Text | Value Institute
On January 20, the Financial Times broke the news that Luckin Coffee, which had previously been delisted for financial cost, was planning to return to the NASDAQ listing, and may hold a meeting with investors and consultants to discuss the fundraising plan before the end of this year at the latest.
As soon as this news came out, the stock price of luckin powder single market rose by 16.6% in a straight line, and immediately triggered public opinion. According to the data, since the listing on the powder single market in September 2020, Luckin's stock price has steadily increased, and after the reissuance of the 2019, 2020 annual report and the quarterly report for the first three quarters of 2021 last year, the stock price has stabilized in the range of $12-17, and $1.87 in the lower period has risen by more than 10 times.
But in the face of the media and capital carnival, Luckin management seems very calm. At noon on the 20th, the relevant person in charge of Luckin was reported to have debunked rumors through authoritative media such as the Beijing News, Interface News and Beijing Business Daily, calling the reports about the re-listing of Luckin Research on the NASDAQ false news.
In the view of the Value Institute, it is extremely important for Ruixing to be able to stay awake at this time. Compared with the financial cost news, Luckin has undoubtedly made great progress, but it is not so easy to completely get out of the predicament and even return to nasdaq.
Not blindly pursuing the speed of development and maintaining rational management is the king for Luckin.
Two years after the counterfeiting scandal, Luckin survived the low tide with two moves
Judging from the financial report data, Luckin has undoubtedly passed the most difficult stage.
According to the third quarter report of fiscal year 2021 released in December last year, Luckin's performance recovered significantly, and many data such as revenue and loss have improved.
According to the data, Credit Suisse's total net income in the third quarter was 2.35 billion, an increase of 105.6% from 1.143 billion in 2020, of which the revenue from commodities was 1.934 billion. In terms of operating profit, Luckin recorded a net loss of 23.5 million yuan in the third quarter, narrowing by 98.6% over the same period last year, and the progress was also quite obvious. The Value Institute also noted that luckin's net profit in the third quarter turned positive at 54.6 million on non-GAAP terms – compared to a net loss of 614.1 million in the same period last year.
Compared with the first half of 2021, Luckin's financial situation has also improved to some extent. According to the data, Luckin's net loss in the first half of fiscal 2021 was 211.4 million, and the operating loss reached 411.5 million, and the loss margin was still staggering. However, in the first half of the year, Luckin also showed a signal of performance rebound, and the net operation of its cooperative stores recorded a year-on-year increase of 357.8%, reaching 441 million yuan.
It should be known that although self-operated stores are still the most important revenue pillar of Luckin, since the opening of the franchise system, the contribution of cooperative stores has been continuously improved, and the growth rate of transaction volume and number of stores is quite considerable. According to the financial report, as of the third quarter, Luckin had a total of 4206 self-operated stores and 1465 franchised stores, the number of which increased by 6.4% and 66.7% year-on-year, respectively, and the expansion rate of franchised stores was significantly more amazing.
(Picture from Luckin financial report)
In the view of the Value Institute, the improvement in financial position is only one of the reasons why Luckin has reversed the negative image left to capital and consumers. In the past two years, whether from the perspective of management changes, product and business innovation, Luckin has become more pragmatic and rational than ever.
On the one hand, through various system and regulatory reforms, Luckin has demonstrated its determination to completely cut off the "fake management" and blocked the hope of the former management team led by Lu Zhengyao to return to the board.
In the past year, Lu Zhengyao has been tinkering with new projects such as pre-made dishes in the Tip of the Tongue Workshop and Fun Bayu, while also continuing to work for a return to Luckin. Lu Zhengyao's ambitions have also aroused the vigilance of luckin's board of directors and management. In December last year, Luckin announced that the Extraordinary General Meeting of Shareholders had voted to pass a number of resolutions, including the shareholders' equity plan, which strictly restricted the transfer of certain former management shareholders in the liquidation process and the corresponding voting rights, and snuffed out Lu Zhengyao's hope of returning to Luckin.
