13 December 2018 | China

Luckin Coffee’s $2.2bn valuation heats up competition with Starbucks in China

Chinese coffee shop chain announces its valuation has doubled following successful $200m funding round led by investors including Singapore Sovereign Wealth Fund GIC Pte Ltd and China International Capital Corp Ltd


Since launching in January 2018, the domestic upstart has embarked on aggressive expansion in China, opening some 700 stores across 21 cities. At the heart of coffee chain’s success is a nimble e-commerce strategy, which taps into high Chinese consumers’ demand for mobile ordering and delivery services. Nearly half of Luckin’s sites are effectively ‘take-out kitchens’, with no in-store seating and coffee delivered via courier – with a free drink offered if an order does not arrive within 30 minutes.

In July 2018, Luckin Coffee became one of the fastest firms in China to reach Unicorn status, attaining a $1bn valuation after successfully raising $200m funding. News of Luckin’s continued ascent will alarm Starbucks, which views China as a crucial market for its long-term global growth.

Starbucks appears to have pivoted its China strategy toward e-tail and delivery in a riposte to Luckin’s business model. In August 2018, the Seattle-based firm announced a ‘deep strategic partnership’ with Chinese e-commerce giant, Alibaba. The deal gave Starbucks access to the Chinese market’s booming ‘new retail’ sector, including food delivery platform Ele.me and the Hema supermarket brand. In a direct challenge to Luckin’s sales strategy, Starbucks said it would not include any items on its menu that could not be delivered within 30 minutes.

The world’s largest coffee chain remains on track add 600 net new stores per year and to achieve its goal of 6,000 stores in 230 cities across Mainland China by the end of 2022.
 

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