Cotti Coffee 2025
Every week, I write about international business, finance, or politics for the average Joe, 王, Kim, Sato, Tan, Khan, Tesfaye, Rodriguez, Silva, Gonzalez, or Lopez to show how our economies are more interconnected than one would think.
Today’s Topic: Cotti Coffee
Introduction
In my discussion over Luckin Coffee last week, I touched on one of their competitors, Cotti Coffee. To review, Cotti was founded in 2022 by Lu Zhengyao, the very man who had been responsible for defrauding investors of Luckin back in 2020. Despite Luckin initially shrugging off the new opponent, Cotti likely caused headaches for both the Beijing company and Starbucks in 2023, as its arrival triggered a price war, prompting all companies involved to start offering discounts. In my last essay, I noted how, although Cotti’s subsidy strategy began to lose steam near the end of that year, it recently hit a home run by becoming the number one coffee brand on Taobao. With some analysts believing the price war between Cotti and Luckin isn’t over yet within China, I wanted to spend today investigating the former company more.
As always, I intend to use these essays to show a few things. First, to reveal that while companies may be labeled 'Chinese' or 'American,' their business operations are anything but straightforwardly a national affair. As we saw with Luckin Coffee, their coffee beans come from not just Yunnan province but also Ethiopia, Colombia, and Brazil. While the core of their business takes place in China, some of their success now relies on sales in Singapore, Malaysia, and the United States. As their brand evolves internationally, it may also impact how people around the world perceive Chinese products. While this occurs, Luckin, and by extension many in China, will have their own fates more wrapped up in the futures of the countries and markets they are dealing with. Therefore, my aim is not only to show how people of different countries are connected, but also to express how the political and financial worlds are linked. Too often, analysts of the geopolitical and financial worlds speak among themselves without acknowledging how their spheres are two rivers from the same source.
This is a hefty assignment—one I’m still working to improve—but through the process, I hope to help investors—or more importantly, people—become more aware that none of us are individuals living in a vacuum.
With all this said, let’s return to Cotti. While this company from northern China is currently not publicly traded, it does now operate in 28 countries. Given Cotti arrived on the scene playing catch-up with Luckin, it is more likely that they expanded internationally very quickly with the aim of creating a moat to protect themselves in case the price war went south for them in their home nation. To make this point stronger, let’s begin by discussing how the company’s China business has gone since 2023 before addressing the other markets.
Part 1
China: Continually Searching for an Identity
As we saw last week, the coffee brand experienced a bit of an identity crisis last May when it adopted a store-within-a-store business model. Entitled Cotti Express, this strategy showed considerable promise on paper. By setting up shop within an already established convenience store, rent and utility prices were lower. This cheapness also meant the costs of opening a Cotti store were decreased.For a coffee chain that had seen rapid growth in early 2023, only for a bunch of stores to close in the autumn, the Cotti Express model seemed a godsend. Between August and October of 2024, 1,700 stores were opened. 62% of these were Cotti Expresses. Perhaps Lu Zhengyao’s dream of opening 50,000 stores in three years was going to come true after all.
However, almost as a repeat of 2023, this cheap get-rich scheme didn’t last long. Cotti Expresses may have been easy to open as small stations within larger stores, but this made it harder for delivery drivers to find them. Quick growth made it hard to maintain product consistency too, let alone cleanliness. Customers complained about how Cotti’s coffee tasted different from one location to the next. Others thought that many Cotti Expresses were located in strange places, even commenting that they appeared to be a little black market. The low-budget appearance only made passersby afraid of the coffee’s quality. Cotti began to be labeled “The Evil Little Parasite” because the company liked to cling to other successful businesses to grow quickly.
An article from a WeChat author named 小杨哥 put the problem with opening Cottis within other companies’ stores as such:
First, it dilutes brand value. While costs are lower, smaller stores in crowded settings like convenience stores or gas stations weaken the customer experience, impacting the brand’s perception of quality. Customers often associate a coffee brand with its store ambiance and vibe. When Cotti starts appearing in gas stations instead of chic cafés, it loses the brand appeal and emotional connection, which may have long-term consequences.
