A previous version of this report appeared under a headline that misstated the size of the McDonald’s China investment. The story has been corrected.
A McCafé location near the West Lake tourist spot in Hangzhou, Zhejiang Province.
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BEIJING — Its meteoric rise, seemingly out of nowhere, made Chinese startup Luckin Coffee one of the most talked-about newcomers ever in the country’s vast beverage market. More notably, it grew so fast, opening thousands of stores across the country, that it seemed Starbucks finally had a serious competitor.
In the span of roughly two years, Luckin LKNCY,
That phase of China’s coffee wars came to a screeching halt, however, when the Chinese government accused Luckin of fabricating hundreds of millions of dollars in revenue and profit, leading to a slew of lawsuits against the company and resulting in its delisting from the Nasdaq.
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Starbucks has since faced more minor competition as Canadian coffee and donut chain Tim Hortons stormed into China last year and is rapidly opening stores selling coffee at a fraction of the premium Starbucks SBUX,
“ ‘Our goal is clear: Where there is McDonald’s, there is McCafé.’ ”
But this week came news of a possible bigger threat to the dominance of Starbucks. McDonald’s MCD,
“As China’s coffee market grows with speed, consumers will understand more about coffee and fall in love with it,” Phyllis Cheung, CEO of McDonald’s China, said in a statement. “Our goal is clear: Where there is McDonald’s, there is McCafé.”
“ Nearly 75% of all coffee consumed in China last year was instant, according to London-based research firm Mintel. ”
McDonald’s said its McCafé expansion will focus on lower coffee prices, deliveries and a selection of new food items. Cheung specifically mentioned the company’s ability to pair quick but hot snacks with drinks sold at McCafés, nearly all of which will be located within McDonald’s stores themselves.
It’s yet to be seen if lower-priced, less premium coffee will be a winning strategy against Starbucks’ higher-end offerings that average roughly 30 yuan ($4.60) per cup. Nearly 75% of coffee consumed in China last year was instant coffee, according to London-based research firm Mintel. Freshly ground coffee, whether at home or in-store, accounted for only 18%, but was the fastest-growing coffee segment and is expected to see continued rapid growth.
Store sales of coffee in China surpassed 42 billion yuan ($6.4 billion) last year, far lower than the U.S.’s comparable figure, but with a faster growth rate of roughly 15% annually, according to Mintel.
The news doesn’t seem to have boosted McDonald’s stock as yet. Its shares slid 0.19% to $215.11 on Thursday, amid an overall positive day for U.S. markets SPX,
On Wednesday, McDonald’s gave out what it said were 10 million free coffees in more than a dozen Chinese cities.
At a McCafé in central Beijing on Thursday, college student Wang Jian sipped an Americano while eating a sausage-and-egg breakfast sandwich. When asked about his coffee habits, he said, “I like the coffee. It’s fine. But I’m here for this,” he said, holding up his McMuffin before taking another bite.
Tanner Brown covers China for Barron’s and MarketWatch.
