Luckin Coffee Inc. (NASDAQ: LK), framed as a primary rival to Starbucks in China, posted a 20% rise in trading to $20.38 on the day of its market debut. Some traders obviously believe that the company has a chance of taking a dominant role in what could become the world’s largest coffee shop market.
Starbucks has roughly 3,700 stores in China. Luckin Coffee has 2,370, but it only started to open them in 2017. On paper, that would indicate the demand for more Luckin locations is extraordinary, almost beyond comprehension. It also begs the question of how Luckin could fund such growth without access to capital from the public markets.
Luckin also has a different business model from Starbucks. Starbucks operations in China are like those in the United States. It is a true coffee shop where people can gather. Luckin is primarily a place where people can pick up coffee. Ironically, this model is like the relatively new Starbucks system, which allows people to order from its app and pick up their orders as they enter the stores and, in many cases, leave with them.
Luckin is betting that there is room for both coffee retail markets in China. Starbucks is too large, too well-branded and too well-financed to go away. No matter how good Luckin’s growth appears, it is still chasing the market leader.