Luckin's major shareholder begins to focus on the high-end market; is RMB 9.99 no longer appealing?

In recent years, the price wars in the coffee market have been ongoing, with each company taking turns to lead. Under Luckin Coffee and Cudy’s leadership, the market has fully entered the “9.90 yuan” price war vortex. However, while many companies are struggling in this price war, Luckin’s major shareholder has begun to focus on the high-end market. Is the “9.90 yuan” strategy no longer appealing?

1. Luckin’s Major Shareholder Begins to Focus on the High-End Market

According to Jiemian News, CVC Capital Partners has acquired Blue Bottle Coffee and is about to complete the transaction with Nestlé. An insider close to Luckin said that CVC bought the global stores of Blue Bottle Coffee, while Nestlé will retain the coffee machine and capsule business. Another source close to CVC stated that the deal has been signed but not yet finalized.

CVC Capital Partners is a private equity investment firm founded in 2017 by Li Hui, with a management scale exceeding $7 billion. The firm gained prominence after leading Luckin Coffee’s restructuring following its crisis in 2018, becoming its controlling shareholder.

CVC’s relationship with Luckin began with early investments in 2018. After Luckin’s financial scandal in 2020, CVC led the company’s restructuring and gradually took over the founder team’s equity. Currently, CVC and Li Hui hold a combined 23.28% of Luckin’s shares and control over 53% of voting rights, holding an absolute controlling stake. In May 2024, Li Hui was officially appointed chairman of Luckin Coffee, taking full charge of the company’s strategic direction.

Blue Bottle Coffee was founded in 2002 by former clarinetist James Freeman in Oakland, California. The brand’s core philosophy is to sell only freshly roasted coffee beans within 48 hours, emphasizing freshness, manual brewing, and minimalist aesthetics. It is regarded as a representative brand of the third wave of global coffee.

In 2017, Nestlé acquired a 68% stake in Blue Bottle Coffee for about $500 million, valuing the brand at $700 million, with 55 stores worldwide at the time. However, during the nine years since the acquisition, Blue Bottle’s expansion has been relatively slow, with store numbers growing from 55 to just over 100.

2. Is the 9.90 Yuan Coffee No Longer Attractive?

Recently, CVC Capital Partners, Luckin’s controlling shareholder, officially acquired Blue Bottle Coffee from Nestlé. This transaction caused a stir in the market. Many people wonder whether this means Luckin will abandon its low-price strategy of 9.90 yuan and shift toward the high-end market. Is the “9.90 yuan” strategy no longer appealing?

First, it is important to clarify the relationship between this capital market layout and Luckin itself. The recent strategic move is not made by Luckin directly but by its major shareholder, CVC Capital Partners. Therefore, its significance to Luckin is entirely different. Many confuse “shareholder actions” with “corporate actions,” mistakenly equating CVC’s acquisition with Luckin abandoning its mass-market “9.90 yuan” approach. This is a double misunderstanding of capital logic and corporate strategy.

As an independent market entity, Luckin’s core positioning remains in the mass coffee segment. The scale effects and market penetration brought by the “9.90 yuan” strategy are still fundamental to maintaining its competitiveness. There will be no fundamental change in the short term. Meanwhile, CVC, as Luckin’s controlling shareholder, is an investment institution, not an operational entity. Its strategic layout focuses on investment returns and expansion, which does not conflict with Luckin’s market strategy. Instead, it creates a “capital layout + corporate operation” dual empowerment model.

Every move by CVC is essentially aimed at optimizing its investment portfolio in the coffee sector, enhancing overall asset value, rather than simply changing Luckin’s existing positioning. This shareholder-level strategy does not mean abandoning the mass market but providing capital support and resources for future diversification and brand value enhancement. It allows Luckin to consolidate its mass market position while also having the potential to extend into the high-end market, rather than being entirely bound by the “9.90 yuan” price tag.

Additionally, CVC’s move is about completing its investment landscape. From an industry investment perspective, relying on a single brand to withstand industry cycles is difficult. Building a brand matrix covering different market segments is necessary for risk hedging and long-term stability. CVC’s early investments in coffee have already formed a preliminary layout: Luckin targets cost-effective mass consumers, Costa covers the mid-range business segment, and Blue Bottle fills the high-end specialty coffee gap, creating a complete spectrum from mass to premium, from daily consumption to experiential.

For investment firms, the core value of completing this track is not short-term profit but controlling the entire industry chain and capturing market opportunities across different consumer tiers. Blue Bottle, as a high-end specialty coffee brand, complements CVC’s existing coffee brands in terms of brand tone and product positioning. It can quickly enter the high-end market without extensive market education, making this layout far more efficient than cultivating a high-end brand from scratch.

More importantly, the value of Blue Bottle’s brand assets extends beyond current store revenue. Its influence and user loyalty in the specialty coffee field can empower CVC’s entire coffee asset portfolio, boosting overall brand value and market valuation. The strategic perspective of investors considers the overall investment landscape, which is more valuable than focusing solely on individual companies.

Third, CVC has the potential and advantage to integrate its coffee brands. Through equity ties, CVC connects brands with different positioning under one capital structure, enabling deep resource integration and strategic synergy. Drawing on the successful experience of Yum China operating KFC and Pizza Hut, the controlling shareholder can promote resource sharing and efficiency improvements in supply chain management, digital platforms, membership systems, site selection, and product R&D across its brands.

For example, leveraging Luckin’s strong supply chain and digital operations to support Blue Bottle’s localization and cost optimization in China. Or, within specific commercial complexes, creating a gradient layout of Luckin, Costa, and Blue Bottle to form an internal “traffic pond,” satisfying different consumer needs in various scenarios.

Furthermore, this combination allows CVC to deploy flexible “bundled strategies” in the market: using Luckin’s cost advantage to consolidate the base and educate the market, while establishing high-end brands as quality benchmarks to enhance overall brand image and generate excess profits. This approach transforms CVC from merely a financial investor into a participant shaping the coffee market’s rules, leveraging brand synergy to penetrate and control different market levels.

Fourth, the high-end coffee market is gradually becoming a “new favorite” for capital. After years of rapid growth, China’s coffee market is experiencing a profound structural differentiation. For a long time, capital focused on “penetration” and “expansion”—who can open more stores, sell cheaper coffee, and thus win. But this has led to industry-wide profit margin compression and intensified homogenization. As the marginal effect of the “9.90 yuan” price war diminishes, the market begins to question whether pure price competition is sustainable.

In this reflection, the strategic value of the high-end coffee market has become more apparent. According to industry evolution laws, mature consumer markets tend to develop into “hourglass” or “pyramid” structures. Although the high-end segment is smaller than the mass market, it boasts high brand loyalty and barriers, less affected by price fluctuations. Capital is increasingly favoring high-end brands like Blue Bottle, betting on the “segmentation trend” of Chinese consumers. In the future, the coffee market will shift from “scale dominance” to “segmentation dominance.”

Different consumer groups will correspond to different brand tiers, and capital deployment will follow this trend. For CVC, acquiring Blue Bottle is a key move to preempt this segmentation trend. It indicates that future competition in the coffee sector will move from single-point breakthroughs to systematic competition. Those with a product matrix covering all consumer levels will have a competitive advantage in the fierce market game. The overall market layout driven by capital will become more competitive, shifting from individual corporate competition to comprehensive strategic tiered battles—arguably the most valuable aspect.

(Images sourced from: Unsplash)