Retail

Starbucks CEO: Competitors' Discounting In China Unsustainable

Starbucks Coffee

As Luckin Coffee gears up for an initial public offering (IPO), Starbucks CEO Kevin Johnson believes that the use of discounting by competitors is not sustainable. The executive said his coffee chain is looking for a more sustainable growth plan, as its competitors eye gains that are short term, CNBC reported.

“Some of those competitors are competing through heavy, heavy discounts that we don’t believe are sustainable,” Johnson said in the report. Luckin, for instance, is looking to get its share of customers via discounted drinks and convenient pickup. The company also reportedly plans to keep making strong investments in deals and discounts in its filing to go public.

In the 18 months since the company was created, Luckin has opened 2,370 stores. The company also intends to open 2,500 stores in 2019. By comparison, Starbucks created its first store in the country two decades ago. The company aims to have 6,000 stores in China by fiscal 2022 and anticipates 600 new stores this year.

Johnson said in the company's Q2 fiscal year earnings call that the company’s leadership is backed by the key competitive advantage points in China of “brand strength and operating results.” He said the coffee chain wins due to the premium quality of its coffee in addition to its handcrafted beverages, the “third place” created in its stores (that is, a place between home and work) and the emotional connection Starbucks partners create with diners.

At the same time, he pointed out that the chain successfully rolled out Starbucks delivery partnerships with Alibaba to more than 2,100 stores and over 35 cities throughout China. He said the effort’s performance to date meets expectations, though the program is still in its launch phase. There is a strong trial from existing members of its rewards program and average delivery time is under 20 minutes, Johnson said in the call, noting, “This gives us confidence that we’re building a meaningful and sustainable delivery channel to complement our existing in-store experience.”

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