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Affordable coffee on the go: Chinese start-up aims to trump Starbucks

A couple of decades ago, Starbucks (SBUX) introduced to the world the American way of savoring coffee in a plush environment. The coffee was an add-on actually; Starbucks also gave people a venue to meet others, network and make friends.

Fast forward to 2018, when interpersonal communication happens mostly through FaceTime and Snapchat, in a fast-paced dynamic world where people are constantly on the run. And a Chinese unicorn, founded in 2017, is now taking advantage of this chaos to take over the coffee market, dethroning Starbucks.

Image: Luckin Coffee

In its first year of operation, Luckin Coffee rolled out about 2,000 outlets in different parts of China. This year, the company is planning to open another 2,500 stores, which would pitch it directly against Starbucks. The US coffee giant has about 3,600 stores in China.

As mentioned earlier, Luckin Coffee’s popularity over Starbucks may be attributed to the everyday-chaos. The Chinese coffee chain does not offer any comfortable furniture to sit back and enjoy the coffee; the outlets are much smaller, where people can get coffee on the go or get it delivered to a location. Payments are made via smartphones.

Meanwhile, Luckin offers coffee at a much cheaper price tag, when compared to Starbucks. The company is apparently bringing the concept of “grabbing a quick coffee” into the real-world scenario.

China is Starbucks’ second-biggest market after the US, with about 80% market share. Hence a direct threat of this magnitude cannot be taken lightly.

Related: Starbucks Q1 profit dips 66% but beats estimates

Making matters worse for the US coffee chain, Luckin is reportedly planning a US IPO. The company is looking to raise around $300 million through the public listing, which could take place in the second quarter of this year, Bloomberg reported citing people close to the matter.

Luckin Coffee, which has numerous backers including China International Capital Corp and Singapore-based GIC Pte, is currently valued at around $2.2 billion. The valuation is significantly high for a company that is hardly one-and-a-half years old. In comparison, Starbucks has a market cap of $84.71 billion.

 

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