Luckin Coffee's first store in the United States opened in New York, and American media exclaimed "Counterattack Starbucks"

Luckin Coffee enters the U.S. market, facing strong challenges from Starbucks.

According to a report by The Wall Street Journal on the 25th, Chinese coffee chain giant Luckin Coffee has officially entered the U.S. market, opening two flagship stores in Manhattan, one of which is located less than 200 feet from Starbucks, directly challenging this global coffee giant.

As a company that nearly collapsed after an accounting scandal, Luckin has now surpassed Starbucks in the Chinese market, becoming the largest coffee chain brand and is bringing its mobile app-driven, low-cost business model to Starbucks' home turf.

This move comes as Starbucks faces a decline in same-store sales for five consecutive quarters, with its new CEO Brian Niccol working to optimize digital orders and upgrade store experiences to boost performance.

Mobile App and Low-Price Strategy: Luckin's Winning Formula

Luckin leverages its tech-native characteristics, making mobile apps and low-price strategies its core competitiveness.

Reports indicate that Luckin forces customers to place orders through its app and distributes a large number of coupons within the app. It is reported that new users in New York can purchase special drinks from Luckin for only $1.99.

Luckin's app not only provides ordering and discount features but also incorporates gamification elements, offering pickup times and sending text notifications when drinks are ready, with recent order wait times averaging only 3-5 minutes.

23-year-old tech salesman Trainer Unsworth told The Wall Street Journal, "Coffee has become a bit too expensive now." Compared to the approximately $6 he pays elsewhere, Luckin's iced latte is priced at only $2.

The report points out that this "order and pick up" model meets the needs of fast-paced consumers in high-line cities. Initial data shows that Luckin's repeat visitor rate is at a high level.

In contrast, Starbucks has faced challenges in managing mobile orders.

Starbucks founder Howard Schultz has complained that the mobile order pickup area has turned into a "chaotic crowded zone," disrupting the leisurely upscale atmosphere that Starbucks has always pursued; new CEO Brian Niccol has admitted the need to revamp mobile orders, such as separating mobile pickup queues from regular café customers and setting some limits on how customers customize their drinks.

Currently, only over 30% of pickup orders at Starbucks are completed through digital channels. Niccol stated earlier this year that about half of in-store orders require a wait time of over four minutes.

From Near Bankruptcy to International Expansion

The rise of Luckin Coffee is nothing short of legendary. In 2017, Lu Zhengyao, founder and chairman of CAR Inc., and Qian Zhiya, former COO of CAR Inc., co-founded Luckin Coffee, becoming part of the Chinese tech financing boom.

From the beginning, Luckin centered around mobile applications, emphasizing on-demand coffee service, achieved through takeout and rapid delivery.

Luckin's store sizes are smaller than Starbucks, but they offer significantly larger discounts. The company opened thousands of stores in China at an astonishing speed—many located near Starbucks—and went public in less than two years However, in 2020, an accounting scandal put it in trouble, forcing Luckin Coffee to delist from Nasdaq and pay $180 million in settlement to U.S. regulators. After Guo Jinyi, the executive in charge of products and supply chain, took over as CEO, Luckin began to regroup and gradually repair its reputation with the financial support of Dazheng Capital.

By 2023, Luckin surpassed Starbucks to become the largest coffee chain brand in China. Currently, Luckin has over 24,000 stores in mainland China, Hong Kong, Singapore, and Malaysia, more than three times the number of Starbucks stores in China.

According to reports, Luckin's menu in New York includes specialty drinks such as Ice Coconut Latte, Pineapple Cold Brew, and Matcha Latte. Like Starbucks, Luckin allows customers to customize their drinks, but the options are relatively fewer— for example, the Luckin app offers 6 milk options for iced lattes, while Starbucks has 11.

According to Bernstein Research, due to the rise of Luckin and other local competitors, Starbucks' market share in China has dropped from over 40% in 2017 to 14% in 2024.

The agency analyzed that if sales increase and discounts gradually decrease, Luckin will be able to achieve profitability at the store level in the U.S. within the next 12 to 18 months. Notably, the number of its second U.S. store is not 2, but 00002, which analysts see as a sign of Luckin's greater ambitions in the U.S.

Starbucks' Response Strategy

In the face of intensified competition, Starbucks has taken action in the Chinese market.

Last month, Starbucks lowered the prices of more than 20 types of beverages, with an average price reduction of $0.70 for a grande drink. Starbucks stated that these price cuts are having an effect.

In addition, new drink styles, such as sugar-free options, are expanding Starbucks' customer base and increasing sales, especially during the afternoon and evening hours.

Starbucks International CEO Brady Brewer stated in a previous interview:

"We try not to be distracted by things we can't control, like who is entering the market. If we do our best to provide coffee, a café environment, and quality customer service, we usually win."

From a financial perspective, Starbucks recorded $36.2 billion in revenue for fiscal year 2024, while Luckin recorded $4.7 billion. Starbucks' market capitalization is approximately $106 billion, while Luckin's is about $10 billion