How Coffee Beans and Processing Shape the Cotti and Luckin Supply War

Jiahe Food has entered Cotti Coffee's supply chain, providing coffee beans, coffee liquid and coffee powder, while staying a supplier to Luckin. Coffee beans make up the largest share of that supply, and coffee beans processing sits at the center of the arrangement. Luckin, for its part, is building its own roasting plant, due to start production in 2024 with an annual capacity of 45,000 tons.

The two brands share a founder, and the rivalry has moved from coupon prices, 9.9 yuan against 8.8 yuan, to the back end of the business. Jiahe's subsidiary Suzhou Jinmao Coffee covers procurement, processing, custom development and delivery, and the coffee business is now its second growth curve. A planned capacity expansion is expected to yield 16,000 tons of roasted beans and 3,000 tons of ground coffee a year after a 24-month build.

Competition in the coffee market is spreading from the front end of stores to the back end of the supply chain. Recently, Jiahe Food disclosed at an earnings briefing that it has entered the supply chain of Cotti Coffee, providing products such as coffee beans and coffee liquid, while it remains a supplier to Luckin. Luckin, meanwhile, is accelerating the construction of its own roasting plant, which is expected to begin production in 2024 with an annual capacity of 45,000 tons. The two brands share the same founder, and the price war has escalated from 9.9 yuan to 8.8 yuan. Now the battle on the supply side is becoming increasingly intense. How will this commercial war affect the coffee consumption landscape? Front Street Coffee sorts out the latest developments for you.

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Recently, Jiahe Food, the "first listed company in non-dairy creamer," revealed at its 2023 interim earnings briefing that in the first half of the year the company increased its investment in the coffee market and continued to develop new customers. Since May of this year, it has officially supplied Cotti Coffee with products such as coffee beans, coffee liquid, and coffee powder, with coffee beans accounting for the largest share of supply. Its subsidiary, Suzhou Jinmao Coffee, has covered the entire chain from raw material procurement, production and processing, and customized research and development to transportation and delivery. Jiahe Food stated that its cooperation with Cotti is currently relatively stable.

It is reported that the coffee business has become the second growth curve that Jiahe Food is focusing on building. In May of this year, the company announced a plan to raise no more than 750 million yuan, of which 550 million yuan will be invested in coffee capacity expansion and construction projects. After the project is completed, it is expected to produce 16,000 tons of roasted coffee beans, 3,000 tons of ground coffee powder, 8,000 tons of hot and cold brew coffee liquid, 10,000 tons of RTD ready-to-drink coffee, and 610 tons of freeze-dried and blended flavored coffee annually, with a construction period of 24 months.

Such a massive capacity plan means Jiahe Food urgently needs to lock in key and long-term customers. Cotti Coffee happens to match this need, as its number of stores has now exceeded 5,000.

It is worth noting that Jiahe Food is also a supplier to Luckin Coffee. The company stated: "At present, cooperation with Luckin is still within the valid contract period and remains normal, and has not been affected for the time being. Based on the current situation, we will not be blindly optimistic, and we will also make corresponding preparations."

Luckin, which surpassed 10,000 stores as early as June, has already begun building its own back-end supply chain. Its second roasting plant is located in Kunshan, Jiangsu, with a total investment of 120 million US dollars. It is expected to roast 30,000 tons of coffee beans annually and is scheduled to begin production in 2024. After full production, Luckin's total annual coffee bean roasting and processing capacity is theoretically expected to reach 45,000 tons.

As Luckin's back-end supply chain gradually improves, its need to purchase roasted beans externally will become limited. This may be an important reason prompting Jiahe Food to turn to Cotti.

Turning our attention back to the market front line, the competition between Luckin and Cotti has become white-hot.

The two brands share the same founder, and this year they launched promotional campaigns one after another: Luckin pushed coffee prices down to 9.9 yuan, while Cotti offered 8.8 yuan per cup. Under these circumstances, Cotti is clearly using a low-price strategy to compete for Luckin's customers.

Guo Jinyi once publicly stated: "Old Luckin is dead. Speculators who lack correct values, do not revere the market, and do not revere consumers will ultimately be a flash in the pan." These remarks seemed to carry a pointed meaning.

In the current consumption environment, people's enthusiasm for tea drinks and coffee continues to rise, while they also pay more attention to the healthiness, safety, and taste of products.

A full-scale price war among coffee brands, and even a contest on the supply chain side, has officially begun, with many emerging brands and merchants fighting fiercely. In this dispute, coffee consumption is expected to achieve broader popularization, and the vast future development space may not be something only leading brands can perceive.

Front Street Coffee has always followed developments in the coffee industry, providing specialty coffee information and product recommendations for enthusiasts. Whether it is the price competition between Luckin and Cotti or the hidden struggle in the supply chain, ultimately all of this will drive the further popularization of coffee culture.

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The above content is compiled by CoffeeHunters, a coffee news website.