March 26, 2025
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Should Starbucks Be Worried as 2 Chinese Competitors, Chagee and Luckin Coffee, Prepare To Enter the US Market?
Starbucks has been pushing hard to reverse slowing sales under the direction of newly installed CEO Brian Niccol, as Inc. detailed. Some of those changes include the reintroduction of condiment bars, a massive order of Sharpies as the coffee chain returns to personalizing customer cups, and a leaner, trimmed menu. But as the company attempts to reinvent itself in the process of “getting back to Starbucks,” thematically speaking, it now faces further competition in the form of two Chinese chains entering the U.S. market.
First up: Chinese tea chain Chagee, which Forbes reported plans to open its first U.S. location in Los Angeles sometime this spring. A U.S. IPO on the Nasdaq is apparently also in the works.
Secondly, reports indicate that Chinese beverage chain Luckin Coffee is also eying a New York-based location in terms of entry into the American beverage market. Those same reports suggest that drinks will be priced between $2 and $3, with Luckin Coffee initially targeting cities with larger Chinese student and tourist populations to gain a foothold.
Starbucks Could Find Itself Outpriced, but Both Chagee and Luckin Coffee Face Their Own Challenges
Although Starbucks may struggle to compete with both companies given its somewhat premium existing price structure, both potential competitors face hurdles of some sort in penetrating the U.S. market.
For Luckin Coffee, the problems are more obvious. Forbes noted that the company, founded in 2017, quickly outpaced Starbucks to hold more locations in its Chinese market, then went public on the Nasdaq. Only a few short years later, in 2020, Luckin admitted that it had inflated its sales — a confession that resulted in its removal from the Nasdaq and the agreement to pay a $180 million penalty.
Luckin Coffee filed for Chapter 15 bankruptcy and exited administration in 2022, minus the executive team that had overseen the accounting fraud. Since then, the coffee chain has surpassed Starbucks to be China’s largest coffee retailer in terms of sales.
Concerning Chagee, the company’s history is less dramatic — although its nearly exclusive focus on the Chinese market may present difficulties in translating the brand to American shores. About 97% of its locations are in the Chinese market, though it boasts over 6,400 teahouses in China, Malaysia, Singapore, and Thailand.
Both brands are expanding rapidly, with the U.S. market being the next frontier.
Starbucks Dethroned by McDonald’s as the Latter Becomes World’s Most Valuable Restaurant Brand, Shows Weakness in China
In another bit of bad news for Starbucks, the company recently found itself overtaken by McDonald’s, the latter of which is now the world’s most valuable restaurant brand, per a report from Brand Finance. From 2024 to 2025, McDonald’s saw its brand value rise by 7% to rest at $40.5 billion, while Starbucks witnessed its brand value tumble by 36% to $38.8 billion.
Starbucks’ weak performance in China, four quarters of consecutive declining sales, and drops in metrics such as “reputation” and “recommendation” underscored the report’s findings.
“These declines highlight a growing misalignment with customer expectations and increasing consumer dissatisfaction, leading to declining sales,” the report concluded.
BrainTrust
Patricia Vekich Waldron
Contributing Editor, RetailWire; Founder and CEO, Vision First
Kai Clarke
CEO, President- American Retail Consultants
Jeff Sward
Founding Partner, Merchandising Metrics
Recent Discussions
Discussion Questions
Will the entry of Chagee and Luckin Coffee into the U.S. market significantly impact Starbucks’ sales? Why or why not?
What headwinds will Chagee and Luckin Coffee face in capturing the interest of the American market when it comes to tea and coffee retail? Conversely, what built-in advantages can they leverage?
Is the coffee and tea market already saturated in the U.S.? What potential differentiators can Starbucks emphasize to protect itself during its planned rebound period?
Poll
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Given the market is pretty saturated and spend growth is sluggish, yes Starbucks should be concerned. Especially so of Luckin, which has gone head to head with Starbucks in China and has won on price and value. Starbucks needs to use its scale and local knowledge to its advantage, and step up its transformation program.