At present, the management of Luckin, composed of Chairman and CEO Guo Jinyi, Senior Vice President Cao Wenbao, who is responsible for store operations, Yang Fei, CGO responsible for growth and marketing, and Zhou Weiming, Senior Vice President of Product Line and Supply Chain Management, are obviously more down-to-earth and more calm than Lu Zhengyao's team.
Guo Jinyi, who has been Lu Zhengyao's assistant during the founding of the Shenzhou Department, is a high-level person worthy of the name of "rooted in the grassroots", who has been responsible for the core work of building supply chains and product research and development in the founding process of Luckin, and is very familiar with the operation of Luckin. After Lu Zhengyao stepped down, Guo Jinyi also showed his iron fist, suppressing the joint dismissal letters from 7 vice presidents, 5 directors and 34 regional managers, resisting the pressure of the early days of the upper office.
Nowadays, what Luckin needs most is precisely such a helmsman who "can go deep into the grassroots and carry things", and only by maintaining the current benign development rhythm is it expected to regain market trust.
On the other hand, luckin's performance in the second and third quarters of last year was also attributed to two new products that detonated the market: raw coconut latte and velvet latte.
According to the official data released by Luckin, in the hottest June, raw coconut lattes sold more than 10 million cups in a single month, refreshing luckin's new product sales record. Another explosive product, the velvet latte, is not to mention more, according to the statistics of the Beijing News, the sales volume exceeded 2.7 million cups in just 9 days on the line. Raw coconut lattes are in short supply and have become the norm for a long time, which also confirms Luckin's super explosive ability.
It is worth mentioning that Luckin has almost single-handedly driven the raw coconut and velvet series products. The most direct evidence is that since the third quarter of last year, as the main raw material for raw coconut products, the performance of coconut milk suppliers has achieved substantial growth. According to the statistics of Yuanqi Capital, the sales volume of the coconut milk supplier Fino Tmall brand achieved a staggering 600% year-on-year increase in November last year, reaching 25 million yuan, and the enthusiasm of consumers can be seen.
After nearly two years of hard work, the Value Institute believes that Luckin has survived the darkest moment, so it is understandable that the capital market will have a carnival when the media breaks the news of re-listing.
But calm down and think about it, now Luckin, does it really have the ability to return to nasdaq?
The past can be learned: rushing to the market is not a good policy
Judging from the fierce market competition and the problems existing in Luckin itself, the answer is not optimistic.
First of all, we should pay attention to a cruel fact: it is extremely difficult to transfer from the powder market. According to the data reviewed by the Value Institute, a total of 45 companies from the OTC market successfully transferred to nasdaq and the New York Stock Exchange in 2020, but none of them came from the powder single market.
Turning its attention back to Luckin, although the management led by Guo Jinyi showed sufficient cooperation in the face of a series of SEC investigations and accusations, and also obeyed the penalty to pay the fines on time, the situation was not optimistic whether the SEC would re-accept a company with financial cost experience, especially a Chinese-funded enterprise.
Secondly, Luckin only narrowed the amount of loss last year, has not yet achieved a turnaround, and the strategy of continuous store opening and expansion will inevitably push up operating costs and further lengthen the return cycle.
GeoHey statistics show that the number of Luckin stores surpassed Starbucks in the first quarter of 2021. Although the operating costs of stores are significantly lower than the latter, the continuous expansion has brought a lot of pressure to Luckin. According to the third quarter financial report, Luckin's total operating expenses reached 2.357 billion, an increase of 46.8% year-on-year. Among them, the cost of coffee materials and the cost of shop rental were 920 million and 516 million, respectively, the latter of which increased by 26.3% year-on-year.
The growth of store rents and other operating expenses is inevitable in the process of large-scale store opening. But the Value Institute believes that rising material costs present a bigger test for Luckin — because it's about managing the supply chain.
