Luckin Coffee’s sauce-flavored latte is a huge hit. Is Starbucks worried?

This article discusses how Starbucks reacted to the explosion of Luckin Coffee's sauce-flavored latte. The article then compares Luckin Coffee and Starbucks and analyzes them from all aspects. This article is suitable for everyone to read and learn about coffee brands.

On September 4, Luckin Coffee and Moutai jointly launched a new product, Maotai Sauce Latte, which topped the hot search list for many consecutive days. The entire circle of friends was showing off the Maotai Sauce Latte. Whether coffee lovers or non-coffee drinkers, they couldn't help but try it. It seemed that the whole nation had entered the "Maotai Latte Moment". The sales volume of Maotai Sauce Latte exceeded 5.42 million cups on the first day, and the sales volume of the single product exceeded 100 million yuan on the first day, setting a new record for the single product.

During the days when the sauce-flavored latte was on the market, Luckin Coffee stores were sold out. Due to the shortage of raw materials, Luckin Coffee had to temporarily remove the product from the shelves. On September 19, Luckin Coffee officially announced that the sauce-flavored latte was back in stock, and it once again became a hot topic.

The sauce-flavored latte is back. Although its popularity has greatly decreased compared to when the product was launched at the beginning of the month, it still has a high level of attention. There are still many consumers ordering sauce-flavored latte, and sauce-flavored latte bags can still be seen on the streets.

The popularity of the sauce-flavored latte has made Luckin Coffee the big winner with both fame and fortune. The sauce-flavored latte has achieved the "person-to-person" communication effect.

Founded in 2017, Luckin Coffee has risen rapidly thanks to its Internet coffee and O2O model. It took only 18 months from its establishment to its listing in the United States, setting a record for the fastest IPO company in the world. It once fell into the abyss due to financial fraud, but later Luckin once again staged the story of phoenix nirvana.

As another player in the Chinese coffee industry, Starbucks is envious of the popularity of Jiangxiang Latte? Is Starbucks worried about the rise and challenge of Luckin Coffee?

1. Luckin Coffee VS Starbucks, which one is better?

The Chinese coffee market has entered an era of competition between the two major coffee giants, Luckin Coffee and Starbucks, and a fierce battle of chasing each other is unfolding.

Luckin Coffee is a new wave brand in the coffee industry and an Internet coffee brand. It has many stores and low unit prices. It is the one that is accelerating the popularization of coffee consumption and can be called the "national coffee brand."

Starbucks, a global coffee giant from the United States, is the pioneer and promoter of China's freshly ground coffee market and the originator of the "third space" concept. Its brand is deeply rooted in people's hearts and its influence remains strong.

So, Luckin Coffee and Starbucks, the two major players in China's coffee industry, who is running? Who is catching up?

Based on public information, "Xinpinlue Finance" compared Luckin Coffee and Starbucks in terms of number of stores, financial data and market reputation (brand value).

First, in terms of the number of stores, Luckin Coffee has long surpassed Starbucks.

Data shows that as of the end of June this year, Luckin Coffee had a total of 10,836 stores, including 7,188 self-operated stores and 3,648 franchise stores. Currently, Starbucks has more than 6,500 stores in the Chinese market.

In the second quarter of this year, Luckin Coffee opened 1,485 new stores, while Starbucks China opened 237 new stores during the same period.

In fact, as early as the end of 2019, Luckin Coffee had more stores than Starbucks. If we only look at the number of stores, Luckin Coffee far exceeds Starbucks.

In terms of store opening speed, Luckin Coffee is opening stores faster than Starbucks. The latest information shows that Starbucks is also accelerating the speed of opening stores in the Chinese market, expanding at an average rate of opening a new store in less than 9 hours.

According to Jihai Data, Starbucks has a more stable pace of store openings and a lower "store closing rate" than Luckin Coffee. For example, in the past three months, Starbucks closed 6 stores, while Luckin Coffee closed 109 stores; Starbucks' store change rate was 0.9%, while Luckin Coffee's was 5.6%.

