Earlier this week, we wrote about Luckin Coffee, the rapidly growing Chinese coffee chain that has since surpassed Starbucks to be that country’s largest coffee brand. It is now eyeing the U.S. for expansion as it works to take its offering outside of its home market.
Meanwhile, news out of Hong Kong is that Mixue, a milk tea and ice cream chain out of China, now operates more than 45,302 locations, which is more than McDonald’s, Starbucks, Subway or KFC.
It’s here that we note that restaurant companies should not be judged by location count, which can provide a false sense of size, but based on sales.
In that sense, both Luckin and Mixue remain a fraction of the size of any of these chains. Mixue from those 45,000 locations generates just about $6.5 billion. Starbucks, by comparison, does $55.5 billion. McDonald’s does north of $130 billion. Catching up with the largest U.S.-based restaurant chains by sales will take a while.
In fact, neither of these chains are particularly close to hitting the Top 10 on the Technomic Global 150, which ranks the 150 largest chains by global sales. Pizza Hut was No. 10 on that ranking last year, with $13.3 billion in global sales.
The largest global full-service chain by sales, by the way, is China’s Haidilao, which generated $6.2 billion in global sales and is growing faster than any large U.S. full-service concept. So there is that.
It’s also worth reminding of the issues Luckin had with falsifying earnings data, which sent it to bankruptcy in 2021. The company has come back from that, but it was still an issue. Demand for intense growth does funny things to companies.
But it’s worth paying close attention to the success of these chains and their seemingly unstoppable unit count expansion. China’s restaurant chains have significant potential to make inroads into a number of global markets, even if they never set foot in the U.S.
They’ve developed ideas that can be rapidly expanded, and which effectively use technology from the get-go, which can make these businesses more efficient.
Maybe more important, the brands are undercutting prices, which is creating more than a few headaches for U.S. brands in China right now and could prompt challenges in other countries.
In theory, Luckin could do that in the U.S., undercutting domestic prices the way that competitors have done to Starbucks in China. But the U.S. coffee market, loaded with beverage competitors, is an entirely different animal. That would be a tall task.
That said, Asian chains have been making major inroads in the U.S. market, many of them based outside the U.S. This is a friendlier market for foreign-based concepts than it has been traditionally.
Yet the bigger threat to U.S.-based restaurant companies from chains like Luckin or Mixue is in many of the international markets, where they could provide stiff competition. While the U.S. market is tougher, it’s easier to see these brands growing in developing markets, making it tougher for chains like Starbucks, Dunkin or others to make inroads.
And that makes it vital for U.S.-based companies to make sure their offerings both suit local tastes and offer franchisees a competitive edge, much in the way Yum Brands is doing right now with its Byte by Yum platform and its new deal with Nvidia.
U.S. companies will have to up their game, because a generation of aggressive new competitors is not just coming. It’s here.