China's largest coffee chain is taking on the U.S.Luckin Coffee, which unseated Starbucks as the top chain in China, is now making a big play in the Seattle-based stalwart's country.
As of mid-September, Luckin has opened 5 locations in New York City.Luckin stores operate without cashiers, and customers must place orders on its mobile app.
Although the sticker price of its drinks are not that far off from those at Starbucks, Luckin's operating model relies heavily on discounting by showering users with coupons in the app, typically in the range of 30% to 50% off.
The company aims to expand its brand awareness with its U.S.
launch.Re from Bernstein suggests Luckin's current pricing levels and store volumes are not sustainable, as its initial stores are operating at a loss.
That is not how its competitor Starbucks operates."Starbucks is always striving to be fitable on a single occasion...
Usually, trying to target a minimum of 15% margin per store is our estimation," said Bernstein U.S restaurant equity re analyst Danilo Gargiulo.
"In the case of Luckin, the idea is I want to grow in awareness.
I want to make sure that the brand gets recognized on a national basis, even though at the beginning, this means that I might need to be suffering from some smaller losses on a per store basis."Luckin Coffee's relatively short history has been fraught with controversy.
The company was founded in 2017 and went public on the Nasdaq two years later.
Its price surged in its market debut, but the company quickly fell from grace as the SEC charged it with accounting fraud in 2020.
An internal company investigation found that its COO had fabricated 2019 sales by $310 million.Luckin was delisted from the Nasdaq and filed for bankruptcy less than a year later.
Nonetheless, it emerged from the scandal with new leadership at the helm.The stock now trades on the OTC, or "over-the-counter," market, which is a less regulated exchange.By 2023, Luckin Coffee crossed $3.5 billion in net revenue, surpassing Starbucks's Chinese operations.
Since then, it has scaled rapidly.Luckin currently has over 26,000 locations, most of them in China. Starbucks has around 8,000 stores in China.
Watch the to learn more whether Luckin Coffee could pose a threat to Starbucks in the U.S.