Second, looking at the financial data, Luckin Coffee has surpassed Starbucks China in many key indicators.

Luckin Coffee disclosed its second quarter financial report for 2023 (April 1 to June 30), while Starbucks announced its third quarter financial report for fiscal year 2023 (April 3 to July 2). Although the quarters are different, the actual coverage dates are close, so a certain comparison can be made overall.

In terms of revenue, Luckin Coffee surpassed Starbucks China in a single quarter for the first time. According to the financial report, Luckin Coffee's total net revenue in the second quarter was RMB 6.2014 billion, while Starbucks' net revenue in the Chinese market in the third quarter was US$821.9 million, or approximately RMB 5.905 billion.

In terms of revenue growth, Luckin's revenue growth is faster than Starbucks China. According to financial report data, Luckin's revenue in the reporting period increased by 88.0% year-on-year; Starbucks' revenue in China increased by 51% year-on-year, and 60% excluding the impact of foreign exchange conversion.

In terms of operating profit margin, Luckin's net profit attributable to its parent company in the second quarter was RMB 999 million, and its operating profit margin under US GAAP reached 18.9%, a record high. The operating profit margin of Luckin's self-operated stores even reached 29.1%. In contrast, Starbucks' GAAP operating profit margin was 17.3% (15.9% in the same period last year).

Some analysts believe that Starbucks' operating profit margin data is not calculated based on the Chinese market alone, but is an overall data. After making promises to employees to increase wages and benefits and cultivate skills, Starbucks' profit margin has been partially offset - but to some extent, Luckin's ability to make money is not to be underestimated compared with Starbucks in the global market.

Therefore, Luckin's rapid development has driven the improvement of its financial indicators. In terms of financial indicators, many of Luckin's financial indicators are better than Starbucks China.

Third, from the perspective of market reputation (brand value), Luckin Coffee’s popularity and influence are rising rapidly, but cannot be compared with Starbucks.

Luckin Coffee's market awareness and brand influence have increased dramatically in recent years, while Starbucks is an old brand and an international giant brand, and its market awareness and influence remain strong.

According to the 2022 "Top 25 Global Restaurant Brand Values" ranking released by British brand evaluation agency Brand Finance, Starbucks topped the list with a brand value of US$45.699 billion. The only Chinese brand on the list is Haidilao, with a brand value of US$4.656 billion, ranking 10th. Luckin Coffee is not on the list.

It can be seen that in terms of brand value, Starbucks is far higher than Luckin Coffee. After all, Luckin Coffee's main battlefield is in the domestic market.

2. Is Starbucks worried about the challenge from Luckin Coffee?

Facing Luckin Coffee's counterattack and challenge, is Starbucks anxious? Is it panicking?

In the view of "Xinpinlue Finance", as mentioned earlier, Starbucks is the market cultivator of freshly ground coffee in China, while Luckin Coffee is the popularizer of coffee. The two started their development in different eras, and their respective development models and logics are also different. The two are competitors and have many obvious differences.

Starting from brand positioning, Luckin Coffee and Starbucks are taking completely different paths.

Luckin Coffee is positioned as a new retail coffee chain, focusing on the concept of "technology + coffee", developing in an O2O model, and providing high quality, low price, convenience and speed. It has seized the development trend of "Internet +" and has become what Luckin Coffee is today.

Starbucks is positioned as the third space, focusing on boutique coffee shops. It uses higher quality coffee to shape a unique humanistic spirit, allowing customers to feel the aroma of coffee and spiritual liberation, creating a leisure-oriented third space that is different from the office and home.

Different brand positioning will result in very different user portraits for Luckin Coffee and Starbucks.

Luckin's user profile is mainly white-collar workers, coffee lovers and students, who prefer convenience, quality and taste, and affordable prices. They are young, urban and low-income groups.

