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Starbucks (SBUX) may be in big trouble in their quest to dominate the coffee market in China, thanks to the quick-growing, digitally savvy (and China-based) Luckin Coffee (LK).

While Luckin doesn’t have a single store outside of China (yet), veteran Hedgeye restaurants analyst Howard Penney explains why Luckin’s nimble, technology-first model makes it an ideal company to take on the Starbucks juggernaut.

Penney says Starbucks is obviously rattled, having unsuccessfully attempted to shut down Luckin via lawsuits.

“Luckin is having an impact on China. And Starbucks needs to think strongly about their position on Luckin and the potential that it has for their business,” Penney explains.

“It’s going to be really hard for Starbucks to compete against Luckin just because Starbuck’s cost structure is so high relative to that of Luckin.”

Watch the full clip above for more.

Why China's Luckin Coffee May Beat Starbucks - real time alerts