[Early Access] Luckin and Cotti Locked in Fierce Battle as Traditional Coffee Brands Compete in Different Lanes (AI Translation)
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文｜财新周刊 冯奕铭（见习），孙嫣然
By Caixin Weekly's Feng Yiming (Intern) and Sun Yanran
创立瑞幸又因财报造假出局的陆正耀、钱治亚团队，2022年再创库迪咖啡东山再起，一年开店超6000家，与刚在2023年二季度超越星巴克、拿下中国咖啡连锁第一大营收宝座的瑞幸，从品类价格到店铺选址皆展开贴身肉搏战。
Lu Zhengyao and Qian Zhiya, the team who founded Luckin Coffee but were ousted due to financial fraud, made a comeback in 2022 by launching Cotti Coffee. Within a year, the new brand opened over 6,000 stores. Cotti is now locked in a fierce battle with Luckin Coffee—which, in the second quarter of 2023, surpassed Starbucks to become China's top coffee chain by revenue—competing closely on everything from product pricing to store locations.
“8块8”“9块9”喝咖啡的营销商战已持续大半年，彻底改变了中国咖啡行业的版图。
The marketing battle over “8.8 yuan” and “9.9 yuan” coffee has raged for more than half a year, fundamentally reshaping the landscape of China’s coffee industry.
2023年二季度，瑞幸以8.55亿美元营收超过星巴克中国的8.22亿美元。各家扩张竞速，门店数量日新月异。据餐饮行业数据库窄门餐眼统计，截至2024年2月1日，瑞幸门店数达18082家；库迪则通过联营模式快速铺店，店铺数超6600家；而1999年进入中国的“咖啡教父”星巴克，据官方2024年1月31日披露的最新财报，截至2023年底，其中国区门店数已达6975家——在新兴咖啡连锁对手的战争威胁之下，星巴克过去一年的门店扩张和营销策略都明显积极起来。
In the second quarter of 2023, Luckin Coffee posted revenue of $855 million, surpassing Starbucks China's $822 million. As each brand races to expand, store counts are constantly on the rise. According to restaurant industry database Narrow Gate Chanyan, as of February 1, 2024, Luckin Coffee operated 18,082 locations. Cotti Coffee, employing a joint-venture model, rapidly rolled out more than 6,600 outlets. Starbucks—dubbed the "Godfather of Coffee," and present in China since 1999—disclosed in its latest financial report on January 31, 2024, that its number of stores in China reached 6,975 by the end of 2023. Facing the rising threat of emerging coffee chains, Starbucks has clearly stepped up its store expansion and marketing strategies over the past year.
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- Luckin Coffee surpassed Starbucks China in Q2 2023 with revenues of $855 million vs. $822 million.
- As of February 1, 2024, Luckin had 18,082 stores, Cotti Coffee over 6,600, and Starbucks China had 6,975 by late 2023.
- China's coffee shop count grew 58% in 2023 to 49,691, making it the world's largest market.
The Chinese coffee market has undergone dramatic transformation since 2022, marked by fierce price wars and rapid expansion led mainly by Luckin Coffee and its new rival, Cotti Coffee, founded by former Luckin executives Lu Zhengyao and Qian Zhiya after their ousting over financial fraud. Cotti adopted an aggressive franchise model and surpassed 6,000 stores within one year, directly challenging Luckin, which itself overtook Starbucks China in Q2 of 2023 to become the largest coffee chain by revenue in the country, with $855 million versus Starbucks' $822 million. As of Feb 2024, Luckin operates 18,082 stores, Cotti over 6,600, and Starbucks 6,975. These expansions, along with deep price cuts like "8.8 RMB" and "9.9 RMB" coffees, have significantly disrupted the industry landscape[para. 1][para. 2][para. 3][para. 4].
While Starbucks maintains a premium, direct-operated "third space" model with larger store sizes and higher price points (24-38 RMB), both Luckin and Cotti target the value-seeking, tech-savvy crowd with smaller, light-capital, grab-and-go outlets and heavy digitalization. Cotti’s rapid expansion leverages a franchise approach similar to that of leading tea chain Mixue Bingcheng, aiming for 20,000 stores by 2025. Many other brands avoid direct price wars, fearing predation by Luckin and Cotti's low prices[para. 5][para. 6][para. 7][para. 8].
Starbucks, once the undisputed market leader with its social-coffee "third space", is now forced to accelerate expansion, particularly in lower-tier markets, yet faces challenges given local preferences for sweet drinks and lower spending power, limiting coffee's traction outside major cities. Meanwhile, fast expansion has led to rapid market saturation—some chains saw major closures after opening too many stores too quickly[para. 9][para. 10][para. 11][para. 12].
