Name: China Coffee Wars — Why Starbucks Is Losing The Battle With Luckin
Uploaded: 2025-12-26T01:22:47.000Z
Duration: 10 min 17 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

It wasn't long ago that China was Starbucks poster child of successful international expansion.

Basic passive voice

China was viewed as a fertile growth opportunity just given the urbanization of the population, a growing middle class as well as proclivity for Western brands.

We can build Starbucks stores in China as fast as we can for the rest of my life and still have addressable market to gain in China.

From 2017 to 2020, Starbucks added about 3,200 stores in China.

Revenue was hit hard by pandemic lockdowns in 2020.

Despite China's strict zero COVID policies, the company rebounded with explosive sales growth the following year.

Between 2021 and 2024, revenue was down about $700 million, all while Starbucks added an additional 2,200 stores in the country.

This is emblematic of a market that's maturing where you do have multiple entrants.

In the U.S. of course, there's multiple strong coffee competitors.

China didn't necessarily have that 10 years ago, but now you do.

Despite volatility in recent years, Starbucks is a historically strong brand that helped shape modern day coffee culture across the world.

Going out for a cappuccino or a latte was not as much of a thing in the US prior to the 1990s.

They also sort of defined the culture, except coffee itself was not widely drank at all in China prior to when Starbucks entered.

25 years ago, Starbucks grew its presence in China relatively unchallenged until 2017.

That's when its biggest competitor, Luckin, entered the market.

By the end of 2018, its valuation had surpassed $2 billion.

And the domestic competitor already had about half the number of stores that Starbucks did.

What's always been interesting about Starbucks is that it hasn't had a natural domestic rival.

There are a lot of other American brands that do, but Starbucks hasn't.

So all their competitors have been Costa from the UK or UCC from Japan.

But by 2020, it seemed that Luckin may not have become the threat that Starbucks initially feared.

After news broke that the company fabricated over $300 million in sales, it shut down hundreds of stores and was delisted from the Nasdaq in 2020.

Still, it emerged from bankruptcy in 2022 and restructured its financial position.

From 2022 to 2024, Luckin more than doubled its store count.

It now has roughly 6,000 more company operated stores than Starbucks.

It's no bones Pared down coffee shop that allows them to expand fast at a much lower price point.

If the taste difference is not differentiating enough, this is dangerous for Starbucks.

And Luckin has proved, just as Starbucks did in its first days, really good at marketing itself.

Luckin's done a really good job of putting their locations in a ton of different places, growing location numbers dramatically.

A lot of these are very small locations, so they're very easy to set up.

You can put them in places like universities and schools and hospitals and people can just go and get a cup of coffee very quickly.

Whereas the Starbucks experience is more of an in store experience, Luckin utilizes a grab and go model.

The only way customers can order is through a mobile app.

The company was at the forefront of the now standard catering model when it first opened in China.

Compared to Luckett, Starbucks saw a spike in 2021, but more recently it has lagged behind Luckin.

Historically, Starbucks has distinguished itself through premiumization.

That was especially true in China when it went virtually unrivaled for many years and consumer confidence was strong.

That changed after the pandemic over the last few years.

Starting really in 2122, you really saw a step up in the amount of competitive activity as well in China.

And I want to say it was around 2022, 2023, when you really start to see the rise of value.

You're really utilized within, within a competitive set.

The Chinese consumer has been under a lot of economic pressure in recent years.

That means discretionary purchases like a coffee are the first to go.

As our survey indicated that when we asked consumers where we'd be cutting back to save money, dining out of restaurants was ranked number one.

Coffee consumers in China tend to be in their teens, 20s and 30s.

That's the largest and fastest growing market.

But this is ones that have been hit the greatest by the economic slowdown beginning with zero Covid and the lack of rebound of the Chinese economy ever since the collapse of the real estate market, in which people, including their own parents, who have invested a lot in real estate, suddenly feel 20, 30, 40% poorer than they were before.

That's why Luckin Coffee's biggest edge against Starbucks is price.

While the sticker price of a latte at both companies is actually relatively similar, Luckin is known for consistently offering steep discounts.

Starbucks, which rarely offers coupons, has been forced into it.

China is seeing a lot of promotions right now because consumers are are still under pressure.

So you're seeing kind of a Drag from that.

In some cases you're seeing companies that sort of have traffic growth but check declines because of the level of promotions.

Other notable competitors include Kati Coffee and Manor, whose drinks typically run at least half the price of Starbucks.

You've got competitors that are growing very quickly.

You've got the fact as well that coffee by nature is a high margin business and so competitors can afford to provide discounts just given there's a high customer lifetime value.

Over the past two years, Starbucks has been growing its number of customers in China.

But people are spending less at its stores.

And there's more to the story than just competition.

Chinese nationalism has grown as political tensions remain high between the US and China.

The effects trickle down to even coffee consumption.

At the same time it's subject in a moment of international tension to to what you might think of as brand nationalism.

It's not that people are anti Starbucks or anti American in not buying Stardust, but

you might be more tempted or at least you're taking somebody out for a date.

Don't take this woman to show off that you're well off by taking her to a fancy coffee.

They took her to a patriotic and a Zhongo Tesuda coffee, a special coffee with Chinese characteristics.

While competition in the country is far more elevated than a decade ago, there's still a lot of space for Starbucks to grow.

China's population is more than four times that of the US plus out of home.

Coffee as a concept is still relatively new there and Starbucks differentiates itself as a sit down option while a lot of competitors are grab and go.

In the spring we ran a survey of 2,000 consumers in China.

And the survey told us that while 80% of of consumers and respondents identified as coffee drinkers, only 18% drink coffee on a daily basis, signaling that Starbucks is in early innings in what was historically a tea drinking nation.

Interestingly, we asked about brand perceptions.

Starbucks ranked highest on taste profile and ranked second on value, second to category leader.

In December 2024, Starbucks hired a chief growth officer to help steer the company back on course.

In China, experts say there is opportunity to optimize the brand's offering beyond just cost considerations.

I don't think competing on prices is really the answer there.

One of the things they might look into is localization efforts.

Other players like KFC and Burger King have done a bit of this where they partner with local players, focus on that premium growth, but

Watkin's been doing a whole lot with different flavors and they explore lots of different flavors on a month to month basis.

Another way that Luckin has been able to expand so quickly is by franchising its establishments.

It has around 13,400 company owned stores and 7,400 partnership stores.

It collects royalties from these independently run partnership stores.

Starbucks operates that same type of mixed model in the US it licenses operators to run stores that are typically found inside targets or airports where real estate would operate otherwise be inaccessible.

In China, all of Starbucks establishments are currently company operated.

You see the China ownership structure shift into something more asset light, for instance, via a licensee or a joint venture.

Typically what you see international markets is that it's an all or nothing.

And I think that with China it would make sense to make it 100% licensed or franchised rather than splitting that up.

It creates a little bit less earnings volatility.

I think it creates a little bit less operational risk.