Luckin, which operates more than 26,000 outlets, mostly in China, has a very different strategy from Starbucks. Its stores are small, have no cashiers or order counters and require all purchases to be made through its app. The chain also specializes in innovative drinks such as iced pineapple coffee and coconut lattes.
CNBC reported that, while Luckin’s menu prices are not far from Starbucks’, its operating model relies heavily on steep discounts, flooding customers with app-based coupons ranging from 30% to 50% off.
In a rare acknowledgment of his competitor, Starbucks CEO Brian Niccol told Fast Company Innovation Festival that “the one thing that they probably have done a nice job of is just an unbelievable pace of product innovation. It sets the tone for, 'Hey, we cannot be complacent on flavors and drink combinations.'”
Niccol said Starbucks’ response will be to enhance the “personal experience” and improve the physical comfort of its stores. U.S. media reported the company plans to renovate thousands of locations to make them more inviting for customers to linger and socialize. He also pointed to mobile ordering, noting that “Luckin has done an interesting job on how they've turned the app into the only way you can interact with that business. It's a different approach. I don't think it's the right approach for us.”
Niccol added that Starbucks is seeing “a nice recovery” in China, where stores offer flavors not found in the United States. He said he recently tried a rose-water latte in a Chinese location. In July, the company announced it was seeking a local partner to help operate its roughly 8,000 Chinese outlets.
Still, analysts question whether Luckin’s U.S. model is sustainable. A CNBC report said its initial stores are operating at a loss. Danilo Gargiulo, a U.S. restaurant equity research analyst, explained: “In the case of Luckin, the idea is I want to grow in awareness. I want to make sure that the brand gets recognized on a national basis, even though at the beginning, this means that I might need to be suffering from some smaller losses on a per-store basis.”
In the U.S., Starbucks is facing legal battles from employees who accuse the company of unfairly burdening them with costs related to its new dress code. Lawsuits were filed in Illinois and Colorado, with additional complaints lodged in California. Workers argue that state law requires employers to reimburse expenses made on the company’s behalf — including clothing.
Starbucks recently updated its dress code as part of efforts to improve the in-store customer experience. The rules require black shirts under aprons, pants in solid colors, and neutral-toned shoes. While the company said it provided each employee with two black shirts, many reported spending hundreds of dollars on jeans, shoes and other clothing to comply.
Some employees said the policy also restricts self-expression. “Everyone wears black, it’s sad,” said Brooke Allen, a California student who said she spent more than $140 on new clothing to meet the requirements. Others reported that reimbursement requests were denied.
Starbucks Workers United, the union that has organized hundreds of stores, has been fighting the policy for months. The union has filed hundreds of complaints alleging labor rights violations and submitted a formal grievance against the dress code in April.
Starbucks defended the changes, saying the goal is to create uniformity and a professional appearance. The company said it continues to offer industry-leading pay and benefits.