According to Allegra Group, by 2023, China’s coffee shop count grew 58% year-on-year to 49,691, surpassing the U.S. and making it the world's largest coffee shop market, with Luckin, Starbucks, and Cotti accounting for over half the stores. Luckin’s reconstruction after its fraud scandal included new management, financial stabilization, and public relisting, with its stock recovering robustly post-2022[para. 13][para. 14][para. 15][para. 16][para. 17].
Competition between Luckin and Cotti centers on scale, pricing, supply chain management, and technological efficiency. Cotti’s franchisees, many of whom are former Luckin aspirants, enjoy low entry barriers but face profit pressures due to ongoing deep discounts and increasing operational challenges. Reports indicate that by late 2023, only 20-30% of Cotti franchisees were profitable, prompting widespread closures and attempts to recoup costs by selling equipment, extending supplier payment cycles, and ‘push sales’ of products like liquor[para. 18][para. 19][para. 20][para. 21][para. 22][para. 23][para. 24][para. 25][para. 26].
Starbucks and other premium brands refrain from price wars, focusing instead on brand positioning, innovation (like the $220 million innovation center in Shenzhen), and selective expansion, mainly in top-tier cities. Boutique brands like Seesaw and Manner either consolidate regionally or experiment with models tailored to premium urban consumers, but face growth bottlenecks outside major cities due to lower brand recognition and consumer maturity[para. 27][para. 28][para. 29][para. 30][para. 31][para. 32][para. 33][para. 34][para. 35][para. 36][para. 37][para. 38][para. 39][para. 40][para. 41][para. 42][para. 43].
The coffee war remains unresolved; Luckin appears resilient with a strong brand and investment backing, while Cotti’s future hinges on franchisee sustainability and new product hits. Meanwhile, venture capital is increasingly cautious about backing new entrants, particularly those with founders facing credibility questions. This ongoing reshuffle is expected to continue into 2024 and beyond, with industry consensus that only the strongest will survive as the market rationalizes post price war[para. 44][para. 45][para. 46][para. 47][para. 48][para. 49][para. 50][para. 51].
- Luckin Coffee
瑞幸咖啡 - Luckin Coffee, despite a past financial scandal, has re-emerged as a dominant force in China's coffee market. By Q2 2023, it surpassed Starbucks in revenue within China. It rapidly expanded, reaching over 18,000 stores by February 2024, deploying a highly digitized, light-asset, grab-and-go model with low prices to aggressively compete, particularly against its former founders' new venture, Cotti Coffee.
- Coody Coffee
库迪咖啡 - Coody Coffee was founded in 2022 by the original team behind Luckin Coffee, Lu Zhengyao and Qian Zhiya. It rapidly expanded, opening over 6,000 stores in one year. While initially gaining traction with aggressive low-price promotions, many Coody franchisees are now facing losses and store closures due to intense competition from Luckin.
- Starbucks
星巴克 - Starbucks, a veteran in the Chinese coffee market since 1999, is intensifying its expansion despite fierce rivalry from Luckin Coffee and Cotti Coffee. It plans to reach 9,000 stores by 2025. While maintaining its premium "third space" model, Starbucks is now actively targeting lower-tier cities and diversifying its marketing efforts.
- Mixue Bingcheng
蜜雪冰城 - Mixue Bingcheng is a successful Chinese bubble tea company. Kudi Coffee, founded by the ex-Luckin Coffee team, has adopted a similar franchise model to Mixue Bingcheng to expand rapidly. The article suggests that Mixue Bingcheng's business model allows for significant expansion, indicating its success in the beverage market.
- Qu Xiao Mian
趣小面 - Qu Xiao Mian (趣小面) was a catering brand created by Lu Zhengyao and Qian Zhiya. Both Lu and Qian were expelled from Luckin Coffee due to financial fraud. The venture was ultimately unsuccessful, along with another pre-made vegetable brand called "Shejian Yingxiong" (舌尖英雄).
- Taste Hero
舌尖英雄 - Troubled by the 2020 fraud scandal, Luckin Coffee co-founders Lu Zhengyao and Qian Zhiya exited the company and subsequently launched "Taste Hero," a pre-cooked meal brand. However, this venture, along with another, failed to succeed.
- Tea Cat
茶猫 - Tea Cat is a new brand launched by Kudi, a Chinese coffee chain. This brand marks Kudi's entry into the milk tea sector. Tea Cat is part of Kudi's broader "human-machine collaboration strategy," which involves the scaled application of commercial robots in stores.
- Berry Beans
Berry Beans - Berry Beans is an independent coffee shop established in 2012 by Wei Hanye, a former Starbucks store manager. It operates seven independent stores in Beijing. Recently, its office building branches have seen a significant decline in performance due to increased vacancy rates and reduced consumer traffic post-pandemic.
