Economic review

Chinese coffee startup files monopoly suit against Starbucks

2018-05-17 14:10:00 (Beijing Time)         China.org.cn

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Chinese coffee shop operator luckin coffee has sued Starbucks for monopoly, according to a message by luckin coffee Vice President Guo Jinyi posted on the Chinese social media platform WeChat on Wednesday morning. Guo's post included a notice from a Chinese court indicating that it had accepted the case.

China's anti-monopoly authorities have accepted the relevant complaint materials handed in by luckin coffee, according to a report carried by Nanfang Metropolis Daily.

Luckin coffee said no additional comment would be given when asked by the Daily about ongoing developments in the case, which has drawn much attention in the coffee market.

The Nanfang Metropolis Daily also reported that many market insiders said such a case was inevitable. Limited coffee choices not only affect customers but also jeopardize the long-term development of the dominant brand, they said.

Wu Sheng, founder of venture capital firm Context Lab, said in a report by news website Jingchu Net that the efforts by Starbucks to enforce a blockade against competitors show that luckin coffee's new business model has already taken hold in a market long controlled by the traditional giant. The report also pointed out that some analysts consider the case to be merely market hype created by luckin coffee to gain more publicity.

On May 15, luckin coffee released an open letter to Starbucks in which it accused the American company of breaching China's anti-monopoly law.

According to the letter, Starbucks signed lease contracts with property owners which limit them from making rental agreements with potential competitors of Starbucks. These include dozens of coffee chain brands, stores that make over 30 percent of their revenue from coffee, and any store that includes the word "coffee" in its name.

Starbucks also allegedly pressured suppliers to pick sides, given that many of their equipment, packing and ingredient suppliers overlap with other companies'. Luckin coffee claims it has received notice from some of their suppliers that they will stop providing products, as required by Starbucks.

Starbucks said China has a huge coffee market with vigorous competition and a rapid pace of development. "We have no intention of participating in the market hype of other brands. We welcome orderly competition, mutual promotion, constant innovation, continuously improving quality and service, and creating real value for Chinese consumers," Summer Gao, a representative from Starbucks China's communications department, said in an email to China.org.cn when asked to comment on luckin coffee's open letter.

Guo later posted a statement on WeChat asking Starbucks to directly address the questions raised by luckin coffee. "Luckin coffee has substantial evidence and absolutely no interest in market hype," Guo wrote.

Statistics from Euromonitor International, an independent provider of strategic market research, show that Starbucks has seen its market share in China's chain coffee shop industry grow from 78.8 percent in 2016 to 80.7 percent in 2017.

Qian Zhiya, CEO of luckin coffee, told the official China News Service in November last year that her goal was to "beat Starbucks in China." So far, luckin coffee has opened 525 stores across China during the four months of its current trial run.