Editor's note: Sign up for CNN's “while in china” newsletter, which explores what you need to know about the rise of China and its impact on the world.
Hong Kong
CNN
—
Luckin Coffee, the Chinese chain that has been rebuilding its business since a fraud scandal four years ago, reported significantly higher sales than rival Starbucks in the key Chinese market.
Luckin's total net revenue in 2023 rose 87% from a year earlier to 24.9 billion yuan ($3.5 billion), according to financial results released Friday.
Although sales are not broken down by region, the majority of sales come from China. There are only 30 overseas stores in Singapore, the first of which opened in March last year.
Starbucks (SBUX), In comparison, The company reported total revenue in China of $3.05 billion for the fiscal year 2023, which ended Oct. 1, according to CNN calculations based on the company's quarterly results. The U.S. coffee chain has not released full-year sales figures in China.
Xiamen base Luckin announced that its 2023 unaudited net profit reached 2.85 billion yuan ($396 million), compared to 488 million yuan ($68 million) in 2022.
Luckin, which already bills itself as China's largest coffee chain, announced it surpassed Starbucks in the number of stores in mainland China in 2019.
Luckin sales soar Last year was partly due to its rapid expansion.by the end In 2023, Luckin will have 16,218 stores in China, nearly double the 8,200+ stores in 2022.
By contrast, Starbucks had 6,975 stores in China as of the end of January, according to the company's latest quarterly results released earlier this year. This figure increased by 14.5% compared to the previous year.
Some of Luckin's stores are operated by the company, while others are operated by partners. Starbucks stores in China are fully owned by the company.
Globally, Starbucks remains by far the largest coffee chain, with 38,586 stores worldwide. The United States and China are the company's two largest markets.
China was once a tea-drinking nation, but in recent years it has become the world's coffee powerhouse, despite facing many economic problems. Coffee consumption in the country increased by 15% in the year ending September, according to International Coffee Organization data last year.
Much of this demand is being driven by younger generations. According to a 2021 survey by Chinese market research firm Daxue Consulting, 36% of domestic coffee consumers were between 25 and 34 years old, and 30% were between 35 and 44 years old.
The number of branded coffee shops in China increased by 58% in the past 12 months, reaching 49,691 stores, according to a December report by World Coffee Portal. As a result, China has overtaken the United States to become the world's largest branded coffee shop market.
Luckin acknowledged the fierce competition.
“We will continue to focus on our pricing and expansion strategies to maintain growth and market share,” Jingyi Guo, Luckin Coffee's chairman and CEO, said in a statement accompanying the company's financial results. ” he said.
VCG/Visual China Group/Getty Images
People visit the Starbucks booth at an exhibition in Beijing, November 28, 2023
Luckin was founded in 2017 and is backed by Chinese private equity firm Centurium Capital. Focusing on services for young people, there are mainly takeout booths and cashless payments are available. The company's drinks are about 30% cheaper than Starbucks.
Bare-bones stores typically offer only the most basic services, allowing the company to expand quickly and at low cost. Additionally, consumers will be required to place orders using their mobile phones, allowing for extensive customer data to be collected.
By 2019, the company had more than 4,500 stores, surpassing Starbucks in China, according to the company.
In 2019, Luckin went public in New York, welcomed by investors who believed it could become a serious challenger to Starbucks.
However, the company was forced to withdraw a year later after it was discovered that its profits had been fabricated. Luckin was eventually delisted from the Nasdaq, and its chairman and CEO at the time were also fired. It was also fined $180 million by the U.S. Securities and Exchange Commission.
The company has since vowed to rebuild its business. Centurium Capital, an early investor in the coffee chain, became its controlling shareholder.
Even though Starbucks outperforms Luckin in both store count and sales, it still has a significant lead over Luckin in terms of profitability. The Chinese company's rapid expansion has resulted in declining profitability.
In response to competition, Starbucks announced partnerships with Alibaba (BABA) and Meituan in 2018 and 2022, respectively, to expand its online reach to Chinese consumers.
Luckin made headlines last year with its collaboration with Chinese liquor brand Guizhou Moutai, and Starbucks is also making headlines with its innovative new drinks.
The American giant launched a pork-flavored coffee earlier this month to cater to local tastes and traditions. Priced at $9.45, the drink combines Dongpo pork braised sauce with espresso and steamed milk, and comes with additional pork sauce and pork breast for garnish.
