After two years, Luckin has come out of the darkest moment of financial fraud. Recently, it is a hot spot for the Winter Olympic Valley Ailing, and it is also rumored that it has reconciled with the US SEC and plans to return to nasdaq, and Ruixing, who once stood on the edge of the cliff, has returned to blood and made a comeback.
Recently, the media disclosed an internal letter from Guo Jinyi, the current chairman and CEO of Luckin, to 20,000 employees. The letter revealed that in 2021, Luckin achieved steady growth in performance, and store expansion has entered the stage of high-quality and refined operation. Luckin launched a total of 113 new ready-made drinks last year, and achieved a total of about 360 new stores in January this year, setting a new record for the total number of new stores opened in a single month. Just past the Spring Festival Golden Week, Luckin's store transaction volume was three times that of the same period last year.
Luckin's path of "coming back from the dead" is unusual. In the outside world speculation and cognitive common sense, after the collapse and delisting, the end of the "king of speculation" Ruixing is nothing more than a huge fine, a prison disaster, bankruptcy and closure, leaving a period of criticism or ridicule of failure cases.
What people did not expect was that under the leadership of the new management team, the tenacious Luckin not only did not withdraw from the historical stage, but instead tore an opening in the fiercely competitive and opponent-lined coffee track and ran a textbook self-help.
01 From the literature and art of middle-aged people, to the topic of young people
Before the opening of the Beijing Winter Olympics, no one could have imagined that Gu Ailing, who was less than 20 years old, could win two gold and one silver in his first Olympic Games, so he bet on Gu Ailing's more than 20 brands, and there was a little bit of "luck" component.
But for Luckin, in addition to luck, the adjustment of product and brand strategy by the new management after the storm in 2020 is also the premise for Luckin to be able to scratch the "Gu Ailing" lottery.
It has only been established for less than four and a half years, but Luckin has already changed seven spokespersons before and after. As shown in the figure below, from Tang Wei and Zhang Zhen in the early days of entrepreneurship, to Liu Haoran and Xiao Zhan in the main promotion of Xiaolu Tea after listing, to Tan Songyun and Li Luxiu, who signed in the first half of 2021, and finally the ski princess Gu Ailing, who was signed in September.
History of Luckin Spokesperson | Geek Park Mapping
2020 is a clear watershed, before which Luckin's four spokespeople are relatively traditional film and television stars.
In November 2017, after the opening of the first store of Galaxy Soho in Beijing, Luckin invited Tang Wei and Zhang Zhen to serve as brand spokespersons. At that time, the core of the management - former CEO of Luckin Qian Zhiya once said in public that Luckin's goal was to beat Starbucks. She positioned Luckin as a high-quality commercial coffee targeting both professionals and young consumers.
However, at this stage, Luckin's market positioning, marketing strategy and brand concept have contradictions. On the one hand, the market competitors and their own spokespersons have chosen the "medium and high-end" route, on the other hand, Qian Zhiya has more than once declared that the brand vision is to "let every Chinese drink better coffee" and achieve coffee "popularization".
After the listing, Luckin adjusted the original vague positioning and further focused on young consumers. However, at that time, Luckin's expansion of the young market did not rely on coffee, but entered the new tea drinking track, made "young people's afternoon tea", and invited Liu Haoran and Xiao Zhan, two stars with younger fan groups and more traffic attributes, to serve as brand spokespersons for Xiaolu Tea.
After falling into the counterfeiting storm, coupled with the impact of the epidemic, Luckin was silent in marketing for nearly a year. In March 2021, Luckin began to look for a new spokesperson, and its vision was more inclined to the topic attributes that young people paid attention to, and it was spread on social media with the main drinks of the season.
Tan Songyun's fresh and sweet image, together with Luckin's new cherry blossom series in the spring, points to the "girlish heart" of Internet celebrities. When the raw coconut latte was on fire, the spokesperson was Lilusius. His image in the talent show "just want to go home from work quickly" hits the resonance of today's young workers.
In September last year, as the Beijing Winter Olympics approached, Luckin found ski champion Gu Ailing, with the "Walden Ski Latte" and "Blue Velvet Snow Latte", two "Olympic limits", which pressed the success or failure of the beginning of this year on the topic of the Beijing Winter Olympics, which is a once-in-a-decade topic.
02Five from focusing on coffee to product "milk tea"
In addition to changing the spokesperson, another move after the new management took office was to change Luckin's product strategy.
The first is the difference between product positioning and main categories.
