Wake Up And Smell The Coffee

Wake Up And Smell The Coffee

almost 5 years ago2 mins

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OG coffee giant Starbucks reports quarterly results late on Thursday, with Chinese growth a major focus for investors. But with local upstart Luckin Coffee filing for an IPO on Tuesday, the time seems right to ask...

Starbucks sold the rights to its beverages outside Starbucks stores to Nestlé last year in order to focus on improving sales in those stores (mochaccino for Sheila, anyone?). But the once-undisputed king of the joe faces intense competition from growth-hungry rivals in the US and Europe – including Coca-Cola’s freshly ground Costa Coffee.

At one stage, Starbucks was opening a new Chinese store every 15 hours. But it’s not the only coffee counter to have set its sights on the country’s growing middle class 👁 Chinese consumption of the demon bean has tripled in recent years even as oversupply has pushed the price of raw coffee to multi-decade lows.

The price of coffee is 30% lower than 10 years ago
The price of coffee is 30% lower than 10 years ago

Enter Luckin, whose caffeine-fueled growth has seen it reach 2,400 Chinese stores – a number it intends to double in 2019, eclipsing Starbucks’ 3,600 local outlets. The upstart’s May US IPO may raise as much as $800 million from investors at a valuation of $5 billion – well up on the $3 billion Luckin was worth just weeks ago 😮

It’s no storm in a coffee cup: Luckin’s rise has big ramifications for the coffee business. The unicorn’s cash-burning, swashbuckling style is more techie Tesla than slow drip, and its app-based delivery system and viral social media promotions have already prompted Starbucks to strike a distribution deal with China’s ubiquitous Alibaba in a bid to keep up 🏃‍♀️

The $95 billion Seattle giant isn’t dead yet. But the fact that an 18-month-old rival has it on the back foot in a key battleground may sound a note of alarm for investors. Speaking of which: Sheila? MOCHACCINO?

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