China’s coffee market competition heats up

Global Business

Two big firms, one global and one homegrown, are battling it out in China’s coffee market. Seattle-based Starbucks is being challenged by a new entrant- Luckin Coffee.

The one-year old upstart is setting itself apart with a blend of unique marketing and business strategies.

CGTN’s Wei Lynn Tang has more .

“Does that retail coffee experience make sense for the mass market as opposed to a more luxury product which is what Starbucks is – their pricing price of a Starbucks coffee in China Beijing is the same as New York. Even though the GDP capita is one-sixth so does it make sense to bring it to the mass market or is this always a niche market. This is more like a venture capital play, we’re gonna build big, we’re gonna win big or not do too well,” Jeffery Towson, professor of Investment from Peking University Guanghua School of Management said.

Indeed, scale is key in the retail business, as experts said location often trumps brand.

“So I think as long as you have this local presence, then you can have loyal consumers, and so the game for many of those retail chains is really to increase the number of stores because then they can increase the possibility of creating loyal consumers otherwise it’s going to be limited to the very near neighborhood of where the store is,” Bruno Lannes, Partner of Bain & Company said.

“Because there are so many options now, I will consider what’s more convenient for me. With Luckin, for example, I can first order it on the app when I am in the car, pick it up from the shop, then go. But with Starbucks, I have to physically queue to buy,” said one coffee drinker.

Queues or not, Starbucks still has a big following. After all, it’s been in China for 19 years.

“I’ve seen people drink Luckin Coffee but I didn’t have it because I really prefer Starbucks.”

Of Luckin’s 525 outlets, 231 are takeaway kitchens. The company expects this ratio to come down to 15 percent in the future, as it says brick-and-mortar stores are the way forward. It remains to be seen if Luckin’s new retail model for coffee will work in China. But one thing consumers can look forward to, is more options and convenience.

Jeffrey Towson on the rivalry between Luckin Coffee and Starbucks

For more on China’s coffee market and the rivalry between Luckin and Starbucks, CGTN’s Mike Walter spoke with Jeffrey Towson, Professor of Investment, from Peking University.