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The 9.9 yuan Luckin is gone

The 9.9 yuan Luckin is gone

The 9.9 yuan Luckin is gone

01. The "9.9 yuan" activity has shrunk

After going to work at the beginning of the year, the migrant workers who never left the coffee suddenly found that the activity of Luckin 9.9 yuan a cup had shrunk.

On February 19th, Xiao Fan, who works in Beijing International Trade Center, planned to have a cup of coffee, opened the Luckin applet, and after "choosing a store" in the past, the system would automatically pop up the "9.9 yuan" coupon, but this day disappeared. Xiaofan had to spend 18 yuan and order a new drink. Later, I learned from a friend's reminder that the Luckin "9.9 yuan" coupon was hidden in the secondary menu bar, and only a few designated coffees could be used.

Not only that, it seems that in order to prevent consumers from using it "smoothly", the Luckin Mini Program also displays a "bug" - two prices are displayed under the "Classic Menu" and "Weekly 9.9" menus. That is to say, if the consumer does not find the mystery, even if he receives the coupon, if he continues to buy a cup of raw coconut latte under the customary interface, it still shows that he needs 16.5 yuan, but he actually pays 9.9 yuan.

The 9.9 yuan Luckin is gone

On February 18, the topic of "Luckin 9.9 yuan a cup activity shrunk" rushed to the hot search on Weibo. Many netizens reported that the original 9.9 yuan coupon available in the audience is now only 8 designated drinks can participate, which then sparked heated discussions. Some netizens said fiercely: "If you can't afford to play, don't play", "The store with Cudi next to it will be more active, and it will take off without Cudi", "If it's not 9.9, I won't buy it, because Luckin is only worth 9.9", "Coffee freedom is gone".

After the shrinkage of the "9.9 yuan" activity was scolded on the hot search, the relevant person in charge of Luckin Coffee told the media: The adjustment of corporate preferential activities is a normal business behavior.

More than half a year ago, Guo Jinyi, chairman and CEO of Luckin Coffee, also said conclusively: "9.9 yuan thanksgiving feedback activity" exceeded expectations and will be carried out on a regular basis, at least for two years. Unexpectedly, he changed his mind half a year later.

Xiaofan recalled that in fact, Luckin's "9.9 yuan" activity had signs of shrinkage in November last year. In the past, it would automatically pop up before ordering, and "you can't scratch it off", and you will need to search for it after November to receive it. The "City Boundary" found that November is also the time when Luckin's profit margin began to shrink after the announcement of the third quarter report for 2023.

To recap, Luckin's "9.9 yuan" campaign was launched decisively in order to snipe Cudi.

In the first half of 2023, Cudi has been making great progress, opening more than 5,000 stores in one go, and fighting a price war, selling coffee to 9.9 yuan a cup, and selling more than 1.5 million cups in just two weeks. In the face of Cudi's menacing, Luckin chose to follow up in May last year and launched a 9.9 yuan cup event for the first time at the anniversary celebration, which was mainly distributed in stores around Cudi at that time. A month later, Luckin expanded the scope of the promotion to cover all stores.

The effect of this price war is significant. Many people have achieved coffee freedom through Luckin, and many people have abandoned Starbucks to drink Luckin instead.

According to Luckin's financial report data, as of the third quarter of 2023, the number of new customers exceeded 30 million, the average number of monthly trading customers reached 58.48 million, and the single-quarter revenue hit a new high, reaching 7.2 billion yuan, a year-on-year increase of 84.9%. According to the estimation of China Merchants Securities, after the launch of the "9.9 yuan" activity, the revenue of a single store increased by 5%~10% month-on-month.

But the price war has also eaten into Luckin's profits.

