Downward pressure on prices is building in China’s coffeehouse market, where Cotti Coffee is selling most of its beverages for less than RMB 10 (USD 1.4) a cup and industry giant Luckin Coffee is hammering out a strategy to fight back.
“Get delicious coffee for RMB 9.9,” said a promotional sign at a Cotti location in a Guangzhou business district in late May. Since 2023, different products have been offered at that price for a limited time.
The latest promotion runs from late February to the end of May. Asked about plans for June and beyond, a barista did not know what the head office had in store but thought that an even lower price was “possible.” An RMB 8.8 (USD 1.2) coupon for certain drinks is now available on social media.
Cotti is thus undercutting Luckin—which has dominated the Chinese market, with its offerings mostly in the RMB 10 range—not to mention Starbucks’ roughly RMB 30 (USD 4.1) per cup. Cotti’s pick-me-ups are as affordable as convenience store coffee drinks and have won the hearts of value-conscious consumers.
“Let me be clear from the beginning: Our performance this quarter was disappointing and did not meet our expectations,” Starbucks CEO Laxman Narasimhan said on an earnings call for the January-March quarter. The US company suffered its first revenue decline in 13 quarters, undermined by an 11% year-on-year drop in same-store sales in China.
Luckin, which boasts about 18,600 stores, also reported weak results. It managed to increase revenue in the first quarter, with openings of some 2,300 locations, but same-store sales at directly run stores fell 20%. CEO Guo Jinyi blamed intensifying competition and macroeconomic changes.
Cotti, run by former members of Luckin’s founding team, began setting up stores in 2022 and has essentially caught up to Starbucks in Chinese store count, thanks to its low-investment franchising strategy.
About 70% of Cotti locations are small shops of less than 40 square meters, requiring an initial investment of only RMB 240,000 (USD 33,130) or so, according to an analysis by China Merchants Securities. Total initial costs, including other fees, are apparently lower than at competitors, as are royalty rates for franchisees.
To achieve low-cost operation, Cotti’s headquarters has invested in opening a massive roasting plant and other facilities. These streamlining steps have helped bring down the company’s costs to RMB 7–8 (USD 0.9–1.1) per cup, Chinese media have quoted a Cotti official as saying at an industry conference in mid-May.
Starbucks remains popular in China, where consumers drink both premium brands and low-cost alternatives. Among affordable chains, however, Luckin is mired in a discounting war with Cotti, offering weekly coupons for RMB 9.9 coffees.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.