Besides this, many store owners of these Cottis found business very tough, with some even taking on duties like delivering the coffee themselves. Many apparently had no experience in the coffee industry. In the end, a ton of these stores closed down due to a lack of profitability. In areas where stores opened very close to one another, the situation was even worse, as they were not just competing with other brands but also themselves. By December, Cotti had suspended this store-within-a-store model, despite having previously claimed to partner with 31 brands, including Suning.com and Home Inn, only a month before.
A month later, Cotti was revamping its store model once again. Except this time, it’s being turned inside out. Instead of Cotti opening small coffee counters inside a 7/11, Cotti is becoming 7/11. In January, WeChat articles were appearing discussing how the company was now selling hot meals as cheap as ￥13.9. Two months later, seven convenience stores were launched in Anhui province, the home of their supply chain base. As of the time of writing this, it appears Cotti convenience stores have also opened in Beijing and Shanghai, as well as smaller cities like Xi’an, Ningbo, and Taiyuan. Therefore, in just four months, Cotti has expanded throughout China. One shouldn’t be surprised by this, as this would be not the first time the company pushed extremely hard to rapidly build its presence.
Yet, if Cotti’s experience in 2023 and 2024 is anything to go by, we will need to keep a careful eye on how this new model progresses into the autumn and winter. Chinese analysts are already exclaiming that Cotti convenience stores are going to run into some issues, particularly as they are entering an industry where other companies like Family Mart, Lawson, and 7/11 already have strong branding. Moreover, these chain stores have long-term relationships with supplier companies, while Cotti doesn’t. This means Cotti’s competitors have the upper hand when it comes to profit margins and inventory control.
There is reason to be optimistic, however. Cotti seems to be aware of the mistakes it made in the past and is learning from them. To address the consistency issues, for instance, it has introduced a new training system that requires store managers to obtain certification. Since the beginning, Cotti’s advantage over Luckin has been its flexibility, most shown through its franchise approach. As we saw with the low ￥30,000 entry fee to set up a store-within-a-store last year, this openness can come with huge pitfalls. This new convenience store model seems generous too, with it just requiring a refundable deposit of ￥50,000 and a monthly service fee consisting of rent plus another ￥10,000. If Cotti can figure out how to be both flexible and disciplined, perhaps its business will become more stable in the long run. This could happen, especially since Cotti is admirable in its ability to try new things and know when to quit. With lifetime partnership agreements, brand support, supply chains, and willingness to purchase equipment if a shop owner chooses to throw in the towel, this coffee chain may still be a long way from giving up.
Despite its trial-and-error approach causing it some harm in the past, the coffee company has much more brand recognition than ever before. The question is whether it can come back from last year’s failure. For now, it looks like it is. In recent months, Cotti has become very good at partnering with other popular IP in China to boost its own image. When Nezha 2 was released in January, for example, Cotti was quick to collaborate with the movie. It went a step further than Luckin Coffee, too, by not only putting Nezha characters on its drinks but also giving away free merchandise like collectible postcards. When Cotti partnered with Garfield, coffee stores offered immersive in-store experiences by putting up a complaint wall and special, limited-time peach-flavored drinks. The coffee chain has also learned how to utilize social media. The best example of this is the company’s surprise box giveaways on Xiaohongshu and customers posting pictures of Chibi Maruko-chan-branded coffee online. These co-branding events have been so successful that some Cotti stores have seen people lining up to buy coffee as early as 8 a.m.
Given this context, it wouldn’t be unreasonable to believe that 2025 is the year Cotti Coffee comes into its own. Still, the coffee chain wouldn’t be the first to attempt this style of marketing. After all, Luckin was the one who started this fad by partnering with companies like Game Science when Black Myth: Wukong was released last summer. Perhaps both companies will survive and thrive, especially if it comes to the detriment of other players like Starbucks, Tim Hortons, Costa, Manner, and Pacific. Becoming a convenience store is also interesting. One could argue that Cotti here is diverging from Luckin Coffee’s crosshairs. Will this mean the two will still be compared with one another in the future? Will Cotti return in a year or two to focus more on actual coffee shops again?