In the second quarter of 2023, before Cudi's sudden kill, Luckin's net income and operating profit both hit record highs, reaching 6.2014 billion yuan and 1.1728 billion yuan, and officially sat on the throne of China's "coffee brother". With the passive launch of the "9.9 yuan" activity, after entering the third quarter, Luckin's profit margin fell by more than 5 points quarter-on-quarter, to 13.4%. Operating expenses increased by 141% year-over-year. At the third-quarter earnings conference, Luckin management said that the profit margin may continue to decline in the fourth quarter.

Now Luckin is facing the next challenge: the winter coffee consumption season is still continuing, Luckin's enemies are spreading beyond Cudi, and brands are rapidly expanding stores in lower-tier markets - Luckin, which is about to manage more than 20,000 stores, will be the real test from now on.

At the end of January this year, the stock price of Luckin Pink Sheet Market fell by nearly 50% in more than three months, and market worries increased sharply. And Luckin quietly reduced the marketing investment of the "9.9 yuan" activity, perhaps in order to grasp the profits more firmly before the bigger battle comes.

The 9.9 yuan Luckin is gone

02, forced to run wild by Cudi

Fighting price wars, frenzied co-branding, and staking land, Luckin was forced out by Cudi in the past year, and it was also busy.

According to the financial report data, as of the end of the third quarter of 2023, the total number of Luckin Coffee stores was 13,273, including 8,807 self-operated stores and 4,466 associated stores. As of the end of 2022, the total number of Luckin stores is only 8,214.

Now, a few months later, the total number of Luckin stores has approached 20,000. As of February 20, Luckin Coffee had 18,082 stores, with an average of more than 2,000 stores per quarter, according to Narrow Door Restaurant.

If before Cudi's catfish entered the game, Luckin's store opening plan was mainly to "saturate" the increase of points in first- and second-tier cities, then in 2023, especially after the "9.9 yuan" event was launched, Luckin's store opening strategy will move towards a defensive "point encryption" for Cudi on the one hand, and at the same time vigorously promote sinking.

The 9.9 yuan Luckin is gone

▲ (Photo/Luckin)

According to the Jihai brand monitoring, as of October 2023, third-tier cities and below have contributed 36% of Luckin's new stores. This made it possible for many people to drink Luckin coffee in their hometown during the Spring Festival holiday just past.

Kaka's hometown is located in a fourth-tier county in Hubei Province, with a local population of 300,000. When she returned to her hometown in early February, she saw that the coffee machine was "so busy that it was smoking" in the Luckin store, and it took 20 minutes to wait for an order to pick up an order. On social media such as Xiaohongshu, many netizens said that since around August last year, they have found Luckin in their third- and fourth-tier cities, counties, and even towns.

A coffee industry analyst told "City Boundary" that previously, the industry generally believed that the coffee market could only focus on first- and second-tier cities, and 15-25 yuan was the psychological price range of consumers for coffee. "Third-tier cities do not have enough business density, they only like to drink flavored milk tea, and it is difficult to leverage the demand for coffee." The "third place" advocated by Starbucks, coupled with a unit price of about 35 yuan, has been regarded as high-end consumption in third- and fourth-tier cities.

Therefore, the mainstream view at that time was that "the coffee market was close to saturation and it was difficult to support more points". During this period, Luckin also slowed down its store layout and focused more on optimizing profit margins, reducing subsidies and marketing spending.

However, on May 29, 2023, in order to stop Cudi from continuing to soar, Luckin began to change its nature, no longer sticking to self-operation, and launched the "franchise with stores" policy, and at the same time launched a "new joint operation cooperation" method for stores during the lease contract period.

This model is commonly known as the "flop" in the industry, and the purpose is to facilitate the initiator to seize the opponent's high-quality points. At that time, Luckin said that the area with stores to join covers 241 cities in 21 provinces and two autonomous regions, excluding cities and regions that are basically saturated in Beijing, Shanghai, Guangzhou and first- and second-tier cities.

According to Luckin to the media: this store franchise event is the first time Luckin has opened, and it is also the last time to open, and the time window may be very short - therefore, this can also be seen as Luckin's "shouting" and urging to Cudi franchisees. In addition, according to the "City Boundary", compared with the new franchised stores, Luckin has relatively relaxed requirements and support for the "flop" from the Cudi store.

