The three-year coffee war in China reveals the fatigue of Luckin Coffee

This domestic second-largest coffee chain boldly claimed last year that it would open 50,000 stores by the end of this year, but its momentum has significantly weakened now.

Key Points:

• As of August this year, Kudi Coffee only has 15,000 stores, far from its goal of 50,000 by the end of this year.
• Earlier this year, when the company's first store opened in New York, competitor Luckin Coffee also entered the market simultaneously.

Tan Ying

When Chinese pop culture tries to find historical footnotes for modern enterprises' "survival of the fittest" competition strategy, the Three Kingdoms period from two thousand years ago is often cited as a reference. That era of fierce competition among warlords ultimately achieved unification under the Western Jin, but only after enduring multiple rounds of brutal warfare.

As the coffee war spreads overseas, the two leading players in China, Luckin Coffee (LKNCY.US) and Kudi Coffee, are pushing the battle onto the global stage. Even so, the main battlefield remains in China, where they not only face international giants like Starbucks (SBUX.US) but also dozens of domestic and foreign competitors.

Despite the grand marketing momentum of entering New York earlier this year, Kudi Coffee shows signs of insufficient strength in this modern "Three Kingdoms War" against Luckin and Starbucks.

Kudi and Luckin opened their first stores in New York almost simultaneously, with the former landing in Brooklyn and Chinatown in May and expanding to Midtown this month; the latter opened two U.S. flagship stores in Midtown in June. Both quickly abandoned the domestic low-price strategy of 9.9 yuan (approximately $1.4) in favor of Starbucks-style pricing ranging from $3.5 to $7.

In July this year, U.S. President Trump imposed a 50% tariff on Brazil, the world's largest coffee exporter, causing coffee prices in the U.S. to soar, but both companies seemed unfazed. However, looking deeper, the real battlefield for these two coffee newcomers lies in China and closer Asian markets, where Western chain brands like Starbucks do not have a home-field advantage.

According to data from research firm Grand View Horizon, the coffee market in Southeast Asia, East Asia, and South Asia is expected to reach $64.2 billion in 2024 (including a $3 billion market in China), with an average annual growth rate of 6.2% projected from 2025 to 2030. This makes the Asia-Pacific market nearly on par with the U.S. market of $67.6 billion, which is expected to see an average annual growth rate of only 5.2% during the same period.

Indeed, the plot of the well-known Chinese classic "Romance of the Three Kingdoms" is being replicated, as other regions in Asia rapidly become the new main battlefield in this modern coffee "Three Kingdoms War."

Both brands have embarked on their overseas journey starting from the Asian market. Luckin opened its first overseas store in Singapore in 2023 and currently has over 60 stores there; after one year of establishment, Kudi is set to expand into Hong Kong in November 2023, quickly entering Thailand and Malaysia the following month, with stores spreading across South Korea, Indonesia, Japan, Vietnam, the Philippines, Singapore, and Canada.

50,000 Stores Hard to Achieve

As a latecomer to the market, Kudi is at a relative disadvantage domestically. However, on the global stage, the competitive landscape is becoming more balanced, with Kudi's overseas expansion speed already outpacing its rival With strong growth, Luckin Coffee has become a darling of capital, mainly benefiting from its rapid expansion. The latest financial report shows that the company's revenue in the second quarter soared 47.1% year-on-year to 12.4 billion yuan (approximately $1.7 billion), and net profit surged 43.6% year-on-year to 1.25 billion yuan. Its total number of stores exceeds 26,000, the vast majority of which are located in China.

In comparison, Starbucks has 32,000 stores globally, with the number of stores in China reaching 7,828 by the end of June. However, this Seattle-based giant is undergoing a restructuring of its U.S. operations and is out of touch with the current cost-conscious consumer base in China, putting it in a wait-and-see position in the latest coffee "Three Kingdoms War."

Meanwhile, Kudi's previous expansion plans have also encountered difficulties. In 2024, the company announced plans to operate 50,000 stores by the end of this year, around the same time it opened its first store. Founded just two years ago, Kudi opened its 10,000th store in October 2024, demonstrating rapid momentum.

However, the official website shows that by August 2025, Kudi's global stores in 28 countries will only reach 15,000. Furthermore, media reports reveal that 3,000 of these stores had not yet opened by mid-year. Even if all these stores operate, the total will still be less than one-third of its promised target for the end of 2025. Aside from sporadic promotions like opening stores in New York, the company's recent marketing activities have significantly weakened compared to its first year.

Lu Zhengyao and Qian Zhiya, the two former co-founders of Luckin, founded Kudi in October 2022 after leaving due to their alleged involvement in a multi-million dollar sales fraud scandal. It is reported that this "dark history" has hindered the company's current aggressive expansion financing plans.

Heavy asset layout may be the source of Kudi's early confidence. In November last year, Chief Strategy Officer Li Yingbo revealed at an industry conference that the company had built China's largest coffee roasting base in Anhui, with an annual processing capacity of 45,000 tons. Luckin Coffee is also set to produce a factory with an annual roasting capacity of 30,000 tons in Kunshan, near Shanghai, in 2024.

As a non-listed company, Kudi has only sporadically disclosed its financial status. The company claims that in April this year, it launched delivery subsidies in collaboration with the new delivery player JD.com, with order volumes exceeding 100 million cups during the campaign. According to internal meeting information, Lu Zhengyao stated that over 90% of standard store types have a net profit exceeding 10,000 yuan.

Li Yingbo disclosed at a recent franchisee meeting that the average monthly operating cash flow per store in May reached 27,000 to 28,000 yuan, a year-on-year increase of 40%. Since February, Kudi has been promoting a convenience store-style new franchise model, selling ice cream, instant noodles, bottled beverages, hot food, and boxed meals to differentiate itself from the traditional coffee specialty formats of Starbucks and Luckin, and announced plans to set up coffee counters in third-party supermarkets