Tea is still big in Asia, but one of the most interesting trends is the explosion of alternatives from black coffee to flavored and blended drinks incorporating coffee. The biggest laboratory for this is in a country with 1.3 billion potential coffee drinkers - China.
China now has more coffee shops than the United States, according to the World Coffee Portal, a market research firm. The market grew 25% from 2018 to 2023, according to Bain & Company estimates.
Coffee king Starbucks (SBUX) has struggled in both China and the U.S. lately, but we can see some seeds of a turnaround led by Brian Niccol, who took the CEO role in September 2024, after previously leading Chipotle and Taco Bell. Through a combination of closing unproductive coffeehouses, new products, and incentives, you can see a turnaround happening.
In the first quarter of fiscal 2026, Starbucks reported a global comparable store sales increase of 4% year over year, with North America comparable store sales up 4%. The gains were driven by higher transaction volumes and higher average ticket size. This is promising.
Starbucks is also seeking to lower exposure in China as it appears that consumers are less interested in foreign brands, are more cost-conscious and often enticed by local rivals that are popping up on corners all around the country offering something a little different.
A smaller disruptive chain called Dutch Bros (BROS) has demonstrated some impressive growth over the last few years. An operator and franchisor of drive-thru coffee stores, the company has rapidly expanded its stable of stores. It is more than just coffee and offers a plethora of drinks aimed at younger customers.
It has expanded rapidly, growing to 1,100 locations, with plans to open 2,029 by 2029 and 7,000 in the U.S. over the long term. Dutch Bros has introduced mobile buy-ahead ordering, which has been helping drive same-store sales as well as hot food items. The company turned profitable two years ago and in 2025 reported $29.2 million in net income, up from $6.4 million in the year-before period.
Then there is the upstart from China: Luckin Coffee (LKNCY).
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Luckin has more of a kiosk, delivery, and technology-driven retail strategy blending quality, high convenience and high affordability. Luckin Coffee was founded in 2017 and started out of the gate fast, only to run into some serious accounting and management problems. After regrouping, it has resumed a torrid growth trajectory. It has nearly three times as many stores and opens a new one, on average, every hour. Stunning.
And here is the killer, the price of a cup of Starbucks coffee is more than double that of Luckin coffee. Luckin, for instance, goes through about 60 new products each year, offering a new drink every week. Its new coconut latte sells nearly $140 million worth annually. The company opened 1,792 new stores in China in just the last quarter, surpassing 30,000 stores nationwide, marking a significant milestone. International expansion is in high gear, with 42 new stores added, bringing the total overseas store count to 160. In addition, Luckin launched over 140 new products in 2025, enhancing its product innovation and expanding its non-coffee portfolio.
This presents investors with a classic situation. A dominating company such as Starbucks and two disruptive competitors growing much faster and offering cutting-edge, distinctive strategies as well as lower prices.
Which stock should you buy?
It comes down to judgment based on weighing risk, valuation, and growth prospects for each company and stock.
Take this opportunity to join the Cabot Explorer to learn which stock we chose and why.
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*This post has been updated from a previously published version.