Luckin Coffee: Rise, Fall, and Reinvention — Part 7

Cotti “pushes us to improve”

This article is Part 7 of the eight-part chronicle on Luckin Coffee’s rise, collapse, and reinvention. It is the excerpt of a sharing by Luckin Coffee CEO Guo Jinyi in 2024, translated into English here. 

You can also read the other parts of the series here: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 8

How Do You View the Cotti Coffee Phenomenon?

Su Xijia:
In such a short time, Cotti Coffee has surpassed 10,000 stores globally. What does the rise of Cotti mean for China’s coffee industry?

Guo Jinyi:
First of all, the business we are in is fundamentally different from online businesses.

The essence of internet businesses is winner-takes-all. Whether it’s ride-hailing platforms like Didi, music services like Tencent Music, or other e-commerce platforms like Meituan, they all rely on massive initial capital investment to eliminate competitors, achieve scale, and then optimize pricing and costs to maximize profits.

However, the essence of offline businesses is diversity and coexistence. There will never be just one dominant brand. For example, Xijiade dumplings are successful, but there are plenty of other dumpling brands thriving as well.

Thus, China’s coffee market is destined to be diverse and competitive.

Secondly, the context behind Cotti’s emergence is worth analyzing.

After the Cotti team left Luckin, they initially ventured into several other businesses, including ready-to-eat meals, noodles, and shared workspaces. Why didn’t they start with coffee right away?

Back then, Luckin had not yet established a clear first-mover advantage. My guess is that they probably thought coffee was no longer a viable business.

At that time, Luckin’s cost structure was 15 RMB per cup, selling at 10 RMB, resulting in a 5 RMB loss per cup. Later, we reversed the equation, reducing costs to 10 RMB, selling at 15 RMB, and earning 5 RMB per cup.

They likely entered the market last year after seeing how profitable Luckin had become, leading them to believe that the business was indeed viable. Around the same time, many other brands also entered the market.

Lessons Learned:
In a fast-growing market, it’s crucial to maintain control over profits—if profits are too high, competition will inevitably increase.

That said, I’m genuinely grateful for Cotti’s presence; their competition pushes us to improve.

1. We need challengers to sharpen us.
   • Their presence motivates our team to work with renewed intensity. Expanding to 10,000 stores in just 13 months is unprecedented in the global restaurant market.
   • We, along with our shareholders, have visited stores in more than ten cities, making decisions based on real-time market conditions.
2. However, the challenger must not surpass the leader.
   • Current data indicates that Luckin’s performance remains strong—our cup volume is roughly double that of Cotti, and our average selling price is 2 RMB higher.
   • But we don’t expect Cotti to collapse because its franchise model allows for persistence. Franchisees have sunk costs and will continue as long as they can break even, without accounting for depreciation and amortization like we do.

We maintain a calm approach toward Cotti—focusing on our own business is the most important thing. Competitors exist to push us forward, and so far, we are doing well.

You can also make reference to the following Momentum Works reports and articles for more:

• Inside Luckin Coffee
• Coffee in Southeast Asia
• Chinese F&B in Southeast Asia
• Quick Commerce in China 2025
• Food delivery in Southeast Asia 5.0