The first generation of management led by Qian Zhiya positioned the product positioning on "high-quality commercial coffee", focusing on "quality professionalism" and "fresh taste", with a relatively single category; the new helmsman is to "milk tea" coffee, focusing on specialty coffee, which is in line with the internet celebrity attributes loved by young people.
Luckin's early main category was the "Master Coffee" series, including traditional American and classic lattes, and the selling points of the products were on the coffee making process, barista team, machinery and equipment and coffee bean quality.
After the listing, in order to open up the sinking market, Luckin turned to expand the product category, and successively launched NFC juice and deer tea, the latter of which was placed high hopes and came with the aura of "strategic new products".
But overall, from the coffee, which is relatively niche in the domestic beverage track, to the tea, the competitors have changed from the foreign Starbucks and Costa to the domestic Xicha and Naixue, and the deer tea has not been able to replicate the speed of Ruixing.
In addition to juices and teas, Luckin's other product rejuvenation attempt is "Milk Coffee". Before the counterfeiting storm, Luckin created the earliest wave of meteorite lattes and Luojia cherry blossom lattes out of the circle, which are a mixture of traditional coffee and milk tea, and the taste of milk coffee is more suitable for young consumers who have not yet formed coffee drinking habits.
To alleviate the impact of the epidemic and the counterfeiting storm, Luckin will further expand the category of "coffee + milk tea" in 2021. According to incomplete statistics, more than one-third of Luckin's new products in 2021 are milk coffee drinks. According to official data, raw coconut lattes sold more than 10 million cups in a single month in June 2021, setting a new record for Luckin's new product sales.
Luckin said in its earnings report that the successful launch of new products is one of the core reasons for the "strong performance" of Luckin's financial data. According to the unaudited financial report released by Luckin, the total net income in the first three quarters of 2021 was 5.53 billion yuan, of which the product sales revenue was 4.68 billion yuan, accounting for 85%.
From "high-end" to "Internet celebrity", in terms of product development mechanism, Luckin's core R&D team has also shifted from hiring "external experts" to internal "horse racing mechanism".
In the early days, Luckin's product development mainly relied on the external hiring of professional coffee masters. According to early media reports, Luckin set up a team of three world coffee masters, from Italy, Japan and China, responsible for product development and quality control.
Later, Luckin no longer relied on the professional R&D team of coffee masters and updated the product development mechanism. According to a number of media reports, Luckin's current product research and development implements a "horse racing mechanism".
Under the "horse racing mechanism", a new product from design planning to formal listing, usually need to go through the following process: by the R & D team of several groups at the same time, after repeated rounds of internal tasting, layer by layer screening, testing, elimination, by the internal employees to vote for their favorite one, and finally the survival of the fittest, the highest score of the product with comprehensive strength is put into the market, put in front of consumers for inspection.
According to Tech Planet, Luckin launched a total of 77 new ready-made drinks in 2020, which spanned scandals. In 2021, Luckin's number of new models increased to 113, exceeding Nesher's 105 models.
Under the new product strategy, Luckin has gradually weakened subsidies, and the unit price of customers has also increased. According to the first financial magazine, the unit price of Luckin's products has increased from 9.97 yuan in the fourth quarter of 2019 to 15.24 yuan. Luckin also admitted in the earnings report that it achieved a higher average selling price in the third quarter of 2021.
It is not difficult for ordinary consumers to feel this change. Luckin's early coupons, "1.8% off" and "3.8% off" were not uncommon, but now they are more "45% off" and "50% off".
03 Life-saving joining
After talking about products and endorsements, let's finally talk about the most important piece of Luckin's business model - stores.
Luckin only took 18 months from its inception to listing, and the expansion speed far beyond its peers is the magic weapon for Luckin to win. According to the financial report, as of March 31, 2020, Luckin has 4511 self-operated stores and 501 franchise stores, which has completed Starbucks' layout in China for more than 20 years in 2 years.
Before the financial fraud broke out and triggered a capital market crisis, Qian Zhiya, former CEO of Luckin, said in mid-2019 that he planned to increase the total number of stores to 10,000 by the end of 2021. However, due to factors such as the epidemic and the fraud storm, such a plan is obviously unsustainable. In fact, shortly after Luckin exposed the fraud, the outside world once thought that Luckin would usher in a wave of store closures.
The initial development of events was in line with expectations. Three months after the scandal, as shown in the chart below, as shown in the chart below, as of June 30, 2020, the number of Luckin's self-operated stores dropped to 4267, 244 fewer than at the end of Q1 2020. Over the next 3 months, Luckin closed a number of stores again, a net decrease of 315 stores.