It’s been a bumpy ride for the coffee chain since the beginning. Nothing is concrete yet. Still, we cannot determine the company’s future in China without discussing its international activities. As I mentioned briefly at the beginning of this piece, we can assume that one way Cotti planned to create a Plan B—should its China ambitions fall through—was by investing in other countries. As we saw with Luckin last week, the countries a company expands into can influence its brand perception, especially when, in some markets, a Chinese company is still automatically associated with the “Made in China equals cheap” label. This matters even more for Cotti, as it followed Luckin’s footsteps. Furthermore, while its convenience stores and cobranding strategies are working to improve its image in China, Cotti may believe that achieving success elsewhere will have an indirect effect on its home market, as well as on other markets. For this reason, let’s analyze what we can find on Cotti’s other markets.
Part 2
Challenges in South Korea & Singapore
For this section, it’s best to begin with South Korea. Not merely because this was Cotti’s first overseas market, but also because their current cobranding campaign involves Kakao Friends, cartoon characters associated with the East Asian republic’s most popular social messaging app. What is interesting to me about the timing of this collaboration is that it comes after Cotti closed its last store in the country last autumn. Yes, you read that right. South Korea was the first country Cotti entered and the first country it departed. One must ask whether the outcome would have been different if Cotti had put cute bears on its cups two years ago.
If we compare Cotti’s decision to enter South Korea to Luckin’s choice of Singapore, the two seem pretty similar. While South Korea is not as ideally placed internationally, both in terms of actual geography and business-wise, as Singapore, the country has a lot more in common with Lee Kuan Yew’s old stomping grounds than somewhere in South America or another Southeast Asian nation. After all, considering Cotti’s focus on price and speed of expansion, we could have assumed they’d aim for Indonesia, Vietnam, or Mexico before a more expensive place like Seoul. Despite China’s gains over the past 40 years, Seoul still has a higher cost of living than Beijing. Plus, given the recent surge in popularity for K-pop and K-dramas, there was always a chance Cotti could have placed its product in a TV show. After all, a decent number of Korean stories involve one character or another mentioning iced Americanos!
Yet, there may lie the problem. Unlike China, South Korea’s coffee market is incredibly mature. In fact, according to Statista, South Korea had over 1,500 cafés per million people in 2021. Compare that to Japan’s 529 and the USA’s 386! South Koreans also consume an average of 405 cups of coffee per person every year, which is three times the global average. Therefore, while Cotti’s choice of South Korea was smart given the interest in coffee, it may have overlooked the downside to this. In China, one reason it was able to expand so quickly was that the coffee culture was still in its early stages of growth. As we saw last week, China consumes only 10 to 20 cups of coffee per person per year. Moreover, Cotti isn’t the only company that saw potential in South Korea. It is estimated that 10,000 cafes in the country filed for closure last year.
Still, this may not fully explain Cotti’s failure. Remember, Singapore is a very small country, and thus, when Luckin entered its market, it also faced limited room to maneuver. Perhaps then, two key differences to focus on are price and cultural similarity. In terms of the former, Cotti had less of a chance of standing out in South Korea. Indeed, four of the top five coffee chains in the nation are low-cost brands. Culturally, Singapore has more in common with China. 35% of the population speaks Mandarin, and 75% are of the Han ethnicity. This may have translated into more awareness of Luckin Coffee before their arrival. For Cotti in South Korea, this may not have been the case. From Cotti’s perspective, we can certainly say there were some missteps. One WeChat article notes that the Chinese coffee chain didn’t realize the importance of self-service kiosks to cafes in South Korea’s fast-paced culture. This may not only have contributed to Cotti’s service being perceived as too slow, but also held them back from competing with well-established brands like Mega Coffee. In such a fierce market as South Korea, every little detail matters, whether it be understanding that consumers prefer large cups or their unique view that coffee is a form of hydration.