The user profile of Starbucks is mainly a group of people with a certain economic foundation, educational background, social status, etc., who are less sensitive to prices, pay more attention to service, concept, quality and tone, and have a strong brand identity with Starbucks.

Baiguan consumer bill data shows that Luckin's new user stickiness has become stronger after 2022, the number of Luckin Coffee users is getting younger and younger, and the penetration rate in lower-tier cities continues to grow, and the proportion of low-income groups is also expanding.

However, the structure of Starbucks' user portrait has not changed much in the past three years. Even though Starbucks has now entered the sinking market, its main consumer groups are still local people with higher incomes, business owners, civil servants, etc.

In addition, in terms of average customer spending, Starbucks' average customer spending is around 40 yuan, while Luckin's average customer spending is less than 20 yuan, and the two are not comparable.

As mentioned earlier, if we only look at the number of stores and financial data, Luckin Coffee and Starbucks can indeed be compared, but if we want to study in depth, Luckin Coffee and Starbucks still have many differences and are completely incomparable.

Although Luckin has more stores and larger scale than Starbucks, some of Luckin’s stores are franchised, while Starbucks is self-operated in the domestic market.

Starbucks' third-party space concept, investment in single-store area, staffing, store rent and operating costs are far greater than Luckin Coffee. There is no comparison between the two. There is also no comparison between the two in terms of professionalism and customer service.

A senior person in the coffee industry told "Xinpinlue Finance" that Luckin Coffee and Starbucks have different positioning, are not of the same type, and are not comparable.

"New Product Finance" has always believed that Starbucks has its own marketing strategy, brand genes and marketing methods, which are completely different from Luckin Coffee in terms of market view, brand view and marketing view. It can be seen that Starbucks and Luckin Coffee are two companies with completely different brand genes.

When faced with Luckin Coffee and other competitors, both Starbucks China management and Starbucks global management have always responded by welcoming competition.

In August this year, when facing the 9.9 coffee price war, Starbucks China Chairman and CEO Wang Jingying said that we welcome competition because competition actually expands the coffee market and accelerates the popularization of coffee consumption. Different brands bring different value propositions and consumption scenarios to customers.

Starbucks is accelerating its layout in the Chinese market and the pace of store openings, especially focusing on the lower-tier markets and increasing investment in the Chinese market.

For example, on September 19, a productive investment project of Starbucks in China - Starbucks China Coffee Innovation Industrial Park was officially completed and put into production in Kunshan, Jiangsu.

In an exclusive interview with CCTV Finance, Nathhan, the new global CEO of Starbucks who took office at the end of May this year, expressed his views on Luckin's sauce-flavored latte, saying that we also have drinks that are a fusion of coffee and wine, which you can try... We welcome competition because it can expand the market, and as the market grows, consumption will be stratified.

According to Starbucks' plan, Starbucks China will have 9,000 stores by 2025. It can be seen that Starbucks continues to be optimistic about the future prospects of the Chinese coffee market, increasing investment and maintaining its own development pace and rhythm.

Some people believe that Luckin Coffee is targeting Starbucks, catching up with Starbucks, and eventually surpassing Starbucks. Others believe that the two companies are not comparable.

However, in the view of "Xinpinlue Finance", the Chinese coffee market is a market worth hundreds of billions, and may even exceed one trillion in the future, which can accommodate the common development of Starbucks, Luckin Coffee and other coffee brands.

Luckin's development has activated the Chinese coffee market and intensified industry competition. Luckin also has its own development model and competitive advantages.

Starbucks' development momentum and prospects are also worth looking forward to. Of course, it will also face considerable competitive pressure. As for whether it should panic or not, only Starbucks itself knows.

Competition drives industry development, makes it more diversified, and provides consumers with more choices.

Author: Wu Wenwu WeChat public account: Xinpinlue Finance