As we watch the slow car crash that is Luckin Coffee, it’s an interesting time to watch the China coffee market. China has not traditionally been a huge coffee consumer, but Starbucks in China is changing habits, and even a few years ago when I was in Guangzhou, coffee chains were not difficult to find, and every Starbucks was always full, although the food they served was abysmal and stale (their menu looks much improved and localised now)
Yum China is China’s largest restaurant operator, listed on the NYSE, their share price (YUMC) has largely followed Starbucks (SBUX) – see chart below comparing both vs S&P Index.
Yum secured the licences for KFC, Pizza Hut, and Taco Bell and recently announced a partnership with Lavazza. There should be little doubt that both Starbucks and Yum are both looking to capitalise on Luckins situation, and while Starbucks seems like the obvious beneficiary, Yum is also well positioned to take advantage.
Yum has 9,295 stores in China. 6,661 of these are KFC’s, and the opportunity to market Lavazza coffee at each of those stores is a huge opportunity for Yum and Lavazza. McDonalds 100% Arabica coffee has been well received, Yum looks like they want to copy that strategy in a market they dominate, and do it at Luckin’s expense.
As Winston Churchill once said, “Never let a good crises go to waste”.
In the context of the article, what factors contribute to the relative obscurity of the largest coffee retailer that is discussed in “YUM!”?