Some time ago, Li Guoqing, the founder of Dangdang, who has become a Weibo duanzi hand, publicly called out to Ruixing:
"Today I want to drink boutique hand-brewed coffee for friends across the country to publicly diss Luckin, you a less moving point of selling public coffee 'monopoly' specialty coffee beans of bad thoughts!"
Why did Li Guoqing suddenly open fire on Ruixing? The reason behind this is a bit ironic: luckin imports too many Huakui specialty coffee beans from Africa, resulting in no goods in the specialty coffee shop, which in turn affects Li Guoqing's hand-brewed coffee...
Subsequently, Ruixing responded to Li Guoqing on the official micro in time, did not evolve into a larger-scale war of words, the whole thing is more like a joke between the old business tycoons and the coffee industry upstarts, harmless. However, Li Guoqing's trouble still exposed the drawbacks of Luckin's high-end coffee bean supply chain being not solid enough.
In terms of supply chain management, Luckin's biggest advantage is the high degree of digitalization: self-built management platform, the sales data of stores across the country is processed through the terminal, and the whole process is efficient and fast through big data to predict the scale of orders and allocate warehousing and logistics resources, which is also the key to supporting Luckin's rapid expansion.
But digitalization can't solve all the problems, such as increasingly fierce market competition and the consequent shortage of goods. Li Guoqing's huakui beans are a prominent representative: the 90 tons of fine beans purchased by Luckin are all obtained from overseas bidding, and more than half of them are consumed within 10 days.
The Value Institute believes that the reason for this situation is that Luckin's source management and supplier system are not as deeply rooted as Starbucks, which is the biggest hard injury.
More importantly, the growing competitive team will not only aggravate the rush for supplies, but also may squeeze the market space of Luckin.
Cross-border wheat coffee, panner coffee, the new local regulation Manner coffee, which has been blessed by capital, as well as Tims, a Canadian national coffee brand that has begun to expand in China on a large scale in the past two years, and even the high-end specialty coffee in Li Guoqing's mouth are all making efforts, and the domestic coffee track is becoming more and more crowded.
With the rise of various powerful enemies, the era of Starbucks and Luckin's "two-person turn" is probably going to become history.
Reshaping the market pattern, in addition to the cross-border "whole life" Luckin can do what else?
Looking around, the enemies of Luckin and Starbucks are getting more and more numerous, and they are getting smarter.
In the local area, Manner, which takes the small but refined route, is the most rapidly developing emerging coffee brand in recent years. To some extent, Manner and Luckin have the same magic: they both focus on small facades of less than 10 square meters, high-efficiency strategies, and the products are extremely cost-effective and cost-effective. According to media reports, Manner's net profit margin reached about 10%, even higher than Starbucks.
Relying on the differentiated advantages brought by the ultimate cost performance, Manner not only broke through the nationally renowned "coffee industry in the highlands" of Shanghai, but also successively entered five major cities such as Beijing and Shenzhen, and as of November last year, it has opened 200 stores.
Behind the rapid expansion, capital is also flocking. According to Tianyancha data, Manner completed 4 rounds of financing in 2021 alone, with a valuation of $1 billion. Although this data is not yet on par with Luckin and Starbucks, the capital competing for blood transfusion is undoubtedly very optimistic about its prospects.
Among overseas brands, Tims from Canada is also ambitious.
Also calculated by the data as of November last year, according to the Financial Associated Press, Tims Coffee has opened 300 stores in China, even surpassing Manner. According to the relevant person in charge of Tims China, it is planned to open 1,500 stores in Chinese mainland in the next few years, including standard stores, Tims Go take-away stores and theme stores.
It should be noted that the number of Tims stores has jumped from 200 to 300, which took only three months. Of course, compared with the opening speed of Starbucks' 225 new stores in a single quarter in the fourth quarter of last year, Tims, which has not been in China for a long time, is still a long way off. But the advantage of Tims is that the experience can be copied: the supply chain management and personnel training system that has been running for many years is not only stronger than Manner, but even Luckin is ashamed of itself, and only Starbucks can stand out.