Starbucks may see a minor sales impact as consumers try Chagee and Luckin. But the market is also saturated with brands like Dutch Bros, offering a unique mix of caffeinated beverages supported by a cult following who love the value proposition. And of course, Dunkin’, the less expensive option. Ultimately these new brand entrants will need differentiate their strengths, to execute well, and to gain meaningful market share compared to what’s already available.
Should they be worried? Should a boxer, down on the mat and being pummeled worry particularly about the last two blows? No…he should be worried about all of them.
Starbucks has a massive head start here, and there are Peet’s and Dunkin’ outlets everywhere. Any new entrant faces a pretty crowded marketplace.
McDonald’s may have dethroned Starbucks as the world’s most valuable restaurant brand, but Starbucks is still the McDonald’s of coffee shops. When compared to Starbucks, every other competitor is Burger King.
A particularly apt metaphor, as McDonald’s own drink-forward experiment doesn’t seem to be doing too well. There are a vast number of East Asian bubble-tea / coffee / dessert chains trying to break into North America, all fighting each other in Chinatowns and university districts, some company-owned and others using local franchise agreements – and that glut of competition will keep any particular chain from realizing massive scale.
Any new competitor is a problem for Starbucks – especially large ones like Chagee and Luckin. Even if they are small as a percentage of market, it’s going to sting Starbucks. People like variety and trying something new – don’t underestimate the value or ‘new.’ As competition ramps-up, Starbucks will face both declining revenue and margin compression as these lower cost players enter the market at scale.
While Starbucks (and other brands) have loyal followings there is significant cohorts who will be intrigued by new brands especially if they have interesting, good-value offerings
Somebody once said something like, “Your margin is my opportunity.” A review of Starbucks prices and recent performance suggests there is very definitely an opportunity to steal market share. The article indicates that Luckin prices will be in the range of $2 – $3. Just try to buy a cup of coffee at Starbucks for those prices. And if the snacks are tasty and the ambience is pleasant, Starbucks has a lot of exposure. It is indeed a saturated market, so growth from new competitors comes right out of Starbucks hide.
What are Starbucks differentiators? Where does loyalty to Starbucks live? In products? In experience? Or the mere fact that they exist as the dominant player in the business? How many neighborhoods in urban areas need another coffee shop? Count ’em on one hand. So Luckin opens and competes head to head with Starbucks from day one in that neighborhood. Small impact in the grand scheme of things early on. I’m guessing a huge impact neighborhood by neighborhood as they open. The pain grows as time passes.
I’m guessing the same thing happens when Primark opens in the same mall as JCP and/or Macy’s. Small impact in the grand scheme of things, but huge impact in that mall. Primark keeps opening more stores and pretty soon there is real pain and market share loss at JCP and Macy’s. JCP and Macy’s are highly incentivized to evolve. And now Starbucks is even more highly incentivized to evolve.
Chagee and Luckin Coffee offer unique product offerings and pricing strategies that may appeal to cost-conscious consumers. Additionally, these companies may attract customers who are seeking new and diverse flavors, potentially eroding Starbucks’ customer base. Some of these challenges may be mitigated, however, by Starbucks’ strong brand loyalty and established market presence in the United States.
As Starbucks is already a well-established name in the U.S. market, Chagee and Luckin Coffee may encounter challenges such as brand recognition. In addition, they may face competition from regional coffee chains and independent cafes on a local level. When trying to appeal to American consumers, these brands may also encounter cultural differences in consumer preferences and tastes.
No, Starbucks should not be concerned about chinese companies that have already failed to compete in the US, or that are entering a market and need to get a plan B round of funding to start here in the US. Starbucks needs to concentrate first on getting its house in order here in the USA, then worry about other weak competitors from China, who are trying to market themselves based on price and value. Competing in China, vs competing here in the USA, are very different corporate competition claims.
Whether knowingly or not, Starbucks’ decline started when it abandoned “the third place.” Without that feeling or invitation to a destination, their coffee becomes a matter of price and is open to infinite competition.
