Chinese Rival Luckin Coffee Taking Unsustainable Strategies, Starbucks’ CEO

The rival companies of Starbucks are aiming for making short term gains through concessions while the US based company is making and implementing strategies aimed to make long term gains that would help it to achieve sustainability, said the company’s CEO Kevin Johnson.

“Some of those competitors are competing through heavy, heavy discounts that we don’t believe are sustainable,” Johnson said while talking to a television news channel.

Offers of greater convenience in pick up and drinks with greater discounts is being offered to customers by the Luckin Coffee which is the primary rival in the Chinese market for the Seattle-based company, in its efforts to challenge Starbucks in the market. The company had recently filed to offer initial public offering at the Nasdaq exchange. The company has announced that it would accord greater focus for continued investments in offering heavy discounts and in striking further deals, discounted drinks in its filing to go public.

Another of the ways that Luckin is strategizing to challenge Starbucks is by beating it in terms of the number of stores it owns and operates in the Chinese market. US coffee giant Starbucks had opened its first retail store in China about 20 years ago and is now planning to open up 600 new locations in 2019/ this is a part of its strategy to achieve a total of  6,000 Chinese stores by fiscal 2022.

On the other hand, 2370 stores have already been opened up by Starbucks’ Chinese upstart rival within a short period of just 18 months since it was established. It also has announced plans for opening up another 2500 more stores within this year itself.

In the face of such as stiff competition in the Chinese market, delivery facilities have been added by Starbucks to more than 2,100 stores in the country by striking a partnership with Chinese tech and online retail giant Alibaba. There are currently about 8.6 million active loyalty program members and the company plans to include more mobile order and pay services to its China business by the end of the current year.

“We are not only driving the transaction growth and engaging new customers, but we are also generating the return on invested capital that we believe is sustainable to continue to build new stores at this rate for many, many years to come,” Johnson said.

The not so encouraging second quarter results announced by the coffee chain company recently saw its shares dip by 1 per cent. In the second quarter, the company’s sale revenues fell short of Wall Street’s expectations even though its earnings beat analysts’ estimates. Starbucks also reported a decline in the traffic to its Chinese locations even though it also beat estimates for its same-store sales in China.

Starbucks wins in China because of its premium quality, said Johnson while talking to analysts on the quarterly conference.

“While some investors may be concerned about competition in China, we remain optimistic about SBUX’s ability to maintain market share and think the Alibaba relationship offers still largely untapped growth opportunity,” Jefferies analyst Andy Barish said in a research note.

(Adapted from YahooFinance.com)

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