Cotti 'scares off' Luckin, but can't hide the aftermath of expansion

Original @XinShang Author 丨 Jiang Li Editor 丨 Jue Ying

The strategy of alliances and rivalries stirred the Warring States period, and Lu Zhengyao, who founded both Luckin Coffee and Cotti Coffee but was embroiled in the financial fraud scandal, seems to have mastered this tactic as well.

On October 22, Cotti Coffee announced that as it celebrated the second anniversary of its first store opening, its global store count had surpassed 10,000, with the 10,000th store located on Pearl Island in Doha, Qatar.

It took Luckin Coffee 6 years to go from 0 to 10,000 stores, while Cotti achieved this in just 2 years. The increasingly rapid pace of expansion is astonishing, and the competition between Luckin and Cotti has once again come to the forefront. By scale, Cotti has become the world's fourth-largest coffee chain brand and the second domestic brand after Luckin to reach 10,000 stores.

Compared to traditional coffee brands like Starbucks, the lightning-fast expansion speed is seen as a manifestation of the rivalry between Luckin and Cotti. In the eyes of the public, since its founding in 2022, the overt and covert battles between Cotti and Luckin have never ceased. According to Luckin's franchise managers, the race for scale and price wars seem to be orchestrated by Lu Zhengyao and the capital behind him.

Whether they are competitors or "partners in disguise," the drawbacks and hidden concerns arising from the rapid expansion of Luckin and Cotti urgently call for solutions.

Duel of Titans, Undercurrents of Capital

Opinions on the Luckin-Cotti rivalry vary.

Franchisees see price wars and rapid expansion as squeezing their profits; consumers welcome the "10-yuan era" of coffee, which lowers costs and makes pickups more convenient with denser store networks. But franchise managers offer a different perspective: the Luckin-Cotti battle might just be capital's way of "making a feint to the east while attacking in the west."

A Luckin franchise manager contacted by "XinShang" under the pretext of consulting about opening a store revealed that he handles franchise recruitment for both Luckin and Cotti.

Regarding the market narrative of "Cotti vs. Luckin," the manager explained that this is merely a tactic by capital to divert attention from Luckin's financial fraud scandal. He claimed that Luckin and Cotti share the same backers: Centurium Capital, Joy Capital, and Juneyao Capital.

"XinShang" verified through Qichacha and other sources that Luckin has investments from Centurium Capital and Joy Capital, while Cotti has not disclosed any financing information.

From the manager's words, the author glimpsed the long-term strategy and ultimate goal of the capital side: to dominate the high, mid, and low-end coffee markets.

▲ Image/Luckin Mini Program Screenshot

He stated that Luckin is gradually reducing the scope of its 9.9-yuan promotions, with future product prices stabilizing at 16-28 yuan, while upgrading stores to target the mid-to-high-end market. Cotti will continue its low-price strategy to capture the 下沉 market. As for the mid-range market, the recently recruiting Mona Coffee will fill this gap.

It is understood that Mona Coffee was founded in 2023, with stores mainly concentrated in Zhejiang and Jiangsu, and has yet to make a significant impact in China's coffee market.

In May this year, Mona Coffee received its first angel-round investment from Juneyao Capital, and in preliminary discussions, the aforementioned franchise manager claimed that Lu Zhengyao was also involved.

If the franchise manager's claims are true, Lu Zhengyao's maneuvering among three capital firms and three coffee brands while remaining in the shadows is reminiscent of a master strategist.

If this narrative holds, the Luckin-Cotti rivalry takes on a different meaning: price wars are used to snatch orders from other coffee brands; store expansions are for market penetration. What seems like cutthroat competition is actually keeping profits within the family.

Regarding Cotti's use of shop-in-shop models to accelerate expansion, the manager said this is preparation for a future IPO. "Cotti plans to list on Nasdaq in 2027." He also claimed that Luckin will seek another listing in Hong Kong next March.

Whether these statements are just sales pitches to attract franchisees or based on facts remains unverified, but they reflect Lu Zhengyao's determination to monopolize China's coffee market.

Budget Strategy, Rapid Expansion

In terms of expansion speed and scale, Cotti is undeniably ambitious, aiming to become the "MIXUE Ice Cream & Tea of coffee."

