Beleaguered coffee company Starbucks is facing a direct challenge on US soil from an upstart chain that has already proved its dominance in China.

Chinese-based Luckin Coffee opened its first two stores in New York this week, as it looks to expand its market and lure customers from its more famous rival.

Since its launch in 2017, Luckin has scaled rapidly to more than 24,000 stores across China, Singapore, Malaysia and Hong Kong.

In China, Luckin’s revenue eclipsed that of Starbucks by 2023 all but seeing off a challenge from the US chain.

Now in the US, Luckin hopes to woo customers, especially gen Z, with its no-frills model including cheaper menu items and a tech-savvy ordering system.

Luckin’s menu offers a range of drinks that include proven items such as matcha and lattes, to unconventional options including a “fruity Americano” series. A small pastry and sandwich range is also available.

But it’s the ordering system that sets Luckin apart from most rivals.

The stores use an app-based system that is intended to mirror that of a ride-hailing models, according to analysis by the University of Pennsylvania’s Wharton School. 

To make a purchase, Luckin customers browse the coffee store’s menu and make payments directly online in a “100 per cent cashier-less environment“.

Starbucks has struggled globally for two years. Photo: Getty

By maximising efficiency and maintain low operating costs, Luckin has been able to make its menu in China up to 30 per cent cheaper than equivalent Starbucks items, according to CNN.

Luckin says it has more than 120 million registered app users.

The entrance of Luckin into the US could not come at a worse time for Starbuck, which is in the midst of revamping its brand image with a “Back to Starbucks” campaign to help turn around declining sales and revenue.

Starbucks faces a range of problems globally, including declining customer traffic, increased competition, issues with its mobile app and rewards program, and a consumer shift away from its traditional coffeehouse experience. 

The company has faced criticism from US customers for its high prices as well as its labour practices, ethical sourcing and involvement in political controversies. 

Australian connection

While Luckin has given no indication it plans to expand into Australia, it signed a multiyear partnership last year to become the Australian Open’s “official coffee partner” in China and South-East Asia.

Under the deal, the Australian Open will beam virtual Luckin signage into China and South-East Asia.

Luckin also launched a co-branded Australian Open-Luckin Coffee  product at its stores.

“As one of the largest coffee chain brands in China, the partnership between Luckin Coffee and the Australian Open will bring great synergy as both are leading brands representing healthy, high-quality lifestyles, and will help to promote our coffee to the world,” co-founder Yang Fei said when the deal was announced last January.

Starbucks is gradually increasing its footprint in Australia after all but giving up Down Under more than a decade ago.

After an aggressive rollout, Starbucks closed 61 of its 87 Australian stores in 2008 when it discovered coffee-literate local customers were not attracted to the US-style, chain offering.

Independent cafes are much more common and appreciated by Australian consumers that those in many global markets.