Coffee Startup Luckin Challenges Starbucks With $200M Investment

Coffee Startup Luckin Challenges Starbucks With $200M Investment

A coffee startup in China that’s gunning for Starbucks has raised $200 million in a Series B funding round, bringing the company’s valuation to $2.2 billion, according to a report.

Luckin, which soft-launched in January, also raised $200 million in July. The company has been fast-tracking the opening of shops and burning through $150 million within six months of operation.

Luckin currently has stores in 21 major Chinese cities, with a total of more than 1,700 shops. The company says there’s a Luckin location within a 500-meter radius of anywhere in downtown Beijing and Shanghai.

Starbucks has roughly 3,300, but it’s been in the country for 20 years. The main difference between the two shops is that Luckin stores are a cross between a sit-down cafe and pick-up booths, which are also delivery hubs for staff to take orders to customers in 30 minutes. This service has helped the fledgling company grow popular with office workers stuck at desks.

The rapid expansion didn’t go unnoticed. Starbucks, for its part, teamed up with Alibaba delivery company in August for coffee delivery in China. The company was seeing a slump in sales in the country, which it blamed on third-party delivery services. It also saw a slide in third-party companies placing orders for delivery, resulting in longer lines in the store.

“I think it was driven by the government wanting to stop having third parties do that, because it was creating annoyances,” said Starbucks CEO Kevin Johnson on a call with analysts.

Starbucks wants to bring delivery service to 30 cities in China by the end of the year.

Luckin’s Co-founder and CEO Qian Zhiya said the company will use the capital to continue to invest in technologies, products and business development practices to improve its customer experience.