China’s Luckin Coffee expands menu to step up challenge to rival Starbucks

Local coffee brand Luckin Coffee steps up battle for China's coffee market

Luckin Coffee, the Chinese coffee company aiming to challenge Starbucks dominance in China, has announced plans to expand to light meals and snacks.

The announcement comes days after Starbucks unveiled a major partnership with Alibaba, which will see the global coffee giant launch delivery services through Alibaba’s delivery service Ele.me.

Luckin will add sandwiches, muffins, and salads to its menus and will offer a 50% discount on delivery and pick-up food items, as the company steps up its competition with Starbucks.

Luckin Coffee, which officially launched in Beijing in January, has grown rapidly thanks to its heavily digital model, as well as focus on delivery and discounts. Customers can order via an app, watch their coffee being made via livestreaming video and have it delivered within 20 minutes.

The company’s stores are a mix of large “relax” stores, coffee pick-up stores with minimal seating and delivery kitchens. Luckin claims to have opened 809 coffee shops and sold more than 18 million cups of coffee to date.

Luckin plans to have 2,000 stores by the end of this year, however, it still has work to do to catch market leader Starbucks, which has 3,400 stores across China and plans to almost double this number by 2022.

Starbucks currently dominates China’s coffee market with more than 55% share, however, rivals such as McDonalds, Costa and Luckin are chipping away at its lead. Luckin chief executive officer Qian Zhiya has spoken previously of the company's ambitious plans to overtake the market leader saying “in the future, we will have more cafes than Starbucks”.

The new arrival in China’s coffee war has been well received by Chinese consumers and investors alike, the brand’s deer logo bags have become ubiquitous on the wrists of consumers, while the company secured $200m in funding last month resulting in a $1bn valuation.

It comes as Starbucks seemingly unstoppable momentum in China slowed with the brand reporting a 'disappointing Q3' with a 2% decline in sales. While the company blamed its rapid store expansion for causing cannibalisation of sales, Starbucks China CEO Belinda Wong acknowledged the challenge of competitors using delivery and discounts to attract customers.

Speaking on a call with analysts, Wong said: “While recent coffee market entrants have chosen to capitalise on delivery combined with heavily discounted offers, there's significant compromises at play in terms of quality, experience, and business sustainability. These will prove to be short-lived.

“Let me assure you that our new delivery service will adhere to the high standards our customers in China have come to expect with regard to the Starbucks experience. And we're fully confident that the holistic and premium nature of our experience in store or delivery and the quality of our products will differentiate our offer to customers as we expand our business in China,” added Wong.

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