In the face of the inner volume of the coffee track, in order to maintain the growth rate, Luckin seems to be able to accelerate the pace of external expansion, and even cross-border "whole life" to alleviate anxiety.
A few days ago, the enterprise investigation data showed that Luckin had undergone industrial and commercial changes, adding a number of business scopes such as camera and equipment sales, cosmetics retail, personal hygiene products sales, non-residential real estate leasing, and construction projects. One of the most eye-catching is the cosmetics sales business.
Luckin, who is good at marketing and is popular with young people, really has the potential to do beauty and skin care business at first glance. However, in the view of the Value Research Institute, Ruixing's industrial and commercial changes may be precautionary, but it may be a bit unfounded to say that it is forced to buy cosmetics across borders.
On the one hand, from coffee to cosmetics, two completely different fields, cross-border difficulty is extremely high. Once Luckin attacks the cosmetics market in a big way, from building a supply chain to building downstream supply and marketing channels, to product development and marketing, it will cost a lot of money, which is not a good idea for Luckin, which is still in a state of loss.
On the other hand, Luckin has not had no cross-border attempts in the past, but most of them have ended in dismal conditions, and the cross-border resume is really not good. Before there was a small deer tea that was regarded as the second growth curve, it was re-incorporated and reorganized into Luckin Coffee Stores, and then there was thunder and rain and small e-commerce businesses that fell into the sand, these painful lessons believe that Luckin will not easily forget.
In the view of the Institute of Value, the size of China's coffee market continues to grow, and the window of opportunity has not yet closed. For Luckin, the most important thing at present may not be cross-border "whole life", but to stabilize its market position, and it is not impossible to face challengers such as Manner and Tims.
According to data provided by the International Coffee Organization, the size of China's coffee market will reach 381.7 billion yuan in 2021, and it is expected to exceed the trillion mark in 2025. Ai Media Consulting's survey also shows that by 2021, more than 60% of consumers will buy coffee every week, and 19.7% of respondents will maintain the frequency of drinking at least one cup of coffee a day - but this level is still a big gap compared with foreign countries.
According to the statistics of China Insight Consulting, coffee countries such as Brazil, the United States and Canada consume 3 cups of coffee per capita per day, and the European Union and the United States collectively consume nearly 50% of the world's coffee every year. Compared with Europe and the United States, China's gap is very large, and its potential is also very large.
According to the data, luckin currently has more than 4,500 stores in first- and second-tier cities, accounting for about 90%. But in fact, Luckin, which has multiple advantages such as high cost performance, scale and standardization, definitely has the conditions to attack the sinking market.
From this point of view, Luckin's next outbreak keyword is more likely to sink than cross-border.
Write at the end
On May 17, 2019, Luckin successfully landed on nasdaq, not only becoming the largest Asian company in Nasdaq's IPO financing of $4.2 billion (as of May), but also setting an astonishing record: it took only 18 months from inception to listing, which significantly refreshed the original record of Chinese stocks held by Pinduoduo (founded in September 2015 and listed in July 2018).
However, the blind pursuit of expansion and listing speed has also laid the groundwork for Luckin's financial thunderstorm, which has caused long-term losses that continue to this day.
Facts have proved that although expansion is inevitable, we must also pay attention to the rhythm, pay attention to controlling costs, and find a suitable direction for expansion. As mentioned at the beginning of the article, Luckin is vigilant about the rumors of returning to the NASDAQ listing, and taking the initiative to pour cold water on the fanatical capital market, which is completely correct - in the face of the competition situation of Starbucks in front of it, Tims and Manner in the back, Luckin needs to stabilize the pace of development and slowly get out of the predicament step by step.
The Value Institute believes that one day in the future, Luckin may eventually return to the secondary market. But whether it is back to the NASDAQ that fell, or returning to Hong Kong to go public, we all hope to see a healthier, rather than just running, do not know how to brake Ruixing.