Can Luckin and Dutch Bros Take Market Share From Starbucks?

In the world of coffee retailers, Starbucks Corp. (NASDAQ: SBUX) has long been the name to beat. As of the first quarter of 2025, the coffeehouse giant held just under 30% of market share, far ahead of its closest competitor, McDonald's Corp. (NYSE: MCD), at under 21%. Indeed, few other companies focused on coffee have even made it into the top 15 for market share within the coffee industry.

After Starbucks and McDonald's, the list is populated mainly by other restaurant companies.

Luckin Coffee Inc. (OTCMKTS: LKNCY) and Dutch Bros. Inc. (NYSE: BROS) held just 3.8% and 1.1%, respectively, of the coffee market as of the first three months of 2025. These companies clearly have a long way to go to catch up to Starbucks.

However, both are in the midst of exciting developments and strong growth, and they are each building momentum that will certainly put new pressure on the long-time coffee giant at the top.

Luckin: Aggressive Expansion and a New Presence in the United States

Although still relatively unknown among coffee enthusiasts in the United States, Chinese firm Luckin Coffee is aiming to change that with an aggressive expansion campaign. The firm has already outpaced Starbucks' growth in China, in 2023 it reportedly opened roughly 16 new stores per day and it reached 20,000 domestic locations by 2024.

Luckin is fueling its expansion by entering into a series of massive trade deals with Brazilian partners to purchase hundreds of thousands of tons of coffee beans. 

The latest agreement was worth more than $1 billion.

While Starbucks has long sought to firm up its presence in the Chinese market, Luckin has managed to undercut the U.S. chain since its founding less than a decade ago, thanks to low prices, ubiquitous storefronts, and a focus on quick, convenient service. Now, Luckin is continuing its expansion into the United States, with a first location planned in New York City.

To be sure, Luckin will face challenges in expanding into the U.S. market that are different from those in its native China. However, the speed with which the company has dominated its domestic coffee space and the unbelievable pace of growth Luckin has achieved are undoubtedly factors that Starbucks is watching closely in the United States as well.

As a firm that trades in over-the-counter markets, Luckin is not easily compared against U.S. stocks in the coffee industry. Still, ADRs of LKNCY have ascended rapidly this year, climbing by more than 31% year-to-date (YTD) as the firm solidly topped predictions for both top- and bottom-line performance in the first quarter of the year.

Dutch Bros: Huge Footprint and Earnings Growth Potential With Some Risks

Founded in Oregon but with locations along the West Coast, the South, and the Midwest, Dutch Bros is a rapidly expanding drive-through coffee hut chain. Since it went public in 2021, the firm has roughly doubled the number of locations to 1,000, and management sees 6,000 or so locations. This means that the company's on-the-ground growth potential is tremendous, unlike that of a larger and much more established rival like Starbucks.

Where Dutch Bros really shines for investors, though, is in the success of its operations in driving revenue growth. For the first quarter of the year, thanks to strong same-store sales improvement, Dutch Bros noted a whopping 29% year-over-year increase in net revenue. Net income surged by 39% as well, while the company has solidified its profitability.

Analysts are almost unanimously bullish on BROS shares. Sixteen out of 17 ratings are a Buy, and analysts estimate another 39% or so in earnings growth potential in the near term. 

That's not to say that the company won't face challenges as it continues to expand as well. In the past, Dutch Bros has underwhelmed when it comes to the pace of new location openings. Perhaps more importantly, the company trades at a significant premium; the P/E ratio for Dutch Bros is very high at over 207. Still, short interest remains fairly low at 6.3% of float, and it's down almost 4% in the last month. This suggests that investors are willing to take a risk on BROS in its bid to squeeze Starbucks, even despite the challenges above.

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