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The word war in the coffee world is brewing after the CEO of Starbucks Luckin can not last until a few days after filing his candidacy for an initial US public offering.
Kevin Johnson, who heads the US coffee giant, told CNBC that competitors in China, including Luckin, had adopted a strategy of increasing their market share by using "heavy discounts" that he did not think sustainable.
"We are deploying capital and building 600 new stores a year," he said. We "generate the return on invested capital that we consider sustainable to continue to build new stores at this rate for many years."
Starbucks boasts 30,000 stores worldwide. It has been in China for 20 years and aims to reach 6,000 stores in the country by 2022. Luckin, fueled by more than $ 550 million in venture capital funds, quickly reached 2,370 sites under two years, with the addition of new 2500 this year. This would surpbad Starbucks, which has 3,600 stores in 150 Chinese cities, although one indicator gives a distorted picture of the situation since Luckin specializes in digital orders and on-demand delivery. This contrasts with the retail model operated by Starbucks.
Nevertheless, Starbucks has taken steps to address any perceived service deficiencies. The US company entered into a partnership with Alibaba last year to operate its Ele.me coffee distribution service and is part of Alibaba's e-commerce services.
Despite the competition, Starbuck said in its quarterly report last week that comparable store comparable sales – revenues of existing stores – grew 3% over the same period of the previous year, while the number of new stores has increased by 17%. In a new impetus, the rewards program membership program has reached 8.3 million with the addition of an additional one million customers.
"We have established a very good strategic base and we will continue to make a difference in China," said Johnson.
Despite this promising progress, the competition will certainly reach boiling point when Luckin is released.
Rated at $ 2.9 billion by a group of investors including Blackrock, Starbucks sponsor, Luckin's deposit has a $ 100-million standby raise that could increase as the registration process progresses. The company recorded a loss of $ 475 million in 2018, its only full year of business so far, with a business turnover of $ 125 million. For the first quarter of 2019, the company recorded a loss of $ 85 million for a total business of $ 71 million.
Starbucks does not disclose figures for China, but in the first quarter for 'China / Asia Pacific', it recorded operating profit of $ 232 million out of a total revenue of $ 1.29 billion from 9,000 stores.
With a strategy of growth at any price, Luckin's numbers are staggering for a quote, let alone for an 18-month-old company.
To quote Alex Wilhelm, former TechCrunch journalist and editor of our sister publication Crunchbase: "What an incredible F-1 [filing]. I have no idea what this company is worth, its size or its current state of health. "
Starbucks, however, is betting that fashion will not last and that his own business will continue to stand the test of time in China.
It is interesting to note that other companies are already emerging to reduce costs for Luckin (our partner in China, Technode, reported that Coffee Box had raised $ 30 million last week), while the model is replicated in Asia Southeast. For example, in Indonesia, a start-up called Fore Coffee has already raised nearly $ 10 million for a first digital service that uses on-demand partners for distribution.
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