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CNBC
7 hours ago
- Business
- CNBC
China's homegrown coffee giants are brewing up a U.S. expansion
Chinese beverage chains are redefining coffee culture in the country — and now they're trying to win over customers in the U.S. and beyond. Luckin Coffee, China's largest coffee chain, has expanded aggressively in China and overtaken Starbucks on the mainland, with more than twice as many outlets. Following an accounting fraud scandal that got the company delisted from the Nasdaq in 2020, Luckin has staged an unlikely comeback with quirky flavors and steep discounts — as low as $1.40 per cup during an earlier price war with rival Cotti Coffee. The Wall Street debacle hasn't dampened Luckin's ambitions in the U.S., where it still trades over the counter. After venturing into Singapore, Hong Kong and Malaysia, Luckin is set to take its biggest leap yet with plans to open a branch in lower Manhattan. The move mirrors Cotti's, which just opened outlets in Brooklyn and Manhattan. Founded in 2022 by former Luckin executives who were ousted over the scandal, Cotti has also grown rapidly in China and internationally, with stores in locations ranging from Southeast Asia to Dubai and California. "New York is probably culturally the best testing ground for an international brand to expand into, especially a Chinese one," said Bernstein Senior Analyst Danilo Gargiulo, citing the city's diversity and large base of young consumers. "But it's also the most saturated, one of the most competitive markets." Chinese chains combine budget pricing with unusual flavors that often blur the line between coffee and bubble tea — jarring to purists but extremely popular at home. Luckin said its alcohol-infused latte, developed with China's leading Moutai liquor maker, sold more than 5.4 million cups on its first day in 2023, generating over $13.7 million in sales. The company launched 119 different items in 2024 alone. Luckin has built its business around technology, allowing customers in China to order and get deliveries through the country's ubiquitous WeChat app, replacing the traditional cafe experience with hyper efficiency. The company also runs large coffee-bean roasting and processing operations in China to help drive down costs. The question is whether this will work in America. Luckin and Cotti did not respond to requests for comment from CNBC. On an earnings call in April, Luckin's co-founder Guo Jinyi said the company plans to "adopt flexible, locally tailored models" to steadily expand overseas. Slowing growth and intense competition in China has pushed companies to seek opportunities beyond its borders. From electric car makers to food delivery platforms, large-scale Chinese companies often follow a familiar strategy: burn cash, grab market share, worry about profit later. This helps them grow fast, but can infuriate global competitors. In the latest sign of increasing competition in China, Starbucks on Monday said it will lower the prices of dozens of drinks in the country by an average of $0.70 this summer. In New York, Cotti is selling drinks for 99 cents to first-time customers who download its app. Over time, analysts estimate that Luckin and Cotti will still be cheaper than Starbucks in the U.S., but the gap will be narrower than it is in China. Manhattan may share major Chinese cities' love for efficiency, but businesses there face New York wages and may need to accept additional payment options, adding to costs, said Allison Malmsten, China strategy director at Daxue Consulting. Tariffs on Chinese businesses may further erode their supply-chain advantages, she added. "There's a long list of things that could potentially drive the price up," Malmsten said. If Luckin's New York debut proves successful, the company could venture further afield. HeyTea — a Chinese chain known for topping its teas with foamy cream cheese — landed in New York in late 2023 and has since spread to Boston, Seattle and Los Angeles. Despite tensions between Washington and Beijing, Gen Z and younger Americans tend to perceive China differently to older generations, who may associate Chinese products with lower quality, according to Malmsten. Bargain coffee from Chinese chains could also appeal to New Yorkers facing rising costs on everything from groceries to coffee beans. Still, coffee shops that run on thinner margins need volume, analysts say. This means appealing to a wider range of customers. "If it's perceived as being only a touristy or exotic adventure, then it's not going to become part of your day-to-day consumption, it's not going to become part of your morning routine," Bernstein's Gargiulo said.
