Summary of Key Points
The Chinese coffee market continues to grow steadily (with an estimated scale of over 400 billion yuan in 2026 and a year-on-year increase in per capita consumption of more than 70% within three years). However, competition has intensified, and the industry's concentration has risen, leading to the elimination of numerous small and medium-sized brands. The internet-famous brand T97 declined rapidly due to reckless expansion and an ineffective store management model. The price wars led by Kudi and Luckin have come to an end, and the industry has entered a phase where focusing on internal strengths—such as supply chains and profitable store operations—is crucial for survival. Although there is still significant market potential, healthy business practices are essential.
Detailed Analysis
1. The coffee market is growing, but small brands are struggling to survive
Despite the overall growth of the coffee industry (with an industrial scale of 354.9 billion yuan and 215,000 stores in 2025), the industry is undergoing a wave of consolidation: the top five brands (including Luckin and Kudi) account for nearly one-third of the market share (CR5 = 33.25%), and the chainization rate has increased from 46% to 53%. This makes it difficult for smaller brands to compete; they either get squeezed out by larger players or fail due to poor management. For example, T97 went from having over 150 stores to just 11, and Seesaw Coffee went bankrupt, highlighting the challenges faced by smaller brands.
2. The “internet-famous” bubble of T97 burst: Traffic alone cannot save a failing business
T97 became popular nationwide thanks to its influencer’s live broadcasts (viewed 193 million times in 30 days), but its success was short-lived due to weak operational foundations:
- Reckless expansion with flagship stores: Opening two flagship stores in high-profile areas of Hangzhou resulted in a loss of 8 million yuan, without establishing a profitable standard store model (e.g., understanding how to select locations and control costs).
- Mismanagement of resources: A large team of 150 people was allocated to dozens of stores, with only 20 dedicated to research and development, and monthly travel expenses amounted to over 800,000 yuan—money spent on unnecessary areas.
- Problematic franchise policies: The brand relied on fees from franchisees for branding and equipment, regardless of their financial situation, leading to a trend where franchises closed to cash out, costing the headquarters 200,000 yuan per closure.
- Misaligned product strategy: Initially targeting a niche market with “fat-loss coffee,” T97 later tried to compete with Luckin in the mainstream market but failed to appeal to either coffee enthusiasts or the general public.
Traffic is just a temporary trend; without a profitable store model, businesses will fail when the hype subsides.
3. Price wars are no longer effective: The strategy of burning money for scale is unsustainable
After Kudi entered the market in 2022, price wars drove prices down to 9.9 yuan per cup, but this was a losing proposition:
- Kudi’s cost per cup was around 11.1 yuan, resulting in a net loss of 1.2 yuan per cup at the selling price of 9.9 yuan. Including subsidies and marketing expenses, the total loss amounted to over 6 billion yuan in three years.
- Luckin also suffered losses (83.17 million yuan in Q1 2024) and quickly raised prices back to 10.9–13.9 yuan per cup.
- With Kudi’s financing efforts stalled, it had to end the “9.9 yuan for all” promotion.
The industry has now entered a post-price war era, where survival depends on efficiency and profitability rather than cheap tactics.
4. The coffee market is not a “death track”; only brands with effective models will survive
Claims that the coffee industry is a death track are incorrect; what truly fails are brands with unsustainable store models. For example:
- Luckin has survived: Despite initial losses of 17 billion yuan, it has developed a strong supply chain (e.g., its own coffee roasting), digital systems (APP ordering, inventory management), and a profitable store model (low cost per cup, high sales volume).
- Kudi is struggling: It spent 6 billion yuan on expansion but still lacks an effective store model and is working to improve its supply chain and relationships with franchises.
- There is still room for growth: China’s per capita coffee consumption of 28.57 cups per year is far below that of countries like Japan and South Korea (over 100 cups per year). As long as brands can optimize their store operations, there are opportunities for success.
Li Xiao has launched a new brand and said he will leave it to a professional team to manage it, hoping this time they will learn from past mistakes and focus on creating profitable stores rather than relying on traffic or aggressive pricing strategies.
In conclusion
There is still potential in the coffee market, but brands must first develop effective store models. Relying on internet fame or price wars for short-term gains will not ensure long-term success. Only those with sustainable business models will thrive in this industry.