Starbucks dismissed Luckin Coffee as a non-threat — then lost China's coffee war

When Luckin Coffee launched in 2017 with a model of small pickup stores, heavy discounts and mobile ordering, Starbucks dismissed it. Howard Schultz called Luckin's strategy 'not sustainable' and Starbucks executives publicly questioned whether Luckin was even a competitor. Starbucks continued to build large, premium 'third place' stores in China.

But Luckin's model was better suited to the Chinese market. Chinese consumers, especially younger ones, wanted convenience, speed and value — not a $6 latte in a lounge. Luckin's app-based ordering, small-format stores and aggressive pricing (often $1-2 per cup with coupons) matched how Chinese consumers actually bought coffee. Even after its 2020 fraud scandal and Nasdaq delisting, Luckin kept growing in China.

By 2023, Luckin had surpassed Starbucks in store count in China (over 10,000 vs. ~6,500) and was growing revenue faster. Starbucks's China same-store sales were declining while Luckin's were rising. The case illustrated how an incumbent's definition of the category ('premium coffee experience') can blind it to a competitor redefining the category around what the market actually wants.