- Seesaw Coffee
Seesaw咖啡 - Seesaw Coffee, established in 2012, is one of Shanghai's earliest chained boutique coffee brands. Their stores, mostly over 100 square meters, have an average price of around 37 yuan. It has secured three rounds of funding from 2017 to 2022. While reaching 100 stores across nine cities by August 2022, Seesaw closed several locations and exited Wuhan by late 2023.
- Manner Coffee
Manner咖啡 - Manner Coffee is a Chinese coffee chain that operates with a direct-to-consumer, small-store model, primarily offering cost-effective, high-quality coffee. It gained significant valuation in 2021, and its urban strategy focuses on high-density store placement in major cities like Shanghai.
- Tim Hortons
Tim Hortons - Tim Hortons, a Canadian brand established in 2019 in China, secured two funding rounds in 2021. It went public on Nasdaq in 2022 through a SPAC+PIPE merger, with an initial valuation of $1.4 billion. By February 1, 2024, its market capitalization had fallen to $249 million.
- Nuo Wa Coffee
挪瓦咖啡 - Nuo Wa (Nowwa) Coffee, founded in 2019, generally matches the price range of Luckin and Cotti Coffee but aims to avoid the price war. In Q4 2023, Nuo Wa repositioned itself as a "healthy, low-calorie coffee brand," adjusting product prices upward to around 13 yuan after increasing raw material costs by nearly 20% to reduce fat content.
- Grid Coffee
Grid Coffee - Grid Coffee is an innovative venture backed by ed-tech company Yuanfudao. Since its 2022 founding, it primarily sells black and milk coffee using single-origin beans and avoids syrups. With over 30 stores in Beijing, it plans to expand to Shanghai in early 2024, aiming for 60-80 total locations.
- 2012：
- Berry Beans founder Wei Hanye opens first store in Beijing.
- 2012：
- Seesaw Coffee founded in Shanghai.
- 2017：
- Luckin Coffee is founded; Starbucks withdraws remaining franchise rights and switches to direct-operation model in China.
- 2018–2022：
- Starbucks opens average of 620 new locations annually over five years in China.
- 2018–2022 fiscal years：
- Starbucks China revenue peaks at $3.675 billion in fiscal 2021, falls to $3.008 billion in fiscal 2022.
- 2019：
- Tim Hortons enters China.
- April 2020：
- Luckin Coffee's accounting fraud is exposed; a 2.2-billion-yuan ($310 million) fictitious sales scheme revealed.
- 2021：
- Centurium Capital becomes controlling shareholder of Luckin Coffee after the founders exit.
- 2021：
- Luckin Coffee implements equity incentive plan and opens to franchising.
- 2021：
- Luckin Coffee's operating cash flow turns positive.
- 2021：
- Manner secures four rounds of financing in six months and with fewer than 200 stores is valued at nearly RMB 20 billion.
- 2021：
- Tim Hortons completes two rounds of financing.
- March 2022：
- Luckin Coffee stock hits a low of $6.24 per share.
- 2022：
- Lu Zhengyao and Qian Zhiya launch Cudi Coffee after exiting Luckin Coffee post-financial scandal.
- 2022：
- Luckin Coffee reports operating profit of 1.156 billion yuan and number of stores increases from 6,024 to 8,214.
- 2022：
- Grid Coffee is established.
- August 2022：
- Seesaw reaches 100 stores across nine cities.
- October 2022：
- Lu Zhengyao and Qian Zhiya found Cotti Coffee.
- December 2022：
- Luckin Coffee launches new round of franchise applications.
- Within 1 year of 2022：
- Cudi Coffee opens more than 6,000 stores.
- February 2023：
- Cotti Coffee announces 'Hundred Cities, Thousand Stores Coffee Festival', offering prices from 9.9 yuan.
- First and Second Quarters of 2023：
- Luckin Coffee opens an average of 259 new stores per month.
- First half of 2023：
- Cotti Coffee headquarters reportedly spends 200–300 million yuan on franchisee subsidies.
- First half of 2023：
- Cotti Coffee stores in Linyi, Shandong average 350–450 cups sold per day with net profit of 30,000–40,000 yuan per month.
- May Day 2023：
- Cudi Coffee extends supplier payment cycle, changing terms from 45 days to 7.5 months.
- May 2023：
- Luckin Coffee introduces store-franchise model, covering more than 100 cities.
- Early June 2023：
- Cotti Coffee becomes global sponsor of Argentina national football team and launches '1 Yuan Coffee Coupon' campaign.
- June 2023：
- Luckin Coffee surpasses 10,000 stores and launches '9.9 Yuan Every Week' campaign.
- July 2023：
- Cotti Coffee introduces '8.8 Yuan Weekly Special' deal.
