Starbucks Is No Longer China's Largest Coffee Chain

After standing tall as China's largest coffee chain for years, Starbucks has officially been dethroned by Chinese company Luckin Coffee. Founded in 2017, the chain made waves as a new competitor in China's coffee market, where Starbucks remained largely unchallenged as a global corporate coffee giant. After a period of rapid expansion, Luckin Coffee ended 2023's second quarter with a reported 10,829 locations throughout the country, outstripping Starbucks' 6,480 total stores in China. Now, it's the country's largest, and fastest-growing, coffee chain.

When Starbucks first entered the Chinese market in 1999, folks were skeptical that the coffee chain would find success in a country so historically and economically defined by its tea. However, Starbucks' entry into China has been credited by many as the very thing to shift the culture's beverage-drinking habits. Driving the nation's first large-scale introduction to Western coffee culture, Starbucks was not only a pioneer in the market but has also long been considered its cornerstone. It didn't take long for Starbucks to successfully expand and, essentially, own the fast-casual coffee market in China. In the decade between 2011 and 2021 alone, the chain opened thousands of new locations, starting with 278 outposts and ending up with more than 5,000 (per Coffee Intelligence). However, by creating a new demand for coffee in China, Starbucks opened the door for domestic companies like Luckin Coffee to enter the market and, as of now, dominate it.

The rise, fall, and rise of Luckin Coffee

After bursting onto the Chinese business scene in 2017, Luckin Coffee quickly became Starbucks' biggest competitor in the country. The homegrown entity invested in an aggressive growth strategy, putting its highest percentage of operating costs towards sales and marketing in 2017 and 2018. By May 2019, when the company went public on Nasdaq, it had opened around 2,400 retail coffee shops in China.

Just a year later, however, it was discovered through an internal investigation that the chain's chief operating officer at the time had manufactured over $310 million of the company's sales in 2019 reports. The company subsequently fired both its COO and its founder and chief executive officer, Jenny Zhiya Qian. In the aftermath of the scandal, Luckin was delisted from the stock exchange and was forced to pay a $180 million penalty to the U.S. Securities and Exchange Commission (via CNBC). Since then, the company has managed to make a strong comeback.

Its rapidly growing success and ability to overtake Starbucks in such a short period are credited to its focus on quick, grab-and-go stores that encourage the use of its app for ordering. Unlike Starbucks, Luckin Coffee also engages in franchising operations, which has helped spur its growth with thousands of new locations. It also doesn't hurt that Luckin's beverage pricing is more affordable than Starbucks', averaging the equivalent of about $1.40 to $2.75 per cup compared to Starbucks' $4.10, adding to its overall appeal.