China Coffee Giant Luckin Challenges Starbucks in the US

Starbucks Corp. (NASDAQ: SBUX) sales in China are essential to its future. In the most recent quarter, the U.S. and China together had 61% of the company’s stores worldwide. At the end of the quarter, it had 17,122 stores in the United States and 7,758 in China. However, China has become a problem market. The primary reason is local rival Luckin Coffee, which has 22,000 stores there. The competition for Starbucks is overwhelming.

Luckin has just opened its first U.S. store in New York. On its Instagram page, it wrote, “NYC, it’s happening. Our doors are open and Luckin Coffee is taking over the city.” The last thing Starbucks needs is more U.S. competition. It is already up against McDonald’s, Dunkin’ Donuts, and thousands of local coffee shops.

Luckin is well funded. It had $1.3 billion in revenue last year. That was up 36% from 2023. It has recently moved beyond China and opened stores in Singapore and Hong Kong.

Investors are already nervous about Starbucks’ prospects. Its revenue rose only 1% to $6.5 billion in the first quarter. Per-share earnings fell by 50% to $0.30. CEO Brian Niccol has thrown a number of things at the problem, from redesigned stores to new barista dress codes to a smaller menu.

Starbucks stock is down 6.6% in the past three months, while the S&P 500 is up 10.6% over the same period. The U.S. company needs to show that the Luckin move into the U.S. is just a blip on the radar.

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