Nevertheless, we cannot blame Cotti’s defeat in South Korea primarily on the choice of market. After all, they have also entered Singapore just like Luckin, and it seems they are faring worse. When one reads articles on their operations in the Southeast Asian city-state, it becomes clearer that Cotti’s issues may instead stem from the company’s decision to follow its China strategy abroad. For instance, a piece published by 大数跨境 two months ago discussed how the brand has become known in Singapore for controversial location choices. One example the writer provided was Cotti Coffee’s decision to open its first store in the city center. Hearing this, one may think Cotti was following the same approach as Luckin: place yourself in popular locations in Singapore to not only gain brand awareness with the country’s citizens but also with any tourists visiting from elsewhere. However, consider that the location they chose was not only in an underground mall but also a location formerly owned by another similar company, known as Flash Coffee. It isn’t surprising that Cotti eventually met a similar fate: replaced by a milk tea shop. With low foot traffic, Cotti’s first store was a far cry from Luckin opening in Singapore’s airport or Guoco Tower. As of May 18th, only three stores remain in Singapore after three have closed down. Luckin now has 60 in the country.
Part 3
Unexpected Success in Japan & the Middle East
So those two markets have posed a problem for Cotti. What about the other 25 markets they operate in? One country, it does seem that Cotti is doing well in, surprisingly, is Japan. Search the coffee chain on X and you’ll see this. The majority of the most popular posts are in Japanese.
From what I can see, one of the key reasons for this success is that Cotti is being more strategic in Japan. First, they are providing interesting food and drink choices like green grape matcha and Taiwanese hongruizhen sandwiches. Japanese also seem to love the company’s coconut latte. For those who follow Luckin’s business more closely, this latter drink may not seem original, perhaps even a copy of Luckin. However, consider that Luckin hasn’t yet entered Japan. Perhaps if Cotti diversifies in other countries, the company will be able to erode Luckin’s appeal before it even arrives.
This focus on originality is important. As we saw with Singapore and South Korea, one of Cotti’s main issues was that it attempted to copy its China business model too closely. This should be obvious, even if we ignore the fact that every country is unique. If Cotti saw its strategy needed to be revamped in China in both 2023 and 2024, why wouldn’t the same be true elsewhere?
Unlike in South Korea, where Cotti seemed ill-prepared, the coffee chain appears to have done its research. While Japan is certainly a mature market, some analysts believe that most cafes in the country cater to older people who prefer relaxed atmospheres, small food menus, and a lack of variety. This leaves younger people underserved. Whether Cotti is aware of this or not, the fact that its first stores opened near the University of Tokyo has surely helped. After all, college students and young adults tend to be more cash observant than older people, at least when it comes to coffee. Cotti’s focus on cheapness may help here, and its success with a younger crowd has spurred other stores to open in similar locations. Recently, the company announced that it is opening in Osaka. With 8 stores in the country as of late 2024, we will still need to see whether they can achieve their dream of having 100 locations in the country by the end of 2025.
Another market to watch is the Middle East. As of November 2024, Cotti had three stores in Qatar and four in the United Arab Emirates. This region shouldn’t be too surprising to anyone paying attention to Chinese businesses. Even Meituan started doing business in the Middle East last year. This means that locals may already be pretty accustomed to seeing Chinese companies, if they even care about the country of origin at all. Yet, in these nations, we see a mix of Cotti’s and Luckin’s successful strategies. First, Cotti’s one location in Dubai’s Deira district is smart because there are more Chinese white-collar workers and traders there who are more likely to be familiar with the brand. Second, another Dubai store is located in Internet City, which is positioned near some of the United Arab Emirates’s best universities. Like in Japan, this may attract students. Third, with alcohol being prohibited in these countries, consumers drink coffee instead. While this would benefit any coffee brand entering the region, Cotti may have a leg up, seeing that it is more open to trying new milk-based flavors tailored to local tastes.
