Featured case:
Starbucks China: Facing Luckin, The Local Disruptor

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The case

starbucksWho – the protagonist

Coffee chains Starbucks and Luckin.

What?

Starbucks is well-loved by the Chinese public. The global coffee giant holds more than 70% market share in the country thanks to its positioning as a ‘third place’ to consumers, an escape from both home and the work place.

However, Luckin has recently gate-crashed the party thanks to its lower prices and delivery model.

Why?

Starbucks prides itself on the café-style experience and premium, high quality that the Chinese strongly covet.

But until Luckin arrived the mass market hadn’t been tapped into in the country. Delivery coffee and mobile-app payments proved a big hit with digitally savvy millennials.

When?

Luckin launched in November 2017 and within 17 months it had opened 2,300 stores in 30 Chinese cities. In May 2019, Luckin made an IPO on the New York Stock Exchange.

china

Where?

As of 2018, Starbucks still dwarfed Luckin in terms of market share in China, holding 74.6%.

Key quote

“Providing the world with a warm and welcoming third place may just be our most important role and responsibility. Today and always.” – Howard Schultz, Chairman, Starbucks.

What next?

Where do Starbucks go in China? Stick with their ‘third place’ ethos, take their business online or bank on Luckin being another fly-by-night operator?

 
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The authors

authors

Nirmalya Kumar, Sheetal Mittal and Stephen Eryung Chu

Nirmalya discusses Starbucks as a case subject and how the case resonates with different types of students.

Generating new content

Nirmalya said: “Since I only write cases I will teach, finding new topics is the challenge.

“Fortunately, in marketing and strategy, the rise of online platform companies such as Amazon, Airbnb, eBay and Tencent has led us to reconceptualise many critical strategy concepts taught in the classroom such as Porter’s five forces, value chain analysis and core competence. Furthermore, it has forced traditional businesses to confront their own ‘go to market’ strategies.

“Starbucks versus Luckin is the third in a series of new cases developed (Zara in China and India; Amazon and Walmart on Collision Course) to explore these issues with the MBA and executive education audiences.”

Generating new content

Starbuck's popularity

He commented: “This is a popular topic as Starbucks is a product everyone identifies with, China is a country that everyone wishes to know more about, and this is a success story of a multinational in a market where, a priori, observers would have said there are no prospects as China is a tea-drinking nation.”

Something for everyone

Nirmalya concluded: “Different aspects of the case resonate with different students depending on their background and interests.

“Marketing students appreciate thinking how a branded, premium player like Starbucks China should respond to a low-priced competitor like Luckin since this is an enduring, generic marketing problem. Strategy, supply chain and retailing students are keen on understanding whether a physical, fast perishing, low priced product like coffee can be profitably delivered to consumers. Finally, given the enormous valuation placed on platform companies such as Alibaba, Google, Facebook, and Uber, everyone in the class is intrigued about the limits of such business models.

“Discussants energetically debate whether Luckin is simply a traditional physical product company masquerading as an online technology platform company.

“Students who are comfortable with finance and accounting help the class confront the detailed numbers in the case in order to assess whether Luckin’s high valuation is justified. Is Luckin the next Alibaba or the next WeWork?”

About the authors

Nirmalya Kumar is Lee Kong Chian Professor of Marketing at Singapore Management University.
e nirmalyak@smu.edu.sg

Sheetal Mittal is a Case Writer at Singapore Management University.

Stephen Eryung Chu is a DBA student at Singapore Management University.

 

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