WHAT’S BREWING IN CHINA’S COFFEE WAR?

Earlier this week, I shared news about Starbucks possibly selling its Chinese business. Here’s more on China's coffee war …

In 2024, Luckin’s revenue (RMB 34.5 billion) increased by 38% YoY and net profit (RMB 2.9 billion) by 2.9% YoY. The profit margin in the off-season of the fourth quarter was 10.4%, further declining from the peak of 18.9% in 2023. Same-store sales of self-operated stores fell by 16.7% in 2024 (it grew by 21% in 2023), although it has been improving throughout the year, and December saw growth again.

At the end of 2024, Luckin had 22,430 stores (65% self-operated and contributed 77% to revenue), Cotti had 10,000 and Starbucks had 7,600. In 2024, Luckin opened more than 6,000 stores. In now has 5 in Hong Kong, 2 in Malaysia and 51 in Singapore. Luckin’s average monthly transacting consumers was 72 million in 2024.

While Luckin continues the RMB 9.9 price war, the choices for that price are limited (down to 8 from 20), and average prices have increased by RMB 3 since the start of the year. Prices also differ between stores. Meanwhile, coffee bean prices increased by 70% in 2024. Store rent and delivery costs have also been rising for Luckin. As such, it is not strange that Luckin is raising prices.

In the other camp, Cotti says that since May 2024,, it no longer needs to subsidise franchisees for discounts and can maintain the RMB 9.9 price per cup. It also claimed that the total number of stores would reach 50,000 by the end of 2025. This seems highly unlikely as it has opened 10,000 stores since October 2022 (80% of which are located less than 500 meters from a Luckin store) and would need to open four times that many in one year.

Cotti claims to be active with over 2,000 stores in 28 foreign countries, including the US, Canada, Japan, Indonesia, and Dubai. In 2024, it closed all its stores in South Korea due to fierce market competition, insufficient brand localization, and an unsuitable operation model.

I have to admit. Based on my early research on the company for Tech Buzz China, I never thought Cotti would survive this long. I had expected it to collapse sometime in 2024, when most of its franchisees' lease contracts ended, and they would probably throw in the towel after having made significant losses.

But Cotti is still here and seems crazier than ever. After a failed attempt to sell coffee through third-party convenience stores, it’s now selling lunch boxes in its coffee shops and has started opening coffee-themed Cotti Convenience Stores.

Never a dull moment in China's coffee sector ...

Source: Lianshang.