Cotti Runs Low On Steam As China's Coffee War Takes Global Stage
News Summary
Cotti Coffee's ambitious plan to open 50,000 stores by the end of 2025 has significantly slowed, with only 15,000 stores as of August 2025, falling far short of its target. Its symbolic entry into New York earlier this year, alongside rival Luckin Coffee, mirrors their intense domestic competition now playing out on a global stage, though China and other Asian markets remain the primary battlegrounds. Despite rising U.S. coffee prices due to President Trump's 50% tariffs on Brazilian coffee, both Cotti and Luckin adopted Starbucks-like pricing in their New York outlets. Luckin Coffee recently reported strong revenue and net income growth, boasting over 26,000 stores globally. Starbucks, with 32,000 global stores, faces challenges in China due to its pricing strategy not aligning with budget-conscious consumers. Cotti's founders, ousted from Luckin over a past accounting scandal, reportedly struggle to attract funding for aggressive expansion. Cotti is now pivoting to a new franchise model, incorporating convenience store items and planning coffee bars in supermarkets, seeking diversified growth avenues.
Background
China's coffee market is characterized by fierce competition, primarily dominated by Luckin Coffee, Cotti Coffee, and Starbucks. Luckin Coffee successfully rebuilt its brand after a 2020 accounting scandal, achieving market leadership through rapid expansion and a value-for-money strategy. Cotti Coffee was founded in 2022 by Luckin's former co-founders, Lu Zhengyao and Qian Zhiya, aiming to replicate Luckin's success with an aggressive expansion model. Southeast Asia, East Asia, and South Asia represent a significant growth opportunity for Chinese coffee chains, with the market projected to grow at an average annual rate of 6.2% between 2025 and 2030. The larger U.S. market, while substantial, is forecast to grow at a slower rate. Global coffee supply chains are also subject to geopolitical and trade policy impacts, exemplified by President Trump's 50% tariffs on Brazilian coffee in July 2025.
In-Depth AI Insights
What are the deeper reasons behind Cotti Coffee's expansion struggles, and what do they imply for its long-term viability? - The past financial fraud history of Cotti's founders likely severely hampered its ability to attract new funding, making its aggressive expansion plans unsustainable. High-growth, price-war-driven industries require substantial capital, and a lack of financing is a fatal flaw. - Cotti's abrupt slowdown in expansion after opening 10,000 stores in two years suggests its supply chain, operational management, and franchise support systems likely failed to keep pace with its ambitious growth targets, indicating execution shortcomings. - As a later entrant, Cotti faces a disadvantage in market share and consumer recognition compared to Luckin's scale and brand equity, particularly in the Chinese market, making it difficult to sustain profitability and further expansion amidst an intense price war. How do Luckin and Cotti's international expansion strategies, particularly in New York versus Asia, reflect their core competitive logic and future growth drivers? - Opening stores in Western markets like New York is primarily a symbolic brand statement, aiming to elevate international prestige and valuation potential rather than immediate profitability or significant market share. The premium pricing strategy indicates an understanding of local market structures, avoiding direct price wars. - The Asian market is the true strategic focus and growth engine. This region offers a large, rapidly growing market with cultural similarities to China, making operational models more easily replicable. Luckin and Cotti's intensive expansion in Asia aims to capture first-mover advantage and establish regional leadership. - International expansion also provides a path for diversification, reducing over-reliance on the single Chinese market, and offering new profit centers as the domestic price war intensifies. What are the broader implications of this heated price war and expansion race for the profitability and sustainability of the Chinese coffee market, and how does Starbucks fit into this dynamic? - The sustained price war will inevitably erode overall industry profit margins, likely leading to the exit of smaller brands and accelerating market consolidation. Ultimately, this will leave a few dominant players with strong capital and operational efficiency. - While aggressive expansion grows market size, it can also lead to store oversaturation and diminished per-store profitability. Coffee chains may need to explore diversified product lines (like Cotti's convenience store model) to enhance revenue per square foot. - Starbucks is at a disadvantage in the price war, but its premium brand positioning and 'third place' experience still hold unique value. It will likely avoid direct price competition, instead focusing on enhancing brand loyalty and attracting consumers willing to pay higher prices through differentiated services and products, maintaining its market niche.