On May 15, 2020, Luckin Coffee were kicked off the Nasdaq after the buzzy Chinese coffee chain admitted that they had inflated their sales by over $300 million.
The resulting scandal helped to spark a crisis that threatened $1.3 trillion worth of stock, as regulators decided to put the screws on auditing practices for US-listed Chinese companies.
For US-based observers, the story ended there. But Luckin refused to surrender and they worked hard to restore their discredited reputation in their home market of China.
By 2022, Luckin stores had overtaken the number of Starbucks outlets in China. Then in 2023, Luckin reported annual revenue of 24.9 billion yuan ($3.48 billion), surpassing Starbucks’ China revenue of around $3.16 billion. (Luckin’s revenue includes 30 outlets in Singapore).
It's a fact that Luckin Coffee have already and successfully challenged Starbucks' dominance in China. They recently reported a strong third quarter with sales rising 41% year over year to nearly $1.5 billion. And their operating margin came in at 15.3% in Q3 2024 compared to 13.4% in the same period last year.
And Chinese media reported in August that Luckin are considering further expansion into Southeast Asia, as well as the US.
Hot on Luckin’s heels are another discount coffee chain, Cotti Coffee. Cotti were founded by Lu Zhengyao and Jenny Qian, also the founders of Luckin Coffee, who were ejected after the accounting scandal.
Cotti have proved to be more aggressive in their global expansion, with outlets in 28 countries and regions including South Korea, Indonesia, and Hong Kong. Cotti opened their 10,000th outlet in October in Doha, Qatar.
Luckin and Cotti’s gain is Starbucks’ loss. China has been a key growth market for the US coffee chain as Chinese urban consumers flocked to buy their (relatively expensive) coffee. Yet Starbucks’ China sales have stagnated.
In Malaysia, local brand ZUS Coffee needed just over four years to become No. 1.
They quickly expanded to surpass US giant Starbucks in a market with over 3,300 branded coffee outlets, a figure expected to grow 4-5% this year, according to global coffee industry research platform World Coffee Portal.
ZUS launched at the end of 2019 with a 200-square-foot (18-square-meter) kiosk in the Kuala Lumpur City Center area, according to Malaysian newspaper The Star, positioned themselves in the mid-priced segment, which was largely untapped at the time, aiming to make specialty coffee a daily necessity rather than a luxury.
As their popularity and presence grew over the years, ZUS Coffee became the largest coffee chain operator in Malaysia. They have 566 stores as of September 2024, surpassing Starbucks, which are in second place with 411 outlets.
And their revenues jumped from RM15.7 million ($3.5 million) in 2021 to over RM200 million ($45.3 million) in the fiscal year ending June 30, 2023, while their net profit surged from RM134,000 to RM10.2 million during the same period.
They're already eyeing the international market. They have opened more than 40 stores in the Philippines since entering the market last year. They've opened their first store in Singapore in October and launched in Bandar Seri Begawan, Brunei Darussalam late last month. And it'll be Pakistan's turn in the first half of 2025, it is reported.
It sure looks like Starbucks are under siege. And not only in China or Malaysia.
America's largest coffee chain which have long reigned as the top coffee chain in America and beyond, are even now in major trouble in America.
In fact, for three quarters now, Starbucks' global same-store sales have been on the decline.
On September 09, Chipotle's Brian Niccol stepped into Starbucks, replacing Laxman Narasimhan, who was the CEO for a year and a half since he succeeded Howard Schultz at the coffee chain, and thereby ending a rocky stint marked by slowing sales and a slumping stock price.
