While Starbucks has revitalized overall sales in part through strong digital sales, Luckin has done just as well if not better with its digital strategy in China. Both Starbucks and Luckin are adding stores rapidly, but one key differentiating factor in market share going forward will be the ability to sell digitally.
"Based on the data tracked by QuestMobile, Luckin's mobile app's new downloads achieved a record high in October," wrote Morgan Stanley analyst Lillian Lou in a note on Friday. App downloads have risen from under 6,000 a day in the beginning of 2019 to just under 16,000 by the end of October. Luckin's online presence is central to its strategy, with roughly half of its stores known as "pick-up stores" where orders made online can be retrieved, with only limited seating.
Lou raised her revenue forecast for Luckin 2019, 2020 and 2020 by roughly 1% per year. She forecasts 2020 revenue of 14.688 billion RMB ($2 billion), representing 184% growth over 2019's expected revenue. Analysts polled by FactSet are looking for 2020 revenue of $1.9 billion, although the company isn't expected to turn a profit until sometime in 2021, according to FactSet's consensus estimate.
Tea has been the traditional drink of choice in China, but coffee consumption is rising rapidly and is expected to grow 11.3% per year through 2023, according to China's Chamber of Commerce, outpacing the global growth rate of 2%. Total spending on coffee in 2019 is expected to be about $8.2 billion, with Starbucks the biggest single player. The company gets about 11% of its overall revenue from the China market.
Luckin reported third quarter revenue of $219 million, beating expectations of roughly $209 million in mid November. Following the earnings, the stock rose as much as 71% to $32 a share, before moderating some.
Lou is looking for Luckin' to turn profitable by third quarter 2020 as its average selling price rises and the company reduces its production costs. Luckin could potentially be more of a threat to Starbucks once it turns profitable, as the Chinese start-up would require less outside financing to continue expanding rapidly.
Luckin shares are up 41% since the company's May 17 debut on the Nasdaq. Starbucks is up 32% year-to-date.