Coffee war brewing in China between Starbucks and rival
Newcomer Luckin plans to spend one billion yuan, or US$157 million, to quickly expand its brand on the mainland
Starbucks, which recently announced a plan to double its outlets in China in five years, may face an anti-trust lawsuit in the country. Luckin Coffee, which has opened 500 outlets in China in only five months, released an open letter asking for a level playing field that will give more choices to Chinese consumers.
The Shanghai-based coffee chain claimed six suppliers of machinery, equipment and ingredients indicated Starbucks has asked them not work with Luckin and some had already notified Luckin that they will stop supplying the startup.
It also claimed that Starbucks had signed contracts of exclusivity with commercial property owners which prevent them from granting leases not only to other coffee shop chains, but to any other businesses who get more than 30% of their operating income from coffee sales, or even whose names are related to the word “coffee.”
Luckin has threatened to file lawsuits against Starbucks in every Chinese city that has these monopolistic practices. A photo of a court writ against Starbucks China was circulated on the internet and the photo was reported to have been confirmed as genuine by Luckin.
A Starbucks spokesman told mainland publication Economic Weekly that it welcomed orderly competition that would drive innovation, improve quality and service and create true value for Chinese consumers.
Luckin’s clash with Starbucks coincides with the Seattle-based coffee chain announcing plans to build nearly 3,000 new stores in mainland China over the next five years on top of its existing 3,300 stores.
In other words, there will be one new Starbucks outlet in China every 15 hours, a significant increase on the company’s earlier goal of 500 a year.
This aggressive expansion has not gone down well with Luckin Coffee, which expanded like an internet startup. Since starting on Jan. 1, Luckin has opened 500 stores and sold five million cups of coffee to 1.3 million customers.
Luckin founder Qian Zhiya vowed to spend one billion yuan (US$157 million) on the quick expansion and hired mainland movie star Tang Wei as the brand’s spokesperson.
A public relations war broke out last week when an online article claimed Luckin had hired one-seventh of Starbucks’ staff, with some staff being paid three times their old salaries.
Starbucks denied the report, saying that only nine of their 3,500 staff left Starbucks in Beijing last month. Perhaps it’s time to grab a coffee and watch the show?