Yahoo
24-04-2025
- Business
- Yahoo
Chipotle is 'not for the faint-hearted' investor as it misses on sales growth, cuts guidance: Analyst
Chipotle's (CMG) disappointing first quarter report doesn't point to a bleak future — but shareholders may need to hold on for the ride. "The fundamentals of the business are intact, and this negative cycle shall eventually pass, leaving a brand that will have gained share of market, through better value for money and in-store execution," Bernstein analyst Danilo Gargiulo wrote in a note titled "Chipotle... Not for the faint-hearted." Gargiulo went on to debunk the previous thought that Chipotle was "more recession resilient." On Wednesday, after market close, the company posted its worst quarter of same-store sales growth since 2020 and a decline in foot traffic for the first time since 2022. "The scale of the brand and the wide-spread impact of the low macro sentiment did not protect Chipotle this time," Gargiulo said. Currently, there are 3,781 locations; it has a goal of 7,000 restaurants in the US and Canada long-term. In an interview with Yahoo Finance (video above), CEO Scott Boatwright said Chipotle's recent customer study found that diners are sitting on the sidelines, largely due to financial constraints. "It's really trying to save money ... uncertainty around what's going on with the global economy ... concerns around eating out more or eating at home more often versus eating out," he said. He added that there is a "convenience challenge" and the company needs to double down on its unit growth strategy. There are no plans in the immediate future to raise prices as Chipotle's team tries to work out the full impact of Trump's tariff policies. Seemingly, Wall Street remains optimistic on the burrito chain. As of Thursday, there are 27 Buy ratings on shares, nine Hold, and zero sells. Per Yahoo Finance data, shares of Chipotle are down 21.6% from their 52-week high of $69.26, now sitting around $50 per share, above its 52-week low of $44.46. Year-to-date shares of Chipotle are down 18%, compared to the broader S&P 500's (^GSPC) 7% drop. "The valuation floor is not too far, but expect Chipotle to be a 'show me' story before inflecting," Gargiulo said. "The short thesis on deteriorating macro seems to have played out, but investors may still await for data showing acceleration." "Based on our forecast, we will return to positive transactions in the second half of the year," Boatwright told Yahoo Finance. The company plans to increase its digital ad and marketing spend, introduce new sides or a new dip this summer, and provide a new limited-time offering. CFO Adam Rymer said on its earnings call that "as you get closer to June, you're more in that mid- to high-single digit, in that 6% to 7% range [in same-store sales growth]," adding that foot traffic growth will likely be close to flat exiting the second quarter. "We are optimistic Chipotle can sustain the current run-rate," Bank of America analyst Sara Senatore wrote in a note to clients, now that Easter has kicked off what it calls the burrito season. Gargiulo said there will likely be a "debate" on whether Chipotle's same-store sales growth will be "structurally lower" or if its "long-term fundamentals and optionality will support growth re-acceleration once the storm is over." He said he believes in the latter. Deutsche Bank analyst Lauren Silberman said that higher marketing spend and new menu items or sides will "bolster" revenue for Chipotle. For example, queso added 2 percentage points to the average check when it launched. Increased advertising spend has also "proven effective for other operators in the current environment." — Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@ Click here for all of the latest retail stock news and events to better inform your investing strategy Sign in to access your portfolio
CNBC
24-04-2025
- Business
- CNBC
Chipotle is not as recession resilient as some once thought, says Bernstein's Danilo Gargiulo
Danilo Gargiulo, Bernstein analyst, joins CNBC's 'Squawk on the Street' to discuss outlooks on Chipotle, how consumer sentiment and cost inputs are impacting the stock, and more.
