Luckin Coffee is making a play for the premium market.
Centurium Capital, the controlling shareholder of the fast-growing Chinese chain, is reportedly acquiring, or close to acquiring, Blue Bottle Coffee from Nestle for $400 million. Bloomberg said this week that the talks were “advanced,” while Nikkei Asia reported on Thursday that the two sides had reached a deal.
Either way, the deal is notable. Luckin Coffee is known for its low prices. Blue Bottle Coffee is not known for its low prices.
Started in San Francisco and now with more than 100 locations, mostly in the U.S. and China, Blue Bottle is one of the “third wave” of premium coffee concepts that promise higher-end specialty coffee. You visit a brand like Blue Bottle because you really like coffee.
Luckin would not do such a deal simply to spend $400 million to buy several dozen locations, not when it opens about that many units every day.
And it’s not as if Blue Bottle gives the company that much of a foothold in the U.S. market—the chain operated just 74 domestic locations at the end of 2024, according to data from Technomic. It was the country’s 16th largest coffee chain that year, and grew sales at just 6%.
What the deal does do is give Luckin a more premium brand and access to that knowledge. That is important not just in the U.S. but in China, where the coffee consumer is rapidly growing more sophisticated.
And it’s clear that Luckin executives are focused on more than just price right now.
“Since Luckin’s inception, both China’s coffee industry and consumer behavior have transformed rapidly,” Jinyi Guo, Luckin’s CEO, told analysts last month, according to a transcript on the financial services site AlphaSense. “Freshly-brewed coffee brands can no longer rely solely on pricing, individual hit products or single marketing campaigns to achieve lasting success.
“Instead, this long-term competitiveness increasingly depends on an integrated set of capabilities. For example, brand perception, customer experience, emotional connection, product development capabilities and store coverage.”
Luckin, which was founded in 2017, has been one of the most amazing growth stories the restaurant industry has seen. Within a couple of years it had more locations in China than Starbucks. It then ended up in bankruptcy, while some top executives went to jail, after fabricating customer counts.
Its new owners righted the ship coming out of bankruptcy and proceeded to start growing again. Five years later it has more than 30,000 locations and has established a beachhead in the far-more sophisticated U.S. market, where it now has nine shops.
Guo told investors that the company is in the early stages in the U.S. and has a “disciplined expansion strategy” currently focused on refining the company’s infrastructure and exploring different operating models.
The chain has deployed a tech-heavy and price-efficient approach. Revenues last year rose 43%. More than 94 million customers visit the chain’s shops every month, up 31%. Store-level profit margins did take a hit, declining 120 basis points to 17.8%. Yet the company generated $514 million in net income last year.
That success put Starbucks, in particular, on its heels. The Seattle-based coffee giant staked a claim to the more premium market in China, and the company has had some success more recently, including a transaction-led 7% growth in same-store sales last quarter.
Details of Luckin’s purchase of Blue Bottle remain sketchy at best but reports indicate the brand will be operated separately, at least for now. Yet the deal would combine Blue Bottle’s premium know-how with Luckin’s tech-heavy approach and aggressive expansion strategy.
That, alone, would make an already competitive market for coffee that much more difficult, both in China and, potentially, the U.S.