100% Gene. Previous leadership gave up focus on what helped them become the preferred coffee option. Granted, the airport locations and tiny drive thrus were never part of that mix. But to your point, if you don’t remind customers of why the brand is different or special, and execute on it everyday, customers will instinctively use price as the default measurement.
I believe the new CEO and leadership team is working hard on this one, to recapture Starbucks “third place” in branding and customer experience.
Starbucks is ripe for a take down, though it won’t happen overnight, and I doubt it will be with either of these two companies. As with any long standing brand, boredom and ennui become a big risk when coupled with high prices, especially as our economic struggles grow over the next two years. A fresh face with lower prices, interesting new product offerings and modern spaces could quickly become the new darling that makes Millennials, Gen Zs and Alphas abandon what they perceive as their parents’ coffee shop. Much like Starbucks supplanted coffee drinking at local diners when they hit the scene back in 1971. I feel very old now as I write this while sitting in a Starbucks by the way.
New entrants will continue to emerge in this sector and while Luckin and Chagee may eventually establish a meaningful presence that could eventually put some market share at risk, the real focus for Starbucks should be on executing its strategy of getting back to its original brand promise. Starbucks once offered an exceptional customer experience and it is heartening to see the company recognizes it has lost its way. The potential exists, through many of the initiatives in place, to rebuild a once great, beloved brand.
New entrants Chagee and Luckin may take off in the U.S. by targeting cities with high Chinese populations like New York, Los Angeles and San Francisco to leverage brand awareness. Gen Zs and Alphas increasingly see and share artisanal delicacies on social media, including colorful bubble teas and decadent coffee-based beverages.
Exciting menus, affordable price points and enthusiastic user-generated content make Chagee and Luckin worthy rivals to Starbucks. Luckin could steal share among the busy morning crowd seeking fast, cheap coffee. Starbucks’ recent moves will appeal to a slower paced, premium experience for coffee lovers who linger throughout the rest of the day.
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Given the market is pretty saturated and spend growth is sluggish, yes Starbucks should be concerned. Especially so of Luckin, which has gone head to head with Starbucks in China and has won on price and value. Starbucks needs to use its scale and local knowledge to its advantage, and step up its transformation program.
Starbucks may see a minor sales impact as consumers try Chagee and Luckin. But the market is also saturated with brands like Dutch Bros, offering a unique mix of caffeinated beverages supported by a cult following who love the value proposition. And of course, Dunkin’, the less expensive option. Ultimately these new brand entrants will need differentiate their strengths, to execute well, and to gain meaningful market share compared to what’s already available.
Should they be worried? Should a boxer, down on the mat and being pummeled worry particularly about the last two blows? No…he should be worried about all of them.
Starbucks has a massive head start here, and there are Peet’s and Dunkin’ outlets everywhere. Any new entrant faces a pretty crowded marketplace.
McDonald’s may have dethroned Starbucks as the world’s most valuable restaurant brand, but Starbucks is still the McDonald’s of coffee shops. When compared to Starbucks, every other competitor is Burger King.
A particularly apt metaphor, as McDonald’s own drink-forward experiment doesn’t seem to be doing too well. There are a vast number of East Asian bubble-tea / coffee / dessert chains trying to break into North America, all fighting each other in Chinatowns and university districts, some company-owned and others using local franchise agreements – and that glut of competition will keep any particular chain from realizing massive scale.
Any new competitor is a problem for Starbucks – especially large ones like Chagee and Luckin. Even if they are small as a percentage of market, it’s going to sting Starbucks. People like variety and trying something new – don’t underestimate the value or ‘new.’ As competition ramps-up, Starbucks will face both declining revenue and margin compression as these lower cost players enter the market at scale.
While Starbucks (and other brands) have loyal followings there is significant cohorts who will be intrigued by new brands especially if they have interesting, good-value offerings
Somebody once said something like, “Your margin is my opportunity.” A review of Starbucks prices and recent performance suggests there is very definitely an opportunity to steal market share. The article indicates that Luckin prices will be in the range of $2 – $3. Just try to buy a cup of coffee at Starbucks for those prices. And if the snacks are tasty and the ambience is pleasant, Starbucks has a lot of exposure. It is indeed a saturated market, so growth from new competitors comes right out of Starbucks hide.
