January 3, 2019 / 6:40 AM / 16 days ago

Coffee startup Luckin plans to overtake Starbucks in China this year

BEIJING (Reuters) - Chinese coffee startup Luckin is aiming to open 2,500 new stores this year and overtake Starbucks Corp (SBUX.O) as the largest coffee chain by number of outlets in the world’s second-biggest economy, it said on Thursday.

Men check their mobile phones outside a Luckin Coffee store in Beijing, China July 17, 2018. Picture taken July 17, 2018. REUTERS/Jason Lee

The firm, which only officially launched its business at the start of last year, has expanded at breakneck speed, propelled by a focus on technology, delivery, and heavy discounting even at the cost of mounting losses.

“What we want at the moment is scale and speed,” Luckin’s chief marketing officer, Yang Fei, told reporters on Thursday at a presentation in Beijing.

“There’s no point talking about profit,” he said, adding that subsidies to lure in more users would be an important part of the firm’s strategy for the next few years.

Luckin said it was targeting a total of more than 4,500 stores by the end of 2019, which would take it past Seattle-based Starbucks that has long dominated China’s coffee scene and has over 3,600 stores in the country.

Luckin’s caffeine-fuelled expansion is in stark contrast to Starbucks, which opened its first China store in 1999 and has spent two decades reaching its current store count.

The U.S. chain, which spearheaded the growth of a coffee culture in China, started to see competition rise from smaller peers over the last 18 months, though Luckin has stood out as the most aggressive competitor.

But Luckin’s rise has not come cheaply.

The firm recorded a loss of 800 million yuan ($116.34 million) last year, which its chief marketing officer said was in line with expectations as it pushed to expand.

Luckin, backed by Singapore sovereign wealth fund GIC Pte Ltd and China International Capital Corp Ltd (3908.HK), opened more than 2,000 locations in the last year, gaining a valuation of $2.2 billion after raising $200 million in a funding round last month.

The firm’s chief executive, Qian Zhiya, told Reuters last year that Luckin aimed to outnumber Starbucks in China.

Reuters previously reported that Luckin was also in early-stage talks with investment banks about an overseas initial public offering. The firm, however, declined to answer questions about IPO plans on Thursday.

Reporting by Pei Li and Adam Jourdan; Editing by Christopher Cushing and Himani Sarkar

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