Yahoo
23-03-2025
- Business
- Yahoo
Analyst explains why coffee prices are rising in 2025
-- Coffee prices soared nearly 60% over the last six months, with the price of Arabica beans reaching a 50-year peak, stirring concerns about the potential impact on the margins of coffee chains like Starbucks (NASDAQ:SBUX) and Tim Hortons (NYSE:QSR), as well as the resilience of consumer demand. While short-term pressures are expected to ease, Berenstein analysts forecast that coffee prices may stay above historical averages in the long run. The global coffee industry, with an annual production and consumption of approximately 10 million tons, is expanding at about 2% per year. Brazil, responsible for around 40% of the world's coffee, has seen its production affected by severe weather conditions, including droughts and high temperatures. Similarly, Vietnam and Indonesia have faced climate issues leading to a 20% production drop in Vietnam in 2024 and a 16% decline in Indonesia. These factors, combined with growing coffee consumption and a 20% decrease in warehouse inventories, have led to the price hikes. Bernstein analysts believe that the current high prices may encourage producers to increase production in the upcoming harvest seasons and that the rising macroeconomic pressures could reduce demand as consumers seek alternatives. Moreover, clarity on new deforestation regulations may reduce the risk premium currently factored into coffee prices by commodity traders. However, the long-term outlook suggests that prices will remain high due to the effects of climate change, stricter deforestation laws, and rising production costs, including labor. 'More regulations on deforestation and use of land will also lead to more limited areas suitable for growing coffee, and increasing protectionism and rising production costs (especially labor) will both contribute to pressuring price,' analysts led by Danilo Gargiulo explained. For Starbucks, coffee comprises 10-15% of its cost of goods sold (COGS), and the company's significant inventory holdings of $900 million could help it manage through the commodity fluctuations until the new harvest. Analysts suggest that Starbucks' current spot market exposure might even lead to margin expansion if coffee prices decrease. On the other hand, Tim Hortons may pass on the increased costs to franchisees, thereby minimizing the direct impact on its supply chain margins. Historically, Starbucks stock used to show a strong negative correlation with coffee prices, but this relationship has weakened since COVID-19 due to shifting supply and demand dynamics, operational hurdles, and a declining reliance on coffee sales. For Tim Hortons, sharp rises in coffee prices have historically squeezed margins, sometimes leading to price adjustments. However, with a 'better-optimized supply chain system and an improved pricing and cost structure, we believe that Tim Hortons will be better insulated from short-term price swings,' analysts said. Related Articles Analyst explains why coffee prices are rising in 2025 Russia stocks lower at close of trade; MOEX Russia Index down 0.98% Heathrow Airport orders probe into shutdown as travellers endure days of disruption Sign in to access your portfolio
Yahoo
23-03-2025
- Business
- Yahoo
Analyst explains why coffee prices are rising in 2025
-- Coffee prices soared nearly 60% over the last six months, with the price of Arabica beans reaching a 50-year peak, stirring concerns about the potential impact on the margins of coffee chains like Starbucks (NASDAQ:SBUX) and Tim Hortons (NYSE:QSR), as well as the resilience of consumer demand. While short-term pressures are expected to ease, Berenstein analysts forecast that coffee prices may stay above historical averages in the long run. The global coffee industry, with an annual production and consumption of approximately 10 million tons, is expanding at about 2% per year. Brazil, responsible for around 40% of the world's coffee, has seen its production affected by severe weather conditions, including droughts and high temperatures. Similarly, Vietnam and Indonesia have faced climate issues leading to a 20% production drop in Vietnam in 2024 and a 16% decline in Indonesia. These factors, combined with growing coffee consumption and a 20% decrease in warehouse inventories, have led to the price hikes. Bernstein analysts believe that the current high prices may encourage producers to increase production in the upcoming harvest seasons and that the rising macroeconomic pressures could reduce demand as consumers seek alternatives. Moreover, clarity on new deforestation regulations may reduce the risk premium currently factored into coffee prices by commodity traders. However, the long-term outlook suggests that prices will remain high due to the effects of climate change, stricter deforestation laws, and rising production costs, including labor. 'More regulations on deforestation and use of land will also lead to more limited areas suitable for growing coffee, and increasing protectionism and rising production costs (especially labor) will both contribute to pressuring price,' analysts led by Danilo Gargiulo explained. For Starbucks, coffee comprises 10-15% of its cost of goods sold (COGS), and the company's significant inventory holdings of $900 million could help it manage through the commodity fluctuations until the new harvest. Analysts suggest that Starbucks' current spot market exposure might even lead to margin expansion if coffee prices decrease. On the other hand, Tim Hortons may pass on the increased costs to franchisees, thereby minimizing the direct impact on its supply chain margins. Historically, Starbucks stock used to show a strong negative correlation with coffee prices, but this relationship has weakened since COVID-19 due to shifting supply and demand dynamics, operational hurdles, and a declining reliance on coffee sales. For Tim Hortons, sharp rises in coffee prices have historically squeezed margins, sometimes leading to price adjustments. However, with a 'better-optimized supply chain system and an improved pricing and cost structure, we believe that Tim Hortons will be better insulated from short-term price swings,' analysts said. Related Articles Analyst explains why coffee prices are rising in 2025 Russia stocks lower at close of trade; MOEX Russia Index down 0.98% Heathrow Airport orders probe into shutdown as travellers endure days of disruption Sign in to access your portfolio
