China Consumer

Full of beans

Luckin Coffee founder starts a new cafe chain


Back again: Lu Zhengyao

Tenacious is one of the many adjectives that might be used to describe Lu Zhengyao, a co-founder and former chairman of Luckin Coffee before the coffee chain was exposed for overstating revenues.

The entrepreneur, who started his first business when he was 25 trading telecoms parts, has founded a number of start-ups. And he takes setbacks in his stride, it seems. Soon after he was ousted from Luckin, Lu launched a noodle chain called Qu Xiaomian describing the venture as “the last battle” of his career. The struggle didn’t last very long: after three months, Qu Xiaomian’s aggressive expansion plans were suspended after diners dissed the menu and complained about portion sizes. Lu then pivoted quickly into pre-cooked meals, which were hugely popular during the initial months of the Covid pandemic when people were stuck at home. There was an announcement that he planned to expand the business through a franchise model but interest from partners was subdued and the idea soon fizzled out.

Lu’s entrepreneurial energies show no sign of dimming, however. Last week it was reported that the tycoon is back with another ‘new’ business idea: another coffee chain.

The company is called Cotti Coffee – inspired by the Italian biscuit the biscotti – and is being branded as a “pan-coffee lifestyle” concept, serving meals, pastries and alcohol in addition to tea and coffee.

Lu has chosen Fuzhou in Fujian – where he is from – to set up his first Cotti outlet. “We, a team of coffee dreamers, have embarked on a new journey,” the 53 year-old enthused on his personal WeChat account.

At first glance Cotti Coffee’s marketing tactics sound familiar enough: to bring in customers, the price of a coffee starts at just Rmb9.9 during the company’s launch period and some of Luckin’s most popular drinks seem to have found their way onto Cotti’s menu, such as the coconut milk latte or cheese-flavoured latte, albeit at lower prices than Luckin.

“Whether it is the products or the promotional tactics, they all bear resemblance to Luckin Coffee,” one industry blogger noted.

Luckin has now recovered from its accounting scandal of two years ago, coming out of bankruptcy earlier this year and reworking its business model to reduce a reliance on subsidies and discounts to drive sales. It updates its menu regularly to encourage consumers to try new choices (the coconut milk latte was the favourite drink this summer) and refreshes its storefronts with different themes for the novelty factor.

Luckin had 7,195 stores in China at the end of the second quarter, surpassing Starbucks, and it reported revenues of Rmb3.29 billion ($493 million) in the period.

Cotti Coffee plans to offer two store formats: a larger-capacity store with seating and dining and a smaller outlet for quick service. But Lu needs to figure out a more innovative approach in a market where other local brands such as Manner and Saturnbird Coffee are chasing the same customers, says Zhou Chen, an analyst in the sector. “Otherwise, he’s likely to lose money,” he warned Beijing News this month.

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