eastwest connect

Coffee in the lower-tier city market is expected to become Luckin’s new growth source

Coffee in the lower-tier city market is expected to become Luckin’s new growth source

It is learned from Tech Planet, a few days ago, Luckin officially announced the opening of a new round of partner recruitment, openly recruiting franchisees in 41 cities in 9 provinces across the country. The 41 cities are basically the third- and fourth-tier cities in the north. Among them, Henan Province recruited the most cities, with 10 cities.

On November 22, Luckin announced its financial report for the third quarter of 2022. The financial report shows that Luckin’s total revenue during the quarter was 3.894 billion yuan, a year-on-year increase of 65.7%; operating profit under US accounting standards was 585 million yuan, a year-on-year increase of 88.3%.

Luckin still maintained rapid growth during the pandemic. In comparison, Starbucks’ fourth-quarter financial report shows that Starbucks’ revenue in the Chinese market was US$780 million, a year-on-year decrease of 19.6%.

Luckin not only completed self-rebirth, but also successfully counterattacked Starbucks in the coffee competition. As of the end of the third quarter, the total number of Luckin stores reached 7,846, and the average number of monthly transaction customers reached 25.1 million; the total number of Starbucks stores reached 6,021 during the same period, and the number of active members of Starbucks Club reached more than 17 million.

But Luckin’s ceiling is also beginning to show. More than 70% of Luckin Coffee’s stores are located in first- and second-tier cities, and this part of the market is approaching saturation. After the store density is saturated, the moat advantage will gradually lose. Compared with the second quarter, the year-on-year growth rate of Luckin’s revenue showed a downward trend, from 72.4% in the previous quarter to 65.7% in the third quarter. The “store-level profit margin” of self-operated stores decreased by 1.4% to 29.2% from the previous month.

Franchise stores have become Luckin’s new revenue growth engine.
Luckin’s financial report data shows that among the 7,846 stores of Luckin Coffee, there are 5,373 self-operated stores and 2,473 joint-operated stores.
In the quarter, Luckin’s self-operated store revenue was 2.7614 billion yuan, an increase of 53.9% from 1.7947 billion yuan in the same period in 2021.
In the quarter, the income of Luckin’s joint operation stores reached 899 million yuan, a year-on-year increase of 116.1%. The proportion of Luckin Coffee’s joint operation income continued to increase, and the growth rate was much higher than that of self-operated stores.