Luckin Coffee takes on Starbucks

Chinese coffee chain Luckin Coffee on Thursday said it aims to open 2,500 new stores in 2019.

The new stores will see the firm outnumber Starbucks in China, making it the country's largest coffee chain brand by store number and cups sold by the end of this year.

Considered a new player in the market, Luckin launched in trial form in January 2018. It's now expanded to more than 2,073 stores in 22 cities across the country.

Of its existing stores, 1,897 are brick-and-mortar stores and 176 are kitchens for delivery services.

All of Luckin' s stores are directly operated, reaching places where many of its competitors have not been able to enter. It has opened stores in the Palace Museum and many top universities.

The rise of Luckin has brought increased competition from market dominator, Starbucks China, which currently has 3,600 stores in 150 cities.

The Seattle-based brand has plans to build 600 new stores annually over the next five years in China, a goal that will double its 2017 store count to 6,000 across 230 cities by 2022.

Luckin has relied heavily on promotions and lower retail prices to attract and retain consumers.

Despite its loss of more than 800 million yuan ($116.4 million) last year, the company said it will continue to offer promotions on its products for the next three-to-five years.

It will prioritize opening new stores, new product development and statistics enhancement to further expand its market share.

The range of promotions have however changed: customers who buy five cups of coffees no longer get another five for free, for example. Free delivery has also been restricted to orders over 55 yuan.

Luckin Coffee CMO Yang Fei said the company has 1.25 million customers and that it sold 89.7 million cups of beverages last year.

The pick-up rate has risen from 35 percent in April to 61 percent in December. Delivery time has shortened to 16 minutes on average.

The company in December completed its series B financing round of $200 million, increasing the coffee-delivery startup's valuation to an estimated $2.2 billion, with investors including Singapore's sovereign wealth fund GIC, Joy Capital and China International Capital.

Previously in July the company completed its series A worth $200 million.

The coffee chain store market has been growing, said Zhu Danpeng, an independent food analyst in China.

He said he is optimistic for Luckin Coffee. The country has 300 small-sized cities and the market shows great potential for future expansion of coffee chain stores.

Zhu said a bigger market share will offer Luckin Coffee more power in terms of supply chain and service upgrades in the future.