KUALA LUMPUR (June 20): US-listed Chinese coffeehouse chain Luckin Coffee Inc is poised to make its debut in Malaysia amid fierce market competition, sources told The Edge.

The entry comes at a time when Malaysians are spoilt for choice from the rising number of brands and outlets competing to fill in a gap left by Starbucks as the American franchise faces protracted consumer boycotts due to Middle East tensions.

Luckin Coffee will be roping in a Bursa Malaysia-listed firm as its local partner armed with an ambitious stores expansion plan in the next five years, according to sources.

Founded in 2017 and headquartered in Xiamen, Luckin Coffee operates 18,590 stores worldwide, excluding vending machines, as at March 31 this year.

In China, Luckin Coffee’s store count hit a record high with over 2,340 net new stores opened in the first quarter of this year alone. The company now has 18,558 stores in China, of which 12,167 are self-operated stores and 6,391 partnership stores.

Luckin Coffee and Kweichow Moutai Co Ltd had in September 2023 jointly-launched the Jiangxiang flavoured latte, which became an instant hit upon its release.

On its debut, it sold 5.42 million cups, raking in sales that surpassed RMB100 million (RM64 million), setting a record for Luckin Coffee’s new product launches. By the end of last year, the Jiangxiang flavoured latte sold a total 45.83 million cups, with total sales exceeding RMB900 million.

Outside China, Luckin Coffee has 32 stores in Singapore, its only international market.

Luckin Coffee made its Wall Street debut in May 2019, before it was delisted from Nasdaq in June 2020 following an accounting scandal. The US Securities and Exchange Commission accused Luckin Coffee of fabricating sales, as well as inflating costs and expenses.

However, its American Depository Receipts (ADRs) still trade over the counter in the US.

Luckin Coffee’s stock price had gained 6.9% over the past 12 months to settle at US$22.86 on June 18, 2024, giving it a market capitalisation of US$7.69 billion. The counter is currently trading at a price-earnings ratio (PER) of 24.6 times.

According to the annual report, considering all Class A and Class B shares converted into a single class, Luckin Coffee is 32.4% controlled by Chinese private equity Centurium Capital. Other prominent shareholders include Joy Capital (4.7%) and Dr Jinyi Guo (1%).

In the financial year ended Dec 31, 2023, Luckin Coffee made a profit of US$2.14 billion, on revenue of US$26.74 billion.

“I am sure someone will bring Luckin Coffee to Malaysia very soon, since Singapore already has over 30 stores. I believe they will do well and give Starbucks a run for their money. It’s much cheaper than Starbucks.

“Whether Luckin Coffee comes in or not there will always be other players coming in, which means more choices for consumers,” said an industry veteran.

A fund manager opined that with the imminent entry of Luckin Coffee, the coffee industry landscape in Malaysia will become even more competitive.

“ZUS Coffee along with Gigi Coffee have been filling the gap of Starbucks. I think the market is too saturated. I am not sure how soon Luckin Coffee can make a profit in Malaysia, but definitely, this brand will be very popular here,” he said.

The fund manager further said given its reasonable pricing, Luckin Coffee should be able to command its own followers in Malaysia, provided that it gets the halal certificate.

Another fund manager concurs.

“I think it’s going to be hard, unless they have the money to burn and penetrate. We seem to have too many choices within the town centre. ZUS Coffee and the other players are filling the gap quite quickly,” he said.

Meanwhile, a marketplace intelligence manager of a multinational firm observed that the Malaysian consumers continue to look for alternatives amid the ongoing boycott.

“If we strictly look at the coffee chain industry, it’s not really saturated. ZUS Coffee managed to carve itself a niche, and they got their pricing strategy right.

When we look at the offerings in the market using price indexing, we can see the difference. ZUS Coffee has found a middle ground of sorts among all types of coffee,” he said.