- July 2023：
- Cudi franchisee conference upgrades subsidy policy (1.5/1/0.5 yuan per cup based on proximity to Luckin Coffee).
- July 2023：
- Luckin Coffee opens 608 new stores.
- August 2023：
- Luckin Coffee opens 842 new stores.
- September 2023：
- Luckin Coffee opens 912 new stores.
- September 2023：
- Luckin Coffee and Kweichow Moutai launch sauce-flavored latte, sells 100 million yuan worth in one day.
- September 2023：
- Starbucks China Coffee Innovation Industrial Park completed and begins operation.
- September 2023：
- Tim Hortons opens franchising of small-format stores in Beijing and Shanghai.
- September 2023：
- Manner surpasses 1,000 stores and plans to double in 2024.
- September 2023：
- Nova Coffee adjusts product lineup and raises average prices to about 13 yuan.
- October 2023：
- Qian Zhiya doubles Cotti’s 2025 nationwide storefront target from 10,000 to 20,000 locations.
- October 2023：
- Luckin Coffee stock price briefly surpasses $37 per ADS.
- Second quarter of 2023：
- Luckin Coffee surpasses Starbucks to become China’s largest coffee chain by revenue.
- Second quarter of 2023：
- Luckin Coffee revenue reaches $855 million, surpassing Starbucks China's $822 million.
- Second quarter of 2023：
- Luckin self-operated store profit margin 29.1%.
- Third quarter of 2023：
- Luckin self-operated store profit margin drops to 23.1% amid price war.
- November 2023：
- Luckin Coffee names Yi Yangqianxi as new spokesperson; Cotti hires Wang Yibo.
- End of 2023：
- Cotti Coffee begins large-scale store closures; data suggests more than 1,000 stores shuttered by 2025.
- End of 2023：
- Seesaw closes a number of stores and exits Wuhan.
- End of 2023：
- Starbucks names Kris Phillips (Fei Xiang) as brand ambassador.
- End of 2023：
- Wave of coffee store closures in China, according to Berry Beans founder.
- End of December 2023：
- Luckin faces Cotti’s 9.9 yuan deals at fewer than 2,000 of its locations.
- 2023：
- Starbucks China adds 885 new stores, surpassing 7,000 total locations.
- Fourth quarter 2023：
- Nova Coffee positions as 'healthy, low-calorie'.
- End of fourth quarter 2023：
- Grade A office vacancy rate in Beijing surpasses 20%. (20.4%)
- After June 2023：
- Luckin Coffee suspends discount campaign in one store for a month, later reinstated.
- As of February 1, 2024：
- Luckin Coffee has 18,082 stores; Cotti Coffee has more than 6,600 stores; Starbucks has 6,975 stores as of end of 2023.
- As of February 1, 2024：
- Luckin Coffee stock trades at $20 per ADS.
- As of February 1, 2024：
- Tim Hortons market capitalization at $249 million.
- January 31, 2024：
- Starbucks reports in latest earnings release that it had 6,975 stores at end of 2023.
- Early January 2024：
- Cotti Coffee sends franchisees order for two cases of Maotan Wine and Maotai Bulao Wine to be sold in stores.
- January 18, 2024：
- At Cudi national franchisee conference, announcement that Maotan Liquor deliveries (from January 19, 2024) can no longer be canceled; company will push raw materials/orders to stores.
- January 20, 2024：
- Cudi Coffee suspends new material distribution rules; initial liquor not charged to franchisees and unsold stock to be collected by April 30, 2024.
- February 5, 2024：
- Article 'Coffee Wars' published in Caixin Weekly.
- Early 2024：
- Starbucks collaborates with 'Havoc in Heaven' IP for product launch.
- 2024：
- Starbucks begins offering new delivery-targeted menu; second such launch since autumn 2023.
- April 30, 2024：
- Deadline for unsold initial shipment of baijiu to be reclaimed from franchisees by company.
- By National Day 2024 (before October 1, 2024)：
- Cudi employee predicts a wave of closures if Cudi fails to launch a blockbuster product.
- By 2025：
- Cotti Coffee has expanded into more than 330 out of 390 county-level cities in China.
- By 2025：
- Cotti Coffee operates 67 stores in Xinjiang and 10 in Xizang; more than 40 stores in Urumqi alone.
- By 2025：
- Cudi Coffee shop daily sales drop to 100–120 cups, from peak of June 2023 (350–450 cups).
- By 2025：
- Grid Coffee has more than 30 stores in Beijing and plans to enter Shanghai in first half of 2025.
- Target: End of 2025：
- Starbucks aims to reach more than 9,000 stores in China.
- January 25, 2025：
- Nowwa Coffee announces RMB 50 million subsidy for new franchisees in 2025 and plans 1,000 new stores.
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