Is Luckin Coffee’s ousted CEO plotting revenge?
Cotti Coffee launched its first store in October 2022 and plans to open 10,000 more by 2025
The chain’s owners oversaw the crash and burn of Luckin Coffee in 2020
Its low-priced coffees are more in competition with K Coffee than Luckin
OF ALL the adjectives that could be thrown at China’s coffee sector, boring isn’t one of them. While it may not enjoy the size or influence of America’s, its pace of change is lightning-quick. And it’s certainly not lacking in characters.
Two of the most well-known are former Luckin Coffee executives Charles Lu and Jenny Qian. After overseeing the explosive growth of the Chinese coffee chain and its humiliating Nasdaq delisting in 2020, they were finally ousted with Luckin facing a class action lawsuit and their reputations in tatters.
Now, the pair are back with a new coffee chain that already has echoes of their doomed Luckin venture. Cotti Coffee was launched last October in Fuzhou, a city in eastern China. Just five months later, the chain has expanded across the country with plans for a total of 2,500 branches by the end of the year.
Believed to be backed by a $100m war chest, Cotti Coffee has already sponsored the Argentinian national football team, which won the World Cup in December, and the 2022 Chengdu Marathon. In a bid to woo customers, its coffee is priced relatively low at around $1.4-2 per cup – the average at Starbucks is $4.30 – and food is also cheap, with hotdogs and small cakes priced at $1.30.
For many onlookers, the arrival of Cotti Coffee signals a direct challenge to the supremacy of Luckin in the Chinese coffee market, which is set to grow to a valuation of $30bn by 2025. “This new brand almost seems like a ‘revenge move’ in response to Lu and Qian not being involved with Luckin Coffee anymore,” says Felipe Cabrera, a coffee consultant based in Shanghai.
cotti coffee china, luckin coffee rival
Is this just Luckin Coffee 2.0?
Luckin Coffee’s turnaround since Qian and Lu left has been nothing short of miraculous. In 2020, it was delisted from Nasdaq and filed for bankruptcy in the US after fabricating its sales figures. In its attempts to win the battle for coffee shop dominance with Starbucks, it had burned through investor cash and failed to turn a profit in its four years since launch.
Now, under new CEO Jinyi Guo, Luckin is not only China’s largest coffee chain, but it is profitable too. In 2022, the coffee chain’s full-year profits reached 1.1bn yuan ($167m) despite intermittent lockdowns. It is once again looking to expand abroad, but this time with its sights set on the Southeast Asian market, including Indonesia, Singapore, and Thailand.
For ousted Luckin Coffee executives, Qian and Lu, this must sting. Although their tenor ended in acrimony, they are largely credited with kickstarting a serious challenge to the dominance of US coffee chains in China.
Cotti Coffee’s model of small locations with quick, convenient service and low-cost coffee served from automatic machines appears to be Luckin 2.0. Most of the stores are small – around 40 sq metres – and menus are littered with discounts and the chance to win prizes – hallmarks of Luckin’s initial launch.
However, while there are certainly similarities between the two, Cotti Coffee might not be the direct competition that it first seems. Not only does it have a strong focus on serving products outside of coffee, including Italian desserts, its drinks in general are also considerably cheaper than Luckin’s – the latter of which now prides itself on selling pricier single origin Yunnan coffees.
“Cotti’s coffee per cup prices are already low – you can’t really go much lower,” Felipe explains. “So at the moment, their range of prices is competing against K Coffee or Family Mart coffee prices, rather than Luckin. Current coffee economics also don’t favour Cotti to push for a price war.”
Whether this changes remains to be seen. For now, Luckin Coffee will undoubtedly be keeping a close eye on the movements of its former execs. If Cotti does hit its target of 10,000 stores in the next three years, then it won’t be the only coffee chain with something to worry about. Perhaps, behind closed doors, the big market players hope Luckin’s former owners will make the same mistakes they did in 2020.