China’s Luckin Coffee Comes To New York and Starbucks Should Worry
A Chinese coffee giant with tens of thousands of locations worldwide is quietly planting its flag in New York City, and the timing could not be worse for a Starbucks already struggling to keep pace with the broader market.
Luckin Coffee, which is based in China, has 33,596 locations, most of which are in its home country. However, it has begun expanding into Hong Kong, Singapore, Malaysia, and the US. It has started to expand across New York City, and its locations are impressive for food, coffee, cleanliness, and service. As it expands across America’s largest city, Starbucks (NASDAQ: SBUX | SBUX Price Prediction) should start to be worried.
Food & Wine expects Luckin Coffee to expand quickly across the US. It compared the company to Starbucks. “Luckin, on the other hand, sells speed, novelty, and value, all in a cashless transaction.”
It would be wrong to give the impression that Luckin Coffee will severely dent Starbucks on its own. The competition is much larger and well-funded. Taken together, they represent a huge challenge to Starbucks’ sales and popularity.
Starbucks has about 17,000 locations in the US. Its two primary competitors are McDonald’s (NYSE: MCD) and Dunkin’ Donuts. McDonald’s has about 14,000locations. It is extremely aggressive in its attempts to get breakfast customers with a large menu built for a wide range of customers, both in terms of price, speed of service, and menu items.
Dunkin’ Donuts is more oriented toward breakfast than McDonald’s. It has 10,000 locations. That means 24,000 locations from two huge and well-funded companies. It does not include smaller chains like Tim Hortons and Caribou Coffee, which together have over 1,000 stores, and the tens of thousands of local neighborhood stores.
Starbucks staged a rally after recent earnings, but now substantially trails the S&P over the last year. While the S&P is 18% higher, Starbucks is up 13%. Over the last five years, the figure has been much more brutal. The S&P is up 69%, and Starbucks is down 16% so much for what was supposed to be a major turnaround.
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McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
