Starbucks and Luckin Coffee face challenges in China as a new competitor initiates a pricing conflict
In a move to challenge the low prices of Cotti Coffee, a new competitor has emerged in the Chinese market - Luckin Coffee.
Background
Founded by former Luckin Coffee team members, Cotti Coffee has quickly gained a significant market share in China by offering most of its beverages for less than RMB 10 (USD 1.4) a cup. This aggressive pricing strategy has put pressure on other coffee chains, compelling them to adjust their strategies.
Cotti's Low-Cost Operation Strategy
To maintain its competitive edge, Cotti has invested in a large roasting plant and facilities to lower costs per cup to RMB 7-8 (USD 0.9-1.1). This strategy allows them to undercut industry giant Luckin Coffee, which has dominated the Chinese market with offerings mostly in the RMB 10 range.
Luckin Coffee's Counter-Strategies
Luckin Coffee, itself a pioneer in the price war in China, has responded to the pressure from Cotti with several measures:
- Price Reductions: Prices have been further lowered to increase attractiveness for price-conscious customers.
- Special Offers: Time-limited discounts and coupons have been frequently used.
- Product Diversification: Expansion of the product range, such as new tea and snack variants that are more affordable.
- Customer Loyalty Programmes: Stronger use of the own app for members, offering exclusive deals and loyalty programmes.
- Expansion: Opening more stores, even in smaller towns, to increase visibility.
The Competition Heats Up
As of now, Luckin Coffee is the most prominent direct competitor to Cotti Coffee and has significantly adapted its strategy to survive in the price-driven Chinese market. Both companies are striving to gain market shares through aggression in pricing and expansion - a fierce competition that significantly shapes the coffee scene in China.
Recently, an RMB 8.8 (USD 1.2) coupon for certain drinks became available on social media. Cotti's low-cost operation strategy was also discussed at an industry conference in mid-May.
Meanwhile, Starbucks, which remains popular in China, has been experiencing a revenue decline and same-store sales drop in China. Starbucks CEO Laxman Narasimhan stated that the company's performance in the January-March quarter was disappointing and did not meet expectations. However, updated information about Narasimhan's statement or Luckin's store count was not provided in the article.
Luckin, with 18,600 stores, also reported weak results, with a 20% decrease in same-store sales at directly run stores. Among affordable chains, Luckin is in a discounting war with Cotti, offering weekly RMB 9.9 coffee coupons.
A promotional sign at a Cotti location in Guangzhou offers coffee for RMB 9.9, indicating that the competition between these two companies continues to intensify. The initial investment for a Cotti franchise and royalty rates are reportedly lower than competitors, making it an attractive option for potential franchisees.
