Luckin Coffee, a dominant force in China’s coffee industry, has long viewed Starbucks as its primary rival. With its rapid expansion, Luckin now boasts over 20,000 locations across the country, outpacing Starbucks to become China’s largest on-premise coffee chain as of July.
However, faced with a saturated coffee market, Luckin is now diversifying its portfolio to include tea. The company has introduced a range of jasmine-flavored light milk teas, aiming to capture a segment of the burgeoning tea market currently led by HeyTea and Chagee.
The company’s new campaign, “Morning Coffee and Afternoon Tea,” seeks to align with local consumer habits, positioning coffee as a morning staple and tea as an afternoon indulgence.
Bernie Gao, an analyst at Mintel Group, highlighted that Luckin’s expansion into tea and fruit-infused coffee is broadening the appeal of coffee brands in China. Gao noted that by diversifying their menus, coffee brands are attracting new customers and boosting sales.
Luckin Coffee has been proactive in product innovation, unveiling 102 new items in 2023. Notably, eight of these products surpassed 100 million yuan ($14.1 million) in sales. Among these successes are the orange-flavored Americano and coconut latte, which have collectively sold over 700 million cups since their launch three years ago.
The competitive coffee market has driven Luckin to explore alternative growth avenues. The introduction of its afternoon tea series taps into a market with health-conscious consumers who favor premium beverages. Early results are promising, with the company selling over 11 million cups of its new tea products within the first week of launch.
Zhu Danpeng, an independent food and beverage analyst, commented that Luckin’s strategy to blend coffee and tea reflects emerging trends in China’s beverage market, reinforcing its market presence.
Despite Luckin’s advancements, tea brands like Chagee are also making significant strides. Chagee opened over 3,500 new stores in 2023, increasing its total to 3,511 from 934 in 2022. The brand’s membership grew from 69.4 million at the end of 2023 to over 130 million in early 2024. Chagee reported a revenue of 5.8 billion yuan in the first quarter, surpassing other tea brands and Starbucks China. By year-end, Chagee’s revenue hit 10.8 billion yuan.
Other tea brands are also gaining traction. Mixue Bingcheng had 29,273 stores as of May 2024, while Auntea Jenny had 8,000 locations. Goodme operated over 9,000 stores by the end of 2023.
Luckin’s previous venture into the tea market with “Little Deer Tea” in 2019 was initially successful but faced challenges maintaining momentum, leading to the conversion of many stores into Luckin Coffee locations.
In light of profitability challenges, Luckin is betting on its tea offerings to drive sales. The company reported a 13 percent decline in net profit for Q2 2024, attributed to lower average selling prices and increased competition.
The merging boundaries between coffee and tea sectors are evident as tea brands like Auntea Jenny and Nayuki enter the coffee market, intensifying competition. Starbucks is also adapting, focusing on sustainable growth and expanding into smaller cities. According to Meituan, coffee shop numbers in county-level towns increased by 113.36 percent over the past year, with Starbucks adding 213 new stores in Q3 2024, bringing its total to over 7,300 in more than 900 county-level markets.
As the market evolves, Luckin Coffee’s strategic expansion into tea and Starbucks’ growth initiatives reflect the dynamic shifts within China’s beverage sector.