• Luckin Coffee, which led a fierce fight against Starbucks in Asia, is turning its attention to the United States.
• The Chinese coffee brand, known for its heavy discounts, recorded a strong third quarter.
• Analysts believe Luckin is a force to be reckoned with.

Luckin Coffee is waging a fierce fight against Starbucks in Asia. Now he plans to bring this rivalry to the United States.

Here’s the state of affairs: Starbucks is trying to get out of the rut. In its quarter ended September 29, Starbucks reported a 7% decline in global sales. In China, the company’s sales fell 14% from the same period last year, to $783.7 million.

In August, it named Brian Niccol as its new CEO. Nicol said his plan turning around the coffee chain involves faster ordering, adding a human touch to the ordering process and positioning the brand’s points of sale as “third spaces”.

Luckin reported a strong third quarter. Its sales increased 41.4% year over year and its quarterly revenue was $1.452 billion. The chain is known for its aggressive deals, unusual flavors like a Big Cheese coffee drink and mobile ordering.

Both brands are well established in Singapore, with several outlets in the city-state’s central business district. On a recent weekday around noon, I stopped at a Luckin and a Starbucks to see how they compare in terms of price, menu options, and ambiance.

Luckin vs. Starbucks

I started at Luckin Coffee.

When I walked in I found people waiting around the collection counter for their drinks. Others were sitting at tables and drinking coffee.

But most of the customers seemed in a hurry, ready to grab their drinks and leave.

To order any menu item at Luckin, customers must download the brand’s app and place their order digitally. Counter staff members do not take orders.

The app was easy to use, although it hit me with lots of pop-ups for coupons. Because I was a new user, every drink on the menu It was half price for me.

The most expensive drink on the menu was an Iced Oat Shakerato listed at 8 Singapore dollars, or $6. With the discount, it cost me SG$4.

There were at least five orders waiting for collection in front of me. Still, my drink was ready in less than five minutes, ready for pickup as soon as I scanned the QR code on my app. I didn’t need to speak to a single person throughout the entire process.

After that, I walked about 100 feet to the nearest Starbucks, which had a large seating area. Some people in business attire had lunch meetings there, while others worked on laptops.

The barista was friendly when I asked about the most expensive drink on their menu. It turned out to be one of their seasonal holiday drinks.

I chose the Cocoa Salted Pretzel Oat Milk Latte, which cost SG$10.20.

Unlike Luckin, there was no one in line. I was out with my coffee, a venti-sized drink topped with crushed pretzels, in less than three minutes, slightly faster than at Luckin.

Overall, Starbucks’ most expensive drink was more expensive than Luckin’s. Luckin had more customers, so the wait time was slightly longer than at Starbucks.

The battle for coffee dominance

Luckin Coffee was founded in Beijing in October 2017. It filed for bankruptcy in the United States in 2021 after the fallout of a accounting fraud scandalin which it was revealed that she had falsified almost half of her approximately $732 million in 2019 sales.

Today, it has 21,343 stores worldwide.

Luckin launched its first international stores in Singapore in March 2023, and the city-state now has more than 40 outlets. It is now turning to the American market for expansion opportunities.

“We are also actively evaluating opportunities in the United States and other markets,” Luckin wrote in its third-quarter earnings report.

Representatives for Luckin Coffee did not respond to a request for comment from BI for this story.

Starbucks has 40,199 locations worldwide, almost twice as many as Luckin. Of this total, 7,596 stores are in China, an increase from 6,806 a year ago.

When asked for comment, a Starbucks representative in China directed BI to remarks made by Niccol and the brand’s CFO Rachel Ruggeri during the company’s fourth-quarter earnings call.

On the call, Ruggeri said sales in China were “weighed by intensified competition and an unfavorable macroeconomic environment that has impacted consumer spending.”

Luckin isn’t Starbucks’ only growing competitor in the United States. It also competes with Dutch Bros. and 7 Brew.

“There are concerns about speed of service and operational complexity, and innovation in new menus is lacking,” RJ Hottovy, head of analytics research at Placer.ai, told BI about Starbucks.

“The drop in visits to Starbucks also comes at a time when other coffee and beverage chains are experiencing year-over-year increases in visits, reinforcing that new product innovations are not are not in contact with consumers,” he added.

Analysts say Starbucks should be worried about Luckin Coffee

Luckin’s pricing and emphasis on technology give it an advantage over Starbucks, consumer analysts say.

David Yu, a finance professor at NYU, told BI Luckin that “it’s all about technology.” In comparison, he said Starbucks’ use of technology, such as ordering on its app, is “pretty low.”

Yaling Jiang, a Chinese consumer research expert behind the “Following the Yuan” newsletter, published an article Monday on Starbucks’ performance in China. In it, Jiang said Starbucks had still failed to “respond to Chinese consumers’ changing perceptions of product pricing.”

Nirgunan Tirruchelvam, a consumer and equity analyst at Aletheia Capital in Singapore, told BI he believes Luckin “currently has an advantage over Starbucks” due to its newness.

However, he said Luckin could still find himself in an uphill battle in the United States.

“Luckin Coffee’s plans in the United States may not go as well as one might hope, because the United States is a very complex market, where Starbucks is much better established than in Asia,” said Tirruchelvam.

He added that it was also cheaper to open outlets in Asian markets than in the United States.

“Expansion costs, in terms of the cost of rolling out an outlet versus the return on investment, are actually much more difficult in the US than in Asia,” Tirruchelvam added.

Yu echoed these sentiments, saying aggressive discounting is not a sustainable approach for Luckin.

“I always say that cuts are never a good long-term strategy. They could be used effectively for short-term purposes,” he said.

However, Starbucks’ increasingly high price has created an “opening” for Luckin, Yu said.

“So I think it’s the right time for Luckin’s point of view if they are willing to offer discounts and aggressive pricing to win customers,” Yu added.