Part 4
Uncertainty in North America & Elsewhere in Southeast Asia
Unfortunately, it’s difficult to find information on every country Cotti has entered. For example, the last article I could find about Indonesia comes from August 2023, the month Cotti opened its first store there. Did the company achieve its goal of opening 400 stores in the country in that year alone? Perhaps they have found some success, at least, especially since we could say the country is somewhat a mix between China and South Korea. Although the Oceanic nation has a lower standard of living than China, it is Starbucks' 10th-largest market globally. Therefore, consumers here are certainly more interested in coffee than Chinese on average. They even have one chain called Kopi Kenangan, for example, that has expanded to Malaysia. With Starbucks ruling almost half of the market and spending on coffee in Indonesia expected to grow 8.2% annually, Cotti may be better able to win over consumers if it sticks to the same game plan it is following in its home country or follows one similar to Japan and the Middle East. After all, many Indonesians follow the Koran. Perhaps Cotti’s branding in other Islamic countries will impact here too. Still, I’d like to get information on how many stores it actually has in the region right now.
There isn’t much information on North America either, despite Canada and the United States being English-speaking countries. Nonetheless, we can still draw a few tentative conclusions about Cotti’s business strategy based on its actions thus far. As I mentioned last week, the coffee chain has opened in Flushing and is closer to Chinatown in New York City than Luckin Coffee. Its other location is in San Gabriel, a suburb of Los Angeles with a large Chinese community. Its drinks are priced generally half what mainstream US brands are selling, with an Americano going for $2.99. With this cheapness and their introduction of flavors popular in China like the coconut latte and coconut da hong pao, I wonder whether Cotti will be able to build enough brand awareness in California before Luckin can move in on their turf. If it can, Luckin may need to change up its strategy a bit to appear original when it chooses to open there. The same could be said about its Richmond opening in British Columbia, a city where roughly half of the residents are of Chinese ancestry.
Nevertheless, we should still ask whether Cotti’s cobranding and convenience store strategies, which seem to be working in China and Japan, will work in North America. Convenience stores are not as big in this region. Younger consumers may buy cereal or Happy Meals if their favorite cartoon character is on the cover, but will the same work for coffee drinkers, who tend to be older?
With Cotti claiming it has entered 28 countries, it’s peculiar that there isn’t much information on more than 20 of them. Take France, for example, the only article I can find on WeChat comes from 2023 when they first opened thrre. I suppose not everyone is going to care about this, but the lack of information may still reveal the company is struggling to maintain momentum internationally. What does that mean for its goal to have 50,000 stores globally by the end of the year? Some analysts have been calling this target insane, especially considering it took Luckin Coffee 7 years to acquire 20,000 stores and Starbucks 20 years to have 7,000 cafes in China. I admire the drive, but it probably won’t happen. The best-case scenario is that real rapid expansion internationally will need to wait until after the FIFA World Cup next year, when Cotti sponsors the Argentine national football team. As Hisense and BYD have shown in recent years, appearances at significant football events can pay off in gaining new fans.
Conclusion
Cotti Coffee may be a Chinese brand, but it is pretty clear it wants to gain the world’s recognition. Indeed, one could argue that its rapid expansion internationally occurred to help sustain its operations in China, especially given the competition it’s been having there with Luckin. Therefore, although Cotti’s executives and most of its employees right now are Chinese, their futures somewhat depend on properly understanding their target markets, whether they be in Asia or North America. As the company evolves in these regions, too, its workforce will increasingly become international. I have not even had time today to talk about the coffee chain’s recent deal with Rwanda’s Ministry of Agriculture and Animal Resources to build a China-Rwanda International Coffee Industry Development Demonstration Park, or their sourcing from Ethiopia, Colombia, Brazil, and Guatemala. Similar to Luckin, Cotti’s beans may represent China’s growing soft power internationally, but they don’t simply come from Yunnan province. Resultantly, when governments or even normal individuals speak to one another, remember companies like Cotti Coffee, which are very much a global, and therefore human, affair. Only through remembering how business is built on the backs of individuals from all walks of life can true communication happen.
Will Cotti succeed in the long run? Thus far, it’s hard to tell. However, it does seem certain that their success in Japan and failure in South Korea can be attributed to whether they conducted thorough market research beforehand. At this stage of the game, with numerous coffee chains competing, companies cannot survive solely by selling the black liquid, nor by slashing prices. If Cotti can find the right balance between flexibility and consistency, so as not to hurt its branding, I believe it will have smoother sailing in the future. To do this, however, they can’t simply follow the same strategy that gained them some wins in China. Instead, they’ll need to get to know their consumers truly.