Luckin Coffee, a 15-month-old Chinese coffee startup, is already operational in nearly 2,000 stores in China and is expected to reach 4,500 stores by the end of the year. Targeting low cost real estate and offering affordable coffee to young professionals, Luckin is a technology-forward startup that has already made name for itself in a short span of time.
Should Luckin's growth worry Starbucks?
It hasn't worried analysts yet, who maintain an overweight on Starbucks with a $70 price target.
Luckin is still a start-up, and in China per-capita coffee consumption is less than one cup/year compared to 300 cups in the U.S. So, there is an ample opportunity for growth for both companies.
Second, Starbucks also has a strong presence in China through its 3,251 stores, and its recent collaboration with UberEats is expected to act as a catalyst in further strengthening its foothold. Starting Wednesday, UberEats is launching Starbucks delivery in San Francisco that will be soon expanded into other U.S cities along with a test program in London. Also, the company plans add 6,000 new stores in China by 2022, therefore further enhancing its presence.
Finally, its recent licensing deal with Nestle S A/S ADR to expand greater in-home food consumption may prove to be a key catalyst for Starbucks.