Luckin Coffee, the buzzy chain that outsells Starbucks in China, reportedly plans a U.S. expansion
Four years ago, Luckin Coffee was kicked off the Nasdaq after the buzzy Chinese coffee chain admitted that it had inflated its sales by over $300 million. The resulting scandal helped to spark a crisis that threatened $1.3 trillion worth of stock, as regulators decided to put the screws on auditing practices for U.S.-listed Chinese companies.
For U.S.-based observers, the story ended there. But Luckin restored its fortunes in its home market of China. By 2022, Luckin stores had overtaken the number of Starbucks outlets in China. Then in 2023, Luckin reported annual revenue of 24.9 billion yuan ($3.48 billion), surpassing Starbucks’ China revenue of around $3.16 billion. (Luckin’s revenue includes 30 outlets in Singapore.)
And Luckin may now be planning to bring its low-cost coffee to the U.S., the Financial Times reports citing sources familiar with the matter. Luckin will reportedly price drinks between $2 and $3, and launch in cities with large Chinese student and tourist populations, such as New York.
Luckin Coffee did not immediately respond to Fortune’s request for comment. Luckin Coffee reports its quarterly results on Oct. 30.
Luckin’s comeback
Whether or not Luckin Coffee expands to the U.S., the coffee chain has turned things around since the accounting scandal. At the time, analysts noted that the accounting scandal had little effect on the chain’s popularity among Chinese customers.
Smart marketing campaigns helped burnish the chain’s brand image. In 2022, Luckin enlisted Eileen Gu, the U.S.-born freestyle skier and Beijing Winter Olympics star, as the face of a new ad campaign. Then, last year, Luckin Coffee partnered with Kweichow Moutai, a liquor brand, to launch a drink spiced with baijiu. The drink went viral on Chinese social media.
Luckin may now be planning to go global. The company already has at least 30 stores in Singapore. Chinese media reported in August that Luckin is considering further expansion into Southeast Asia, as well as the U.S., potentially as early as the fourth quarter of this year.
Hot on Luckin’s heels is another discount coffee chain, Cotti Coffee. Cotti was founded by Lu Zhengyao and Jenny Qian, also the founders of Luckin Coffee, who were ejected after the accounting scandal. Cotti has proved to be more aggressive in its global expansion, with outlets in 28 countries and regions including South Korea, Indonesia, and Hong Kong. Cotti opened its 10,000th outlet last week in Doha, Qatar.
Starbucks China woes
Luckin and Cotti’s gain is Starbucks’ loss. China has been a key growth market for the U.S. coffee chain as Chinese urban consumers flocked to buy its (relatively expensive) coffee.
Yet Starbucks’ China sales have stagnated. The U.S. coffee chain reported a 14% decline in same store sales in China, its second largest market, in the most recent quarter.
The company blamed the “macro and competitive environment” for its weak results in China.
More broadly, Starbucks reported $9.1 billion in revenue, a 3% drop, for the most recent quarter. The company recently ousted CEO Laxman Narasimhan in favor of Brian Niccol, the former CEO of Chipotle. Since taking over, Niccol has shaken up company leadership and pledged to focus on customer experience and wait times at the chain’s U.S. stores.
Soon after taking the helm, Niccol elevated Molly Liu, then co-CEO of Starbucks’ China business, to serve as the sole CEO of the division. The other co-CEO, Belinda Wong, was elevated to the role of chair, after 13 years as head of the China business.
