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The Blues had come from two goals down to seemingly rescue a point, as Ian Carlo Poveda and Rabbi Matondo cancelled out Enes Tubluk and David Otto's early strikes, but the hosts recovered to clinch victory through substitutes Benedikt Landwehr and Ilay Elmkies.
Eager to make amends for the disappointing 4-1 home defeat to Lyon a fortnight ago, which saw City concede twice inside the first 20 minutes, the Blues sought to start brightly – but suffered an even worse opening, as Hoffenheim bagged two with only seven minutes gone.
Tubluk opened the scoring after four minutes, netting at the second attempt, with Thomas Scott having saved the initial effort.
The visitors responded well and almost found an immediate equaliser – only for Felix Nmecha’s shot to be cleared off the line, after the forward had rounded Daniel Klein.
Heeding the warning, Hoffenheim regrouped and doubled their lead within minutes, as Otto converted Max Geschwill's back-heel flick, leaving City with work to do.
Desperate to claw ourselves back into the game, the Blues pressed and almost found a leveller. It was Nmecha again with the attempt – this one a curling free-kick, which bounced just wide.
The visitors would halve the deficit before the half-hour mark though, through Poveda, who jinked his way into space before thundering the ball into the back of the net, handing City a lifeline.
Inspired, the away side went in search of a first half equaliser to no avail, but had goalkeeper Scott to thank for keeping the Blues in the game with a splendid double-save, as he thwarted Domenico Alberico and Tubluk in quick succession in the last major action of the half.
City went close again after the break when Henri Ogunby almost connected with Nmecha’s looping cross, but found Klein impenetrable.
An equaliser would follow shortly after though, courtesy of some superb play between substitute Adrian Bernabe and Matondo – the former feeding the latter, who then executed the perfect finish.
Once again though, it would be Hoffenheim who reacted and Scott was called into action to deny Benjamin Wallquist before the German outfit restored the lead as Landwehr announced his arrival from the bench with an instant goal, volleying in.
City were unfortunate not to level for a second time, as Matondo skipped past three defenders and found Poveda inside the area. The winger attempted a chip but the effort sailed over the bar.
As the Blues pushed forward, Hoffenheim were invited the chance to counter and the hosts secured the win with two last-gasp goals, when Elmkies slid home Otto’s delivery and Landwehr smashed in to complete the rout.
Goalkeeper Scott was shielded by a backline of Alpha Diounkou, Colin Rosler, Nathanael Ogbeta and Jeremie Frimpong. Iker Pozo occupied the defensive midfield role, behind Claudio Gomes and Nmecha, while Poveda and Matondo were employed on the wings. Ogunby led the line upfront.
Hoffenheim stay second in Group F, behind Lyon on goal difference, with both having registered two wins. City sit bottom of the table - three goals worse off than Shakhtar Donetsk.
The Blues are next in UEFA Youth League action on Tuesday 23 October with a trip to Shakhtar (10am BST).
The EDS play on Saturday 20 October, welcoming Chelsea to the City Football Academy in the Premier League 2 in a noon kick-off.
EDS striker looks ahead to the side's return to Premier League 2 action away at Swansea