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MCDONALD’S CHINA CHALLENGES STARBUCKS DOMINANCE

mcdonalds invest $400m in china cafes

Last Updated on November 27, 2020 by monica chan

McDonald’s China is investing around USD $400 million with plans to open thousands of McCafé stores causing a threat to Starbucks dominance in the China market.

The Chinese coffee market is small per-capita, but heating up as coffee chains are popping up at a faster rate than ever before.

Start-up, Luckin Coffee founded in 2017 surpassed Starbucks as the largest coffee chain in China. In these short years, the fast newcomer managed 4,507 stores and exceeded the number of Starbucks stores in China.

It seemed Starbucks had finally met a serious competitor until Luckin was exposed of fabricating hundreds of millions of dollars in revenue and profit, leading to a slew of lawsuits against the company and resulting in its delisting from the Nasdaq stock market, as reported earlier this year,

Canadian coffee and donuts chain Tim Hortons have also stormed into China last year expanding rapidly selling coffee at a fraction of the premium Starbucks prices.

But this week, the biggest threat so far appeared when McDonald’s China annouced it will invest 2.5 billion yuan (approx. $400 million) over the next 3 years to open 3,000 new McCafé stores to add to its existing 1,000 stores across the country.

If successful, that would more than double its current number of roughly 3,500 McDonald’s stores, and put it close to leader Starbucks’ 4,700 locations.

Phyllis Cheung, CEO of McDonald’s China said,

China’s coffee market grows with speed, consumers will understand more about coffee and fall in love with it. Our goal is clear: Where there is McDonald’s, there is McCafé.

McDonald’s said its McCafé expansion will focus on lower coffee prices, deliveries and a selection of new food items. McDonald’s lower priced coffee strategy is up against Starbucks premiums at 30 yuan (approx $6.15) a cup.

According to London-based research firm Mintel, nearly 75% of coffee consumed in China last year was instant coffee. Freshly ground coffee accounted for only 18%, but it is expected to see continued rapid growth.

The McCafé expansion news doesn’t seem to have boosted McDonald’s stock as yet. Its shares slid 0.19% to $215.11 on Thursday, amid an overall positive day for U.S. markets.

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