The Shocking $1.99 Per Cup: Luckin Coffee's "Price Revolution" Challenges Starbucks as It Lands in NY

Photo © Shwangtianyuan / CC BY-SA 4.0

1. The "Black Ship" Shock of Luckin's Entry

"Starbucks' biggest threat has finally arrived in the U.S." — This is how Fortune magazine described the challenge on July 1, 2025. Luckin Coffee, founded in 2017, surpassed Starbucks in China in terms of both store count and sales in just eight years, now boasting over 20,000 stores. Their weapon is a simple formula of app payment × ultra-fast service × low prices. This winning pattern shakes the stronghold of Starbucks, which has long advocated for being the "third place" — this is the core theme of this discussion.

2. The "Experimental Grounds" of Two Manhattan Stores

On July 1, two small street-level stores opened simultaneously in Greenwich Village and near Times Square. Both are around 30 square meters in size, with seating limited to stools by the wall, primarily for takeout and delivery. The opening sale featured all items at $1.99. The lines immediately after opening blocked the sidewalks, and influencers' live streams occupied the storefronts. Orders are placed via app or in-store QR code only, with an average of three minutes from payment to pickup. The store operates with a minimal staff of two baristas and one handover clerk, achieving high turnover rates.

3. "Enthusiasm" and "Skepticism" Seen on Social Media

On X (formerly Twitter), "#LuckinCoffee" and "#StarbucksGraduationDeclaration" trended. Popular Gen Z creator @LatteLizzz posted, "Paying $5 at Starbucks feels foolish now," garnering 100,000 likes. In contrast, conservative commentator @PamphletsY dismissed it as a "discount bubble that will burst the moment prices rise." On TikTok, vertical videos titled "LUCKIN 5-second Review" proliferated, spreading the short surprise of "pretty good for $1.99."

4. Sustainability of Price Disruption — How Long Will "$1.99" Last?

NY has some of the highest rent and labor costs in the U.S. Luckin is

• over 90% mobile order ratio

• reducing wait times with unmanned pickup shelves

• operating with 3-4 staff shifts per store
  to minimize fixed costs, but the barriers of raw materials and rent are high. In fact, the average price in mainland China was 16-18 yuan (about $2.2-$2.5) as of 2024. Considering the cost of sourcing raw materials in NY, $1.99 is an "investment price," and a gradual price increase is likely in 3-6 months. However, the initial shock price will continue to reshape consumer perception that "coffee should be this affordable," remaining as a market anchor.

5. Starbucks' Predicament — Price Increases, Labor Costs, and AI Investment

In 2024, Starbucks raised the average price of major menu items in the U.S. by 7%, with the standard tall latte rising to $5.15. To address chronic labor shortages, the company announced plans to introduce the AI chatbot "Green Dot Assist" in drive-thrus nationwide from June 2025 to automate order-taking. However, AI investment comes with high initial costs, which may pressure short-term profits.

6. "Third Place" VS "Completed in 5 Minutes"

The "Third Place" concept that Starbucks has championed since its founding, offering a comfortable space outside of home and work, resonated well with the millennial lifestyle. In contrast, Luckin's customer experience places value on "not staying."

• Purpose: Relax leisurely ←→ Grab a cup before work

• Flow: Counter order ←→ App order

• Time: Average 15-20 minutes stay ←→ Completed in 3-5 minutes
  The high behavior pattern of Gen Z, characterized by "time optimization + price sensitivity," risks making Starbucks' added spatial value "over-spec."

7. The Comeback Story from "Accounting Fraud" Demonstrates Corporate Culture

In 2020, Luckin was delisted from NASDAQ after a $300 million revenue inflation scandal. They survived the bankruptcy crisis through aggressive coupon distribution and capital infusion from investment funds, returning to profitability by 2022. By 2024, they reclaimed their position as the largest chain in China. The speed at which they repaired their reputation in just three years symbolizes the unique Chinese startup culture of **"erasing failures and continuing to run."** For U.S. Gen Z, who are unaware of the past fraud, Luckin may appear as a "dynamic overseas brand."

8. Changes in Consumer Behavior and the Competition for the "Middle Class"

With stagnant disposable income in the U.S. and prolonged inflation, the "five-times-a-week Starbucks crowd" is shifting to "three-times-a-week." Luckin, which drastically lowers the average customer spend from $5 to the $3 range, fills this gap. Especially,

• around high school to university campuses (student discount needs + smartphone generation)

• commuting routes in office districts (morning time-saving demand)

• Asian communities (high brand recognition)
  have significant potential for capture.

9. Competitive Chain Reaction and the "Price-Cutting Domino"

After Luckin's entry, Dunkin' Donuts immediately launched a $2.49 latte campaign exclusive to their app. Tim Hortons US announced strengthened coupon offerings, and Subway discounted drinks in their morning sets by 50 cents. If a chain reaction of low-price campaign battles spreads, Starbucks will face three choices: ① accept margin compression and join the price cuts, ② further enhance experiential value to justify high prices, or ③ separate price ranges with a sub-brand.

10. Future Scenarios

11. Conclusion — The Dawn of "Coffee Wars 2.0"

Luckin's entry into NY is not merely a price competition.It is innovative in that it introduces a "non-space café" with zero stay time, leveraging a mobile-native customer experience. The concept of Starbucks' "third place" has long been the pinnacle of café experiences. However, for Gen Z, who optimize most of their lives via smartphones, cafés are evolving from "places to be" to "places to pass through."

Coffee Wars 2.0 — it is a new era battle determined by the trinity of price × UX (user experience) × speed. Luckin is shaking the value Starbucks built over 30 years with just a few dollars and a few minutes. The outcome is still unclear. But what is certain is that consumers are already the winners in the name of "choice."