Starbucks (NASDAQ: SBUX) faces its first real competition worldwide due to the growth of Luckin Coffee which has over 24,000 stores in China, Hong Kong, Singapore and Malaysia. That means it has already moved outside its original Chinese footprint. It has opened its first stores in New York which means absolutely nothing to Starbucks, and may never affect it in the US at all. The issue is can Luckin eat into Starbucks international business.
Key Points
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Luckin Coffee Is Becoming Global Force
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McDonald’s Won’t Go Away
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China is Starbucks second largest market, and according to the company, one of its two most important regions. According to its last earnings call, “At the end of Q2, stores in the U.S. and China comprised 61% of the company’s global portfolio, with 17,122 and 7,758 stores in the U.S. and China, respectively.” It had 40,789 stores at the end of the same period. Starbucks has stores in over 80 nations. That may be where it is vulnerable to competition.
New CEO Brian Niccol has announced many changes in the US which range from menus to uniforms to management reallocation. He has said little about how it will defend its business outside the US.
Luckin is now big enough to offer Starbucks a real challenge. In the first quarter of the year, its revenue rose 41% to $1.22 billion.
If Starbucks’ only competition was Luckin, the challenge to its overall global sales would be modest. However, McDonald’s (NYSE: MCD) has both a US and international footprint. It has made market share for breakfast one of its goals. Dunkin’ Donuts has over 14,000 stores in 40 countries.
Investors tend to focus on the US as the key to a Starbucks’ comeback. They are looking at the wrong place.
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