Luckin stores in the past two years Geek Park mapping
However, from the fourth quarter of 2020, Luckin gradually stabilized its decline. According to the financial report, at the end of 2020, the total number of Luckin's self-operated stores decreased by 23 compared with the end of Q3, and in the first quarter of 2021, it increased from a decrease to an increase. By the most recently disclosed third quarter of 2021, Luckin's self-operated stores had increased by 188 in a single quarter, basically returning to the normal track.
It is worth mentioning that the number of Luckin's self-operated stores began to grow, perhaps because of the addition of new "ammunition". In mid-April 2021, Luckin announced that it had entered into a new round of financing agreements totaling US$250 million with the company's shareholders, Daibali Capital and Joy Capital.
In addition to stabilizing the decline of self-operated stores, the greater change in the strategy of Luckin stores lies in the attitude towards franchise stores.
High-speed expansion and non-franchise are the most significant labels of Luckin before listing. Qian Zhiya said in an interview with the media in his early years that in order to ensure the standardization of product quality and service, Luckin coffee stores are all directly operated and do not accept franchises.
After cutting into the tea track in 2019, coupled with opening stores into lower-tier cities, Luckin began to adjust its strategy and accept franchise stores. At the same time, in order to distinguish it from the main brand of Luckin, the franchised stores are undertaken by the "Xiaolu Tea" brand.
Compared with most chain brands that adopt the franchise model, Luckin's franchise model has stricter control over franchisees. According to the information disclosed by Luckin in the financial report, for franchise stores, Luckin provides store design and marketing materials for franchisees to ensure a consistent brand image. It also provides logistics networks, raw materials and equipment, and even provides staff training to ensure quality control, and regularly reviews the operation of franchise stores.
After the counterfeiting storm, Luckin began to accelerate the expansion of franchised stores while closing its self-operated stores. At the end of 2019, Luckin had a total of 282 franchise stores, which had increased to 824 in Q2 2020, and as of Q3 2021, the total number of franchise stores had reached 1465, accounting for about 1/4 of the total number of Luckin stores.
At the same time, in the third quarter of 2021, Luckin stopped using the Deer Tea brand. According to media reports at the time, a number of Deer Tea stores were directly renamed Luckin Coffee, directly operated and franchised, and no longer distinguished by brand name.
For Luckin, which was almost "weaned" in the capital market after the explosion, the new management wants to continue to expand, and opening up to join is not an unexpected choice. According to the financial report, Luckin averages nearly 300,000 yuan in decoration and equipment per store, plus personnel, rent, water and electricity, raw materials and other operational investment, for the loss of 5 billion yuan in 2020, the total loss in the first three quarters of 2021 is still nearly 420 million yuan for Luckin, so that franchisees can bear the cost of opening stores is the best choice.
It is worth noting that according to Luckin, it does not charge franchisees a franchise fee, and will only extract profit sharing when the franchise store reaches a certain profit threshold.
In 2020, a total of 500-880 Luckin franchise stores (about 10%-16% of the total number of stores) will have a total annual revenue of 316 million yuan, accounting for only 8% of Luckin's annual revenue (about 4.033 billion yuan).
Luckin Coffee Q3 2021 Quarterly Report
However, it is worth noting that unlike direct sales, the revenue recognized by the Luckin franchise store plate, in addition to sharing the profit share from the franchisee, also includes the cost paid by the franchisee when opening the store to purchase equipment and decoration materials at one time, and the cost paid by purchasing raw materials from Luckin during daily operation.
Compared with only about 300 franchise stores in 2020, the total number of Luckin franchises increased by nearly 600 in the first three quarters of 2020, so it is difficult to say whether the increase in revenue is due to the improvement in franchise operations or simply because of the increase in revenue from selling equipment to franchisees.
According to the 2020 annual report, of the 416 million yuan of revenue from franchise stores in that year, the income from the sale of raw materials was 227 million yuan; the income from the sale of equipment was 43 million yuan; while the profit sharing income was only 12.8 million yuan, in addition to 33.3 million yuan from decoration, distribution and other services.
Considering that equipment and decoration are only a hammer transaction when opening a store, and selling raw materials to franchisees is basically 0 gross profit. Hundreds of stores have less than 13 million profit sharing a year, just look at the 2020 revenue model, Luckin will have to rely on franchise stores to turn over, and may take more time.
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