Last week the Chinese budget coffee beast Luckin released its fourth-quarter and full-year financial results, reaffirming its meteoric rise to the top of China’s coffee market.
The company achieved a record-breaking quarterly revenue of 7.06 billion RMB (980 million USD), up 91.2% on the same time last year. For the full year, revenue soared 87.3% year-on-year to reach 25 billion RMB (3.5 billion USD). Including its joint-venture stores, Luckin now has over 16,000 outlets across China (10,598 are self-operated).
Despite passing this milestone, Luckin saw its profit margin drop 10.3% in the final quarter of 2023 (October through to December) compared to the previous quarter (July through to September). On an earnings call, CEO Guo Jinyi said the profit decline was in line with expectations and could be attributed to promotional events such as the 10,000th store celebration in June, which continued into the winter to stimulate demand as footfall dropped off.
“Going forward, we will continue to steadily progress according to our established strategy while expanding market share and consistently providing consumers with high quality, affordable and convenient coffee offerings,” Guo said. “By doing so, we aim to drive continuous development of the Chinese coffee market while simultaneously rewarding our customers.”
Guo also cited “intense industry competition” as a reason for the expected decline in profit growth – a reference to the ruthless price war against fellow domestic budget coffee chain, Cotti Coffee. In a possible revenge move, Cotti was created by former Luckin executives Charles Lu and Jenny Qian in 2022. The pair were ousted from Luckin in 2020 after its humiliating Nasdaq de-listing and subsequent class action lawsuit for financial fraud.
Anticipating the rise of rational consumption, last year the upstart began a campaign to lower its latte price to 9.9 RMB (1.38 USD), which was quickly matched by Luckin. Cotti responded by slashing prices again to 8.8 RMB (1.22 USD), clearly intent on beating Luckin at its own game. Recently, Luckin has been starting to roll back the number of menu options with the 9.9 RMB promotional price. But consumers have become accustomed to the new price range, so Luckin might be trapped for some time at these ultra-low prices.
