 mega cities in China that ranks high in GDP, population size and administrative hierarchy.

Starbucks' premium-pricing strategy is losing its steam in lower-tier cities . The average order value per store (AOV) for Starbucks is close to ¥40 compared to ¥20 for Luckin.

Coffee or Coffee-flavored beverages?

Price is not the sole determinant of coffee consumer’s choice. Breakfast cappuccino might not be that cup of coffee for all Chinese coffee lovers. Many simply dislike the taste. In fact, they prefer to have coffee-flavored beverages (similar to Starbuck's frappuchinos or flavored lattes). Interestingly, there’s a “boba tea” culture in China where many young Chinese order boba tea almost daily. Some treat it as a social venue to hangout with friends and colleagues (imagine having that afternoon espresso and chit-chat with your coworkers). These consumers view coffee as just another alternative to their daily bubble tea routine. Compared to Starbucks, Luckin offers a much more diverse menu featuring coffee-flavored beverages, each item named using trendy words to grab young consumers’ interests. In fact, 8 out of the 10 best-selling items on Luckin’s menu are flavored latte drinks, among them coconut being the most popular flavor.