Despite rising coffee prices on the international market, some Chinese chains continue to offer coffee for just 9.9 yuan (US$1). Even with a rise of more than 60% in the price of beans since October, chains such as Cotti Coffee and Luckin Coffee continue with their low price campaigns.
The global benchmark for Arabica coffee, the Coffee C Futures contract, closed yesterday at US$2.22 per pound, a significant increase since October last year. This month, the value reached US$2.45, approaching the peak of US$2.60 registered in February 2022. This increase reflects changes in production, logistics and consumption, which are affecting producers around the world. world.
The coffee market has faced problems such as extreme climates, with periods of intense cold and heat in 2021, and droughts throughout 2022 and 2023. Furthermore, speculation in international trade has also contributed to the increase in the cost of green beans.
Despite this scenario, coffee prices remain stable in China, at least for now. Fu Lin, founder of Fangye Coffee, highlighted that the recent crisis in the Red Sea has impacted global supply. Since October last year, attacks on ships in the Red Sea, carried out by Yemen’s Houthi group, have damaged trade in Africa, Asia and Europe. In Ethiopia, one of the main grain suppliers, logistics are complicated, with transport costs tripling and shipping times doubling to 40 days.
Even so, Cotti Coffee and Luckin Coffee maintain their 9.9 yuan per cup promotions. Cotti Coffee’s campaign began in May 2023, supported by low milk costs, and Luckin Coffee entered the race in June.
However, this price war is already starting to have an impact on financial results. In the fourth quarter, Luckin Coffee reported an operating profit of 210 million yuan ($29 million), with a profit margin of 3%. A year earlier, the margin was 8.5%.
The rivalry between coffee chains in China reveals not only the fight for market share, but also a possible weakness in consumer purchasing power. Zhu Danpeng, vice president of the Guangdong Food Safety Promotion Alliance, suggests that this fierce competition should continue as long as big brands don’t give up on promotions or find the strategy unsustainable.
Translation: Mei Zhen Li
Source: Yicai Global
Main image: Ben Steele/ Adobe Stock
