Why Is Luckin Coffee Targeting Specialty Brands?

Luckin Coffee, China's largest coffee chain by store count, is working with key shareholder Centurium Capital to evaluate a bid for Nestlé-owned Blue Bottle Coffee, Bloomberg reported. The goal is to build recognition overseas and break into the high-end market. Luckin has also set its sights on the China operator of %Arabica, though discussions are at an early stage and no deal is certain.

The interest follows Nestlé's strategic review of Blue Bottle with Morgan Stanley, with sources expecting any sale to come in well below the $700 million valuation from Nestlé's original acquisition. Luckin had previously tracked Coca-Cola's planned sale of Costa, a bid now at risk of falling through. A successful acquisition of a specialty coffee brand would mark a sharp turn for Luckin, though some observers worry the target's brand identity could suffer after a buyout.

Bloomberg recently reported that Luckin, China's largest coffee chain, and its core investor Centurium Capital, are setting their sights on Nestlé-owned specialty coffee brand Blue Bottle Coffee, aiming to boost overseas market recognition and enter the high-end specialty segment. At the same time, Luckin has expanded its acquisition options to the China operator of %Arabica. Previously, Luckin had followed up on Coca-Cola's planned sale of Costa, but that bidding has faced the risk of falling through. These successive acquisition moves have led netizens to jokingly call Luckin the "Anta of the coffee world," while some worry that Blue Bottle's brand tone could be affected after being acquired. The related discussions are still at an early stage, and whether a deal can ultimately be reached remains uncertain.

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According to a recent Bloomberg report, Luckin, the coffee chain brand with the largest number of stores in China, together with its important shareholder Centurium Capital, is evaluating the possibility of bidding for Nestlé-owned specialty coffee brand Blue Bottle Coffee. The move is intended to expand Luckin's brand influence outside China and pave the way for it to enter the specialty coffee segment.

Just two weeks ago, Reuters reported that Nestlé had teamed up with Wall Street investment bank Morgan Stanley to conduct a strategic review of Blue Bottle Coffee's future and might sell Blue Bottle Coffee's physical store business. Sources predicted that the final transaction price would be significantly lower than the $700 million valuation Nestlé gave when it acquired the brand.

Unexpectedly, as soon as this news emerged, Blue Bottle Coffee, known as the "Apple of the coffee world," was targeted by Luckin and Centurium Capital. Bloomberg cited people familiar with the matter as saying that Luckin and Centurium Capital have been looking for potential acquisition targets, and in addition to Blue Bottle Coffee, Luckin has also set its sights on another specialty coffee brand — the China operator of %Arabica.

People familiar with the matter revealed that compared with Blue Bottle Coffee's global layout, %Arabica, backed by private equity firm PAG, has won consumer favor with its Japanese minimalist style and high-quality coffee beans. Its China business is more concentrated and has built a stable customer base in the country, making it a backup target for Luckin's bid.

In fact, in mid-November, industry rumors emerged that Coca-Cola intended to sell part of the business of the UK chain brand Costa, which it acquired in 2018. At the time, media reports said this proposed sale attracted the attention of Luckin and Centurium Capital, and sources also confirmed that Luckin was indeed following the Costa acquisition case and might participate in the bidding.

However, the Financial Times recently cited people familiar with the matter as saying that Coca-Cola's sale of Costa is at risk of falling through. The report mentioned that Centurium Capital may have chosen to withdraw in the later stages of the Costa bidding and failed to enter the final exclusive negotiation stage. However, some analysts believe that Costa, which follows a specialty route, overlaps in part with Luckin's existing product line in terms of brand positioning, which may also be one reason Luckin withdrew from the Costa bid.

Although the plan to bid for Costa did not materialize, the repeated reports that Luckin is acquiring other brands still sparked heated discussion among netizens. Many jokingly called Luckin, which has entered "buy, buy, buy" mode, the "Anta of the coffee world" (note: Anta has brought multiple internationally renowned sports brands under its wing through acquisitions, including Arc'teryx, FILA, Wilson, and Descente), while others joked and suggested "just package up Peet's, Tims, Mstand, and Grid and acquire them all together."

Beyond the jokes, some users also worry that once Blue Bottle Coffee is really bought by Luckin from Nestlé, its original brand positioning may be changed. "Once acquired, it'll become low-end and I won't drink it anymore," "Don't, in the future will Blue Bottle also be 9.9 yuan?" Similar comments reflect the concerns of some consumers.

However, people familiar with the matter emphasized that the related discussions about Luckin bidding for Blue Bottle Coffee and %Arabica are still at an early stage, and an acquisition agreement may not ultimately be reached. At present, representatives of Nestlé, PAG, and Coca-Cola all declined to comment, while Centurium Capital, Luckin Coffee, and %Arabica have not yet immediately responded to requests for comment.

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