Due to its strong Luckin 基因， Cotti has long been labeled a "Luckin copycat," and because of Lu Zhengyao's ties to Luckin, the Luckin-Cotti rivalry has been a hot topic in the market.

Strategically, both brands follow the same path of competing on price and scale. Against this backdrop, the market sees their competition as fierce.

Since its founding, Cotti has consistently pursued a budget strategy.

In February 2023, Cotti launched a nearly two-month "100 Cities, 1,000 Stores Carnival," offering all products for just 9.9 yuan. After store numbers stabilized, Cotti briefly canceled the promotion. Meanwhile, Luckin initiated a 9.9-yuan trial at select stores, many of which were near Cotti outlets, directly targeting Cotti. In response, Cotti rolled out an 8.8-yuan promotion.

This coffee price war lasted over a year. As Luckin began feeling the strain and scaled back its 9.9-yuan promotions, Cotti persisted. In May this year, Cotti's Chief Strategy Officer Li Yingbo stated that the company was prepared to continue "all products at 9.9 yuan" for three years.

Thanks to the traffic boost from price wars, Cotti's store count grew rapidly. Its "COTTI Express" shop-in-shop model, launched in May, further accelerated expansion with smaller spaces, lower investments, and lower break-even points. By early this year, Cotti announced 7,000 stores, and recently surpassed 10,000—far outpacing Luckin.

▲ Image/Xiaohongshu Screenshot

At Cotti's mid-year meeting in July, the company set a goal of 50,000 Express stores in three years, with 8,000 new Express stores in the second half of the year. So far, Cotti has over 1,000 Express stores.

Notably, Cotti is embedding both standard and Express stores into partners' locations. On October 22, it launched the "Cotti Coffee Within Reach" plan in Anhui's Dangtu, partnering with Meiyijia, Wallace, and Suning.

Cotti also introduced a partner program, encouraging high-performing store managers to open their own stores with interest-free loans and fee waivers.

As Cotti expands, its attacks on Luckin continue. Many franchisees said headquarters required them to "open near Luckin." Luckin, in turn, introduced a "bring-your-own-store" policy to attract franchisees.

Industry insiders speculate Luckin's move is a response to Cotti's expansion.

Price Wars, Mounting Problems

Whether it's a business rivalry or capital-driven "frenemies," the fallout from Luckin and Cotti's expansion is no secret.

For Luckin, densely packed stores are hurting franchisees.

One franchisee told "XinShang" that since 2023, two Luckin company-owned stores opened within 几百米 of his location, cutting into his orders.

China Entrepreneur Magazine reported that in some areas, franchisees are proactively adding stores to preempt competition, but this raises costs and extends payback periods.

Price wars are also denting profitability.

Luckin's financials show H1 revenue up 38% YoY, but net profit fell nearly 50%. Q2 revenue rose 35.5%, but net profit dropped 12.8%. The company blamed lower average selling prices and market volatility.

Although Q3 saw revenue and profit growth, a 13.1% same-store sales decline in company-owned stores casts a shadow.

Cotti faces criticism over management, franchisee profitability, and supply chain issues.

Earlier this year, reports surfaced that Cotti 强制 franchisees to sell 白酒， deducting 3,360 yuan per store for two cases. Though Cotti backtracked amid backlash, the move was seen as greedy.

Despite subsidies, many franchisees complain about thin margins and long payback periods.

Ranran, a former Cotti employee, said 物料 costs left just 2 yuan profit per cup. His store sold 200 cups daily in peak season, 150 in off-peak. "The owner constantly complains about profitability."

Supply chain gaps also emerged, with stores sometimes unable to order supplies.

Though Cotti opened a global supply chain base in Anhui on October 22, the new facility will take time to meet demand from 10,000+ stores—a challenge compounded by rapid growth.

Despite ambitions to dominate all market segments, Lu Zhengyao and his backers must now address expansion's growing pains.

For Luckin, its budget image may hinder upscale 转型. For Cotti, low prices are testing franchisee patience. As for Mona Coffee, how much room is left after Luckin and Cotti's land grab?