Intensifying Coffee War in China... US Starbucks vs Native Luckin's Fierce Battle

With the Benefit of With-Corona, Luckin Coffee's Performance Jumps
Aggressive Sales Approach Nears 10,000 Stores
Starbucks Also Shows Strong Q1 Performance in China

The competition between the American Starbucks and the local Chinese brand Luckin in China's coffee market is heating up. As the Chinese government’s transition to a "with-COVID" policy marks a turning point, the growth of the local food and beverage market is accelerating, creating a strong momentum to expand store numbers and secure market share. The fact that coffee is rapidly replacing the traditional 'cha (tea) culture,' especially among young people and in major cities, also raises expectations for market growth.

According to local media including the state-owned Securities Times on the 3rd, Luckin, the largest coffee chain in China, reported that its sales in the first quarter (January to March) surged 84.5% year-on-year to 4.43 billion yuan (approximately 856.7 billion KRW). Operating profit for the same period skyrocketed 4,111% from 16.1 million yuan last year to 678 million yuan, and the operating profit margin jumped from 0.7% to 15.3%. The average monthly number of transaction customers in the first quarter reached 29.49 million, an 84.6% increase compared to the same period last year. Luckin stated that the cumulative number of customers to date has reached 150 million.

The largest Starbucks Reserve store in Shanghai, China (Photo by Kim Hyunjung)

The largest Starbucks Reserve store in Shanghai, China (Photo by Kim Hyunjung)

Aggressive Store Expansion... Accelerating Market Share Growth

Along with the earnings announcement, Luckin revealed that it increased its store count by 1,137 during the first quarter, reaching 9,351 stores as of the end of March. Luckin has announced plans to expand to 10,000 stores within this year, and at the current pace, achieving this target within the first half of the year seems feasible. At the first quarter financial results briefing, Guo Jin, CEO of Luckin Coffee, said, "Since resuming franchise operations at the end of last year, we have received applications from many partners," adding, "We are confident in achieving the goal of 10,000 stores this year."

Starbucks, closely trailing Luckin, is also mounting a strong offensive. On the 2nd (local time), Starbucks announced that its sales in the Chinese market for the first quarter reached $763.8 million (approximately 1.0236 trillion KRW), a 3% increase year-on-year. This not only exceeded expert expectations but also marked a significant improvement from the previous quarter (October to December), which saw a 29% decline in sales. The number of company-operated stores increased by 589, from 5,654 at the end of the previous quarter to 6,243. Starbucks aims to expand its store count to 9,000 by 2025.

On Wall Street, some analysts expressed the view that Starbucks’ performance depends heavily on its sales in the Chinese market ahead of its earnings announcement. On the 1st, MarketWatch cited Zachary Fadem, an analyst at investment bank Wells Fargo, saying, "Starbucks’ first-quarter results are naturally drawing attention to China’s performance," and "The stock price will react significantly to the company’s guidance depending on Chinese sales."

A Luixing Coffee stand located in Wangjing downtown, Beijing, China. (Photo by Kim Hyunjung)

"Seize the Food and Beverage Market, the Biggest Beneficiary of the With-COVID Policy"

The main reason coffee giants are aggressively expanding in the Chinese market is the unprecedented rapid growth worldwide. According to iMedia Research, as the coffee-consuming population rapidly increases, especially among young people, the size of China’s coffee market grew 27% from 381.7 billion yuan in 2021 to 485.6 billion yuan last year. It is expected to continue growing at an annual rate of around 40%, reaching a 1 trillion yuan market by 2025. This growth rate is 20 times the global average coffee market growth rate of 2%. According to global consulting firm Deloitte, the annual per capita coffee consumption across China was only 9 cups in 2021, indicating significant growth potential compared to South Korea or the United States, where consumption exceeds 300 cups. Major Chinese cities such as Shanghai and Beijing already reach 326 cups.

China’s food service industry is also considered the biggest beneficiary of the government’s with-COVID transition policy. According to the National Bureau of Statistics of China, total retail sales of consumer goods in the first quarter reached 11.4922 trillion yuan, a 5.8% increase year-on-year. Among consumption types, food and beverage sales reached 1.2136 trillion yuan, a 13.9% increase over the same period, significantly outpacing the 4.9% growth in general merchandise (1.2786 trillion yuan).

The coffee business extends beyond the simple food and beverage market into various fields such as finance through prepaid card purchases and consumer goods through the release of various merchandise. For this reason, globally famous franchises such as Tim Hortons, Peet’s, Lavazza, % Arabica, and Costa have all rushed to enter the Chinese market. Additionally, local brands like Manner, Xingwinka, and M Stand, as well as major convenience stores and fast-food chains like KFC and McDonald’s, have joined the competition.

This content was produced with the assistance of AI translation services.