China's largest coffee chain, Luckin Coffee, which fell from 'the coffee myth of the continent' to 'an icon of accounting fraud,' is knocking on the door of the U.S. market again. It has been five years since its disgraceful exit from the New York Stock Exchange due to a massive accounting scandal in 2020.
Attention is focused on whether the coffee chain that China boasts of can successfully bounce back from the glory filled with scars in the world's largest coffee market, the United States.
According to foreign media outlets such as CNN and Bloomberg, Luckin Coffee opened two stores simultaneously in Manhattan, New York, on the 30th (local time). The stores are located in Greenwich Village near New York University (NYU) and in the NoMad area (north of Madison Square Park). This is interpreted as a management strategy aimed at targeting prime commercial areas with a high concentration of young mobile populations.
To coincide with the opening, Luckin Coffee launched a promotional event offering all drinks for $1.99 (about 2,700 won) to consumers who ordered through the app, making a strong impression on American consumers.
Luckin Coffee defeated Starbucks in China using two strategies: 'ultra-low prices' and 'digital-centric' operations. It significantly lowered operating costs with prices 30% cheaper than Starbucks and small stores focused on delivery and takeout.
Luckin Coffee refers to itself not as a food chain but as an IT company. This is reflected in the considerable effort put into its dedicated application-based ordering and payment system. The accumulated consumer data was used as a powerful tool to encourage repeat visits, such as sending personalized discount coupons.
The menu development team has continuously introduced unique items that reflect local characteristics, such as lattes made with China's famous liquor, Moutai. These items have generated buzz on social media, increasing the number of visitors to Luckin Coffee.
Luckin Coffee is expected to target young Generation Z (born after 1995) consumers in the U.S. market by offering eye-catching and exotic drinks worth posting on social media. Popular options include refresher drinks mixed with coconut milk and fruit juices, as well as iced coffee with fruits like pineapple and raspberry.
However, the price competitiveness that was a key weapon for dominating the Chinese market is unlikely to be found in New York. According to the New York Post and DoorDash, a 16-ounce (about 473ml) drip coffee from Luckin Coffee in New York is $3.45. This is not much different from the nearby Starbucks, which is $3.65.
An iced matcha latte costs $6.45, making it even more expensive than Starbucks, which charges $6.25. Experts have analyzed that the ultra-low price myth written in China does not hold against the high cost of living and rents in New York.
Since its establishment in China in 2017, Luckin Coffee has grown at a terrifying pace. Two years later, in 2019, Luckin Coffee made a spectacular entry into the U.S. Nasdaq.
However, the following year, the short-selling hedge fund Muddy Waters raised suspicions that Luckin Coffee inflated its sales figures. Short-selling is an investment technique where an investor borrows stock to sell when a price drop is anticipated, then buys back at a lower price to profit.
Luckin Coffee, targeted by Muddy Waters, eventually admitted to manipulating approximately 2.2 billion yuan (about $310 million) in revenue. The U.S. Securities and Exchange Commission (SEC) imposed a fine of $180 million (about 250 billion won) and issued a punishment of delisting against Luckin Coffee. The management, including the founder, was all dismissed.
After falling into disgrace, Luckin Coffee refocused on the Chinese market and regrouped. It underwent painful restructuring and aggressively launched new menu items. As a result, in 2023, it surpassed Starbucks for the first time in terms of revenue within China. Currently, the number of stores in China has exceeded 24,000.
Industry stakeholders are concentrating on whether Luckin Coffee can achieve success again in the U.S. market.
In the U.S. coffee market, emerging giants backed by Generation Z, such as Dutch Bros and 7 Brew, have recently emerged one after another. Competition with non-coffee beverages, such as matcha and blueberry drinks, is also unavoidable.
Moreover, Luckin Coffee must fight against 'internal enemies.' Former executives who were ousted due to the accounting fraud scandal established a competing brand called Cotti Coffee. Cotti Coffee entered the U.S. market before Luckin Coffee and currently operates three stores in New York.
CNN reported, 'The Luckin Coffee model has proven successful in China, but whether it will work in the U.S. market, where Starbucks has been ahead for over 50 years, remains to be seen.'