What are Starbucks differentiators? Where does loyalty to Starbucks live? In products? In experience? Or the mere fact that they exist as the dominant player in the business? How many neighborhoods in urban areas need another coffee shop? Count ’em on one hand. So Luckin opens and competes head to head with Starbucks from day one in that neighborhood. Small impact in the grand scheme of things early on. I’m guessing a huge impact neighborhood by neighborhood as they open. The pain grows as time passes.
I’m guessing the same thing happens when Primark opens in the same mall as JCP and/or Macy’s. Small impact in the grand scheme of things, but huge impact in that mall. Primark keeps opening more stores and pretty soon there is real pain and market share loss at JCP and Macy’s. JCP and Macy’s are highly incentivized to evolve. And now Starbucks is even more highly incentivized to evolve.
Chagee and Luckin Coffee offer unique product offerings and pricing strategies that may appeal to cost-conscious consumers. Additionally, these companies may attract customers who are seeking new and diverse flavors, potentially eroding Starbucks’ customer base. Some of these challenges may be mitigated, however, by Starbucks’ strong brand loyalty and established market presence in the United States.
As Starbucks is already a well-established name in the U.S. market, Chagee and Luckin Coffee may encounter challenges such as brand recognition. In addition, they may face competition from regional coffee chains and independent cafes on a local level. When trying to appeal to American consumers, these brands may also encounter cultural differences in consumer preferences and tastes.
No, Starbucks should not be concerned about chinese companies that have already failed to compete in the US, or that are entering a market and need to get a plan B round of funding to start here in the US. Starbucks needs to concentrate first on getting its house in order here in the USA, then worry about other weak competitors from China, who are trying to market themselves based on price and value. Competing in China, vs competing here in the USA, are very different corporate competition claims.
Whether knowingly or not, Starbucks’ decline started when it abandoned “the third place.” Without that feeling or invitation to a destination, their coffee becomes a matter of price and is open to infinite competition.
100% Gene. Previous leadership gave up focus on what helped them become the preferred coffee option. Granted, the airport locations and tiny drive thrus were never part of that mix. But to your point, if you don’t remind customers of why the brand is different or special, and execute on it everyday, customers will instinctively use price as the default measurement.
I believe the new CEO and leadership team is working hard on this one, to recapture Starbucks “third place” in branding and customer experience.
Starbucks is ripe for a take down, though it won’t happen overnight, and I doubt it will be with either of these two companies. As with any long standing brand, boredom and ennui become a big risk when coupled with high prices, especially as our economic struggles grow over the next two years. A fresh face with lower prices, interesting new product offerings and modern spaces could quickly become the new darling that makes Millennials, Gen Zs and Alphas abandon what they perceive as their parents’ coffee shop. Much like Starbucks supplanted coffee drinking at local diners when they hit the scene back in 1971. I feel very old now as I write this while sitting in a Starbucks by the way.
New entrants will continue to emerge in this sector and while Luckin and Chagee may eventually establish a meaningful presence that could eventually put some market share at risk, the real focus for Starbucks should be on executing its strategy of getting back to its original brand promise. Starbucks once offered an exceptional customer experience and it is heartening to see the company recognizes it has lost its way. The potential exists, through many of the initiatives in place, to rebuild a once great, beloved brand.
New entrants Chagee and Luckin may take off in the U.S. by targeting cities with high Chinese populations like New York, Los Angeles and San Francisco to leverage brand awareness. Gen Zs and Alphas increasingly see and share artisanal delicacies on social media, including colorful bubble teas and decadent coffee-based beverages.
Exciting menus, affordable price points and enthusiastic user-generated content make Chagee and Luckin worthy rivals to Starbucks. Luckin could steal share among the busy morning crowd seeking fast, cheap coffee. Starbucks’ recent moves will appeal to a slower paced, premium experience for coffee lovers who linger throughout the rest of the day.