Chinese coffee chains move beyond low-price drinks in overseas expansion push

Starting this year, Cotti Coffee has scaled down its discount campaign which offered drinks for as low as RMB9.9 (US$1.4), a strategy that helped bring its number of stores to 18,000 over 28 countries since its establishment in 2022.

The chain also said it would stop accepting franchise and joint-operation applications in key cities, and instead prioritize building a number of self-operated showcase stores to improve customer experience.

At the same time, speculation emerged on social media that Mixue Bingcheng may expand into freshly ground coffee, according to a report by China Restaurant Insider as published by Singapore-based news platform KrAsia.

Coffee, ground immediately before being extracted, offers better flavor and aroma than pre-ground beans. Previously, Mixue relied mainly on drip coffee using powder.

The company is also preparing product upgrades, including fully automatic machines, new coffee offerings, upgraded beans, milk and other core ingredients.

These shifts in strategies signal that major Chinese coffee brands are experimenting new approaches to improve customer experience, especially as they plan to expand more overseas as mainland China’s food and beverage market shows signs of saturation.

“Overseas consumers have long associated Chinese brands mainly with cost performance,” said Fu Yifu, a special research fellow at China-based Su Merchants Bank.

“To succeed globally, the core is to build a presence rooted in China’s operational efficiency while blending into local cultures,” Fu said, as quoted by South China Morning Post.

Luckin Coffee last month celebrated the opening of its 30,000th store, having expanded to many markets outside mainland China in recent years, including Hong Kong, Singapore, Malaysia.

Further expansion in Western markets is also on the horizon. In November, co-founder and CEO Jinyi Guo said the company was planning a U.S. relisting, after being delisted from Nasdaq in 2020 following a $310 million revenue fraud case.

Its largest shareholder, Centurium Capital, earlier this month agreed to acquire the global physical store assets of Blue Bottle Coffee from Nestle for under $400 million, according to Bloomberg. Luckin declined to comment on the move.

Fu said the acquisition was intended to address gaps in premium positioning and brand development. “Whether it can integrate the brand and build a unique overseas identity remains to be seen,” he said.

Last year, Luckin opened 30 self-operated stores in Singapore, nine in the U.S. and 70 franchised outlets in Malaysia, adopting localized strategies and differentiated products.

“As one of the world’s largest and most mature coffee markets, the U.S. represents one of our important long-term opportunities. At this very early stage, our priority remains on validating the business model and building operational experience,” Guo said at a results briefing last month, adding that international expansion is a key part of Luckin’s long-term strategy.

Success not guaranteed

Other Chinese coffee brands are also expanding rapidly overseas. Lucky Cup, part of Mixue Group, surpassed 10,000 global stores by November, becoming the third Chinese coffee chain to reach that milestone after Luckin and Cotti.

Analysts, however, are uncertain whether these Chinese coffee brands will be able to replicate their mainland China success in other markets.

“These Chinese coffee brands benefit from mature supply chains and highly replicable store models,” Fu said. “Yet the sustainability of their low-price approach remains uncertain. High overseas costs including rent, labour and compliance put pressure on gross margins.”

“Consumer habits also differ from the domestic market. In mature Western markets, buyers value brand image, quality and experience over prices alone.”

Customers walk into a Luckin coffee shop in Yantai, China, on July 26, 2024. (Photo by Costfoto/NurPhoto) Photo by NurPhoto via AFP

Zhu Danpeng, an independent food and beverage analyst based in Guangzhou, said that quality would be critical to overseas success, adding that only by delivering consistent quality could brands build scale and cultivate loyal customers.

Compared with mature markets such as the U.S., Europe and Japan, the fresh-made beverage sector in China and Southeast Asia is still expanding.

S&P Global Ratings projected the segment would grow at a compound annual rate of 15-20% in the coming years.

Investment in quality, rather than attracting customers with cheap drinks, seem to open new growth opportunities for Chinese chains.

Since launching a coffee machine pilot in early 2026, tea chain Tianlala has seen coffee sales at its first batch of nearly 50 stores rise 27%, lifting overall revenue by more than 50%.

GoodMe, which operates more than 13,000 stores, has made coffee machines mandatory in new outlets, according to China Restaurant Insider.

For Centurium, the acquisition of Blue Bottle fills a gap in the mid- to high-end segment, with its value rooted in strong brand equity within specialty coffee culture. The firm appears to be pursuing a multi-brand strategy to target different consumer segments and consumption occasions.

“While China likely won’t reach the same penetration levels as the U.S., we see significant growth potential driven by improved drink quality and variety, increased consumer spending on small treats, and rapid expansion by various chains,” said Sandy Lim, a China consumer analyst at S&P Global Ratings, as cited by South China Morning Post.

She added that while Chinese coffee companies have raised substantial capital and expanded quickly, there is a risk of price wars that could erode margins and lead to store cannibalization in some markets.