Reference News website reported on June 12 that according to a report by CNBC website on June 9, China's largest coffee chain Luckin Coffee has been aggressively expanding in the domestic market, and the number of its stores on the Chinese mainland is already more than twice that of Starbucks.

Luckin Coffee was delisted from NASDAQ in 2020 due to a financial fraud scandal, but the company has staged an unexpected comeback with its unique taste and significant discounts.

The report stated that the failure on Wall Street did not dampen Luckin Coffee's ambition in the U.S. market, as its stocks are still traded over-the-counter in the United States. Following its entry into Singapore, Hong Kong, and Malaysia, Luckin Coffee is about to take its biggest step yet by opening a branch in Lower Manhattan.

This move mirrors that of Cotti Coffee, which recently opened a branch in Brooklyn. Cotti Coffee, founded by former executives of Luckin Coffee in 2022, has rapidly expanded in both the Chinese and international markets, with branches currently located in Southeast Asia and Dubai.

"From a cultural perspective, New York may be the best testing ground for international brands, especially for Chinese brands," said senior analyst Danilo Gajdul of Bernstein. He pointed out that this city is diverse and has a large young consumer group, "but New York is also one of the most saturated and competitive markets."

The report noted that Chinese chain coffee shops combine low prices with unique tastes, often blurring the line between coffee and bubble tea - which might be difficult for purists to accept but are very popular in China. Luckin Coffee claimed that its soy sauce latte developed in collaboration with the well-known Chinese liquor manufacturer Maotai sold more than 5.4 million cups on its first day of launch in 2023, generating sales exceeding $13.7 million. In just 2024, the company launched 119 new products.

Luckin Coffee's business revolves around technology, allowing Chinese consumers to order takeout through WeChat, replacing traditional coffee shop experiences with high efficiency. The company also owns a large coffee roasting base in China to reduce costs.

The report indicated that the question lies in whether this model can work in the United States.

Jinyi Guo, co-founder of Luckin Coffee, previously stated that the company plans to steadily expand overseas operations using flexible and localized customization models. Slowing growth and intense competition in China have forced companies to seek opportunities abroad.

From electric vehicle manufacturers to food delivery platforms, large Chinese enterprises typically follow a familiar strategy: burn money to capture market share, then consider profitability. This helps them grow rapidly but may anger global competitors.

Starbucks announced on September 9 that it would lower the prices of dozens of drinks in China this summer. This is the latest indication of increased competition in the Chinese market.

In New York, Cotti Coffee offers drinks priced at 99 cents to customers who download its app for the first time. Analysts estimate that Luckin Coffee and Cotti Coffee's prices in the U.S. will still be lower than Starbucks', but the gap will be smaller than in China.

Allison Malmsten, director of China strategy at Bonsang Xuan Consulting, said that while Manhattan may emphasize efficiency like major cities in China, companies there must pay New York wages and may need to accept more payment methods, which will undoubtedly increase costs. She also noted that tariffs imposed on Chinese companies may further weaken their supply chain advantages.

"There are many factors that could lead to price increases," Malmsten said.

If Luckin Coffee's debut in New York proves successful, the company may further expand its overseas operations. Heytea, the Chinese chain famous for adding cheese foam to tea drinks, landed in New York at the end of 2023 and subsequently expanded its business to Boston, Seattle, and Los Angeles.

Malmsten said that despite tensions between Washington and Beijing, younger generations of Americans often view China differently than older generations, who may perceive Chinese products as generally lower quality. For New Yorkers facing rising costs from groceries to coffee beans, the affordable coffee offered by Chinese chains may be attractive.

However, analysts say that profit-margin-thin coffee shops need to increase sales volume. This means attracting a broader customer base.

"If this is only seen as a tourist or exotic experience, it won't become part of your daily consumption or something you do every morning," said Gajdul of Bernstein Company.

Original article: https://www.toutiao.com/article/7514864081007641138/

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