With a coffee market five times smaller than that of the United States, despite a population that is four times larger, China now boasts the world's strongest growth in this market. While the US and European markets have reached maturity, China's potential remains immense.

Starbucks has been a real success story in China. Successfully establishing a premium brand in a country with little appetite for coffee was no mean feat. The company has shaped coffee consumption patterns in China: spacious, comfortable venues, high-end positioning, and successful integration of local flavors. China quickly became its second-largest market. However, between 2021 and 2024, its revenues there fell by 18%, while they grew by 14.3% in the US.

The irresistible rise of Luckin Coffee

Arriving in 2017, Luckin Coffee took the opposite approach to Starbucks: compact stores in city centers, a delivery-focused model, an ultra-efficient mobile app, and rock-bottom prices. Where Starbucks sells its coffee for around €4, Luckin offers drinks for between €1.20 and €1.60. This strategy has democratized coffee consumption in China and enabled the brand to achieve $600m in revenue in three years.

But in 2020, the company was rocked by a scandal: $310m in revenue was fictitious. A financial scandal emerged and its market capitalization collapsed from $12bn to $1bn, and it was delisted from the NASDAQ. Since then, Luckin has bounced back. It is now traded on the over-the-counter market and is once again worth $10bn.

Having become profitable in 2021, it is opening stores faster than anyone else and is set to surpass Starbucks in revenue in 2023. Luckin generated 24.86 billion yuan ($3.45bn), compared to $3.16bn for Starbucks.

Starbucks' revenues are now at their lowest level in China in four years, while Luckin has increased its revenue and net income by 3.7 times over the same period.

But the two brands are not playing on the same field: Starbucks remains alone in the premium segment, which is becoming less attractive in a context of declining purchasing power. Luckin, on the other hand, reigns supreme in an ultra-competitive and fragmented market thanks to its size.

Starbucks is trying new things: its long-standing head of the Chinese market was replaced in January, price adjustments were announced in May and June, and CEO Brian Nicol confirmed that he was looking for strategic partners to help turn the business around in China. The partial sale of its Chinese operations is an admission of defeat in an increasingly complex market.

The price war rages on

The widespread availability of delivery services has intensified the price war with the arrival of giants such as JD.com and Alibaba. The loss of purchasing power in the Chinese market is also a factor that has fueled a battle of promotions and coupons.

A coffee can now be sold for as little as 2.9 yuan (US$0.35). Luckin's list price is 29 yuan (US$3.5), close to Starbucks (33 yuan), but it often sells it for 9.9 yuan with widely distributed coupons, according to Reuters. Other competitors are going even further: Cotti offers Americanos for 8.8 yuan, while KFC's KCoffee sells them for 5 yuan to its members in exchange for a monthly fee of 10 yuan.

As in the electric car industry, the idea is to sacrifice margins to gain market share. Starbucks, which had previously refused to participate in this war, has finally given in. In January, its CEO in China still swore that it did not want to play the price game... but since then, promotions have multiplied. The chain has even announced an average price reduction of 5 yuan, with prices starting at 23 yuan (US$3.77).

The emergence of a new champion: Chagee

A new player is rising fast: Bawang Chaji (Chagee). Listed on the Nasdaq this year, it is a hit with its tea lattes. A subtle blend of Starbucks and Luckin: aggressive marketing, trendy cup designs with Dior-style patterns, innovative products, and a mid-range price positioning compared to its two competitors. In 2024, its net margin (20%) far exceeds that of its two major competitors, while maintaining a frenetic pace of store openings.

Towards a cultural shift

Beyond coffee, this Chinese success story illustrates a broader trend. Western brands, once synonymous with quality and success, are losing ground. But this phenomenon is global. Apple, for example, saw its sales decline in China in Q1 2025, while Xiaomi reached new heights. In electric cars and cosmetics, local products are also gaining ground.

Behind this shift is a phenomenon known as "Guochao," or "national tide." It is a growing pride in Chinese products, traditions, and codes. Although it has existed for several years, the current economic crisis has brought it to the forefront. And its consequences could well be significant.