China's domestic coffee chain Luckin surpassed Starbucks in annual sales last year, taking the coffee crown in the Chinese market for the first time, said Securities Daily on Monday.

Luckin's financial report showed that the company realized 24.9 billion yuan ($3.46 billion) in total net revenue in 2023, surged 87.3 percent from a year earlier. Based on GAAP accounting rules, its operating profit hit 3.03 billion yuan last year, more than double that of 2022.

In the Chinese market, Luckin's annual sales reached 24.86 billion yuan in 2023.

Luckin has become the largest coffee chain in the Chinese market thanks to the Chinese coffee consumer changing as coffee has transformed to a mass consumer good from a niche and commercial consumer good, said Lai Yang, a member of the expert committee of the China General Chamber of Commerce.

Luckin's lighter store format is better able to adapt to the new change than Starbucks, Lai said.

China's coffee market was quickly developing and with more brands joining, the competition in the country's market will become more intense, said Guo Jinyi, chairman and CEO of Luckin Coffee.

By the end of 2023, Luckin's store number surged 97.8 percent year-on-year to hit 16,248, including 10,628 self-operated stores and 5,620 partnership stores.

One of Luckin's rivals, Cotti Coffee, announced that its store number reached 7,000 across the country in February.

The total Chinese branded coffee shop market exceeds 50,000 stores – making it the largest in the world, said a report released in Dec 2023 from Allegra World Coffee Portal, a global coffee market research provider.

Sinking markets and overseas markets are becoming the new direction of Luckin's strength.

In 2023, the number of Luckin's stores in Singapore reached 30. In the future, Luckin will continue to develop overseas markets, said Guo Jinyi at the company's third quarter 2023 results meeting.

With the intensification of competition in China's coffee market, Luckin will continue to increase the number of stores in high-tier cities and accelerate the expansion of sinking markets through the partnership model to further expand market share, Guo said.

In the long-term, the sinking market will multiply the market capacity to the country's coffee market, but in the short-term, with the continuation of the price war and the emergence of a large number of coffee stores, the competition in the sinking market will intensify, Lai said.

Moreover, some coffee brands have not yet had enough loyal consumer groups in the sinking market and the emergence of a large number of new brands would be easy to exacerbate the risk of consumer diversion, Lai added.