A coffee war is underway.
On May 11, 2023, Luckin Coffee’s former Chairman, Lu Zhengyao, and CEO, Qian Zhiya, launched a promotional campaign called “9.9 Yuan Every Day” for their new brand, Kudi Coffee, which will run until July 30. At the same time, Luckin Coffee also launched a 9.9 Yuan anniversary promotion, directly competing with its fellow competitor.
Price war was once the weapon that propelled Luckin Coffee to success. In July 2018, during its Series A financing, Luckin Coffee announced that it had sold over 18 million cups and generated 59.17 million yuan in revenue, with an average selling price of around 3.3 yuan per cup. With the help of financing and price subsidies, Luckin Coffee quickly expanded nationwide and went public in the United States in less than two years, setting the record for the fastest IPO in the world.
In April 2020, just 11 months after going public, Luckin Coffee was hit by a financial scandal when it was revealed that the company had engaged in fraudulent practices. The U.S. Securities and Exchange Commission imposed a fine of $180 million on the company.
Since then, Luckin Coffee has undergone a restructuring, with Lu Zhengyao and Qian Zhiya stepping down. Guo Jinyi, the co-founder responsible for product and supply chain, assumed the role of Chairman and CEO. During the May 2022 earnings conference, Guo Jinyi introduced himself, saying, “My name is Guo Jinyi, ‘Jin’ represents prudence, and ‘Yi’ represents consistency.”
Quietly, Luckin Coffee has made a comeback from its downfall. According to its financial report, in 2021, Luckin Coffee generated a revenue of 7.97 billion yuan and a net profit of 686 million yuan, marking its first return to profitability.
The pace of store openings has not stopped either. In the first quarter of 2023, Luckin Coffee opened 1,137 new stores, equivalent to a new store every 1.9 hours, bringing the total number of stores to 9,351, nearly double the number in 2020. During the same period, its long-time rival Starbucks had 6,090 stores in China, ranking second.
Guo Jinyi stated publicly that Luckin Coffee is expected to achieve its goal of having over 10,000 stores in the first half of 2023, becoming the first Chinese coffee chain with a store count exceeding 10,000.
However, Luckin Coffee is not entirely in for good times. In 2022, despite increased revenue, its net profit was only 488 million yuan, indicating a lack of profitability.
At present, the coffee market competition has become more intense, with major brands aggressively penetrating into lower-tier cities after capturing the first and second-tier markets. Meituan data shows that in 2021, coffee orders in third-tier cities grew nearly twofold compared to the previous year, while orders in fourth and fifth-tier cities increased by over 250%.