Jihai monitoring data shows that among the newly opened stores in first-tier and new first-tier cities, the proportion of "encrypted stores" within 500 meters of existing stores is close to 60%. According to the "City Boundary", in addition to seizing points in advance in the layout of "crypto stores", many of them also come from the "flop" that focuses on Cudi.

03, Cudi is no longer a threat

After a year of fierce battle with Cudi, the 9.9 yuan promotion, the number of stores has advanced from 8,000 to more than 18,000, and Luckin has completely changed. At the same time, the bigger challenge is that Cudi is mainly based on franchises, while Luckin's main battlefield is still self-operated.

In other words, Cudi loses the franchisee's money in the price war, while Luckin loses his own money. At the beginning of 2023, Luckin had planned to open 10,000 stores by the end of the year. And passive expansion is a helpless and dangerous move for Luckin. While revitalizing the situation, Luckin should consider long-term stability and quick solutions.

Judging from the measures to shrink the "9.9 yuan" activity, Luckin no longer regards Cudi as the number one enemy.

Standing at the Cudi level, although in the past year, although "sticking to Luckin" has been put on the lips, and objectively helped workers achieve coffee freedom, it has been very difficult to add new stores, and has not created explosive models such as Luckin Changhong's raw coconut latte and thick milk latte, but further reduced the price to 8.8 yuan a cup.

In addition, operating a chain restaurant and controlling the supply chain is king. In September this year, Cudi co-branded Wuchang Rice to launch the "Rice Milk Latte", which has obvious intentions to benchmark the "Sauce Latte". However, according to media reports, in the second week of the product's launch, many stores were out of stock.

The 9.9 yuan Luckin is gone

What's more, more and more doubts erupt about Cudi's profitability. Cudi's "8.8 yuan coupon" is always online, but according to the industry's single cup of coffee after the operating cost is superimposed, a single cup is close to 8-10 yuan, and Cudi can be said to sell a cup and lose a cup.

In order to balance the return on investment expectations of franchisees, Cudi has been adopting the "subsidy welfare" game: participating in the 8.8 yuan coupon of coffee, each cup will be subsidized by 9.9 yuan 1.1 yuan. Franchisees who open multiple stores will be given a subsidy of 0.5 yuan per cup - there is an additional subsidy for those who are located close to Luckin.

According to the "City Boundary", in 2023, Cudi will also be personally made by Lu Zhengyao and signed a VAM agreement of up to 1 billion yuan with Douyin, covering the whole year. Then, on the one hand, Cudi continues to subsidize, and on the other hand, Lu Zhengyao has bad credit in the capital industry, and there is no news of external financing, so Cudi's financial pressure can be imagined.

Previously, Cudi's development strategy was to use franchisees' money to pave the way, use price wars to do large-scale, and attract a new round of franchisees, but now this practice is becoming more and more unsustainable. In January this year, Cudi was exposed to a series of problems such as forcing franchisees to sell alcohol, low gross profits, and difficulty in recovering costs.

Cudi's expansion has also slowed down significantly. Cudi, which boasted to have opened more than 5,000 stores around July 2023, now has only 6,800 stores. According to the analysis of industry insiders, the situation of Cudi is not optimistic now, and if the franchisees centrifuge in large quantities, there will be a danger of collapse.

As Cudi's pace of soaring slowed down, Luckin began to have the spare energy to gradually shrink the price war, re-consolidate the price system, and adjust profits.

In fact, in the past year, in the rough price war, although the size of the store has more than doubled, it has basically held the moat at several key nodes in the supply chain, ensuring the income of a single store, and introducing franchisees.

Although Luckin has sunk into the county seat in a big way, according to the "city boundary", its capital verification process for franchisees is still very strict, and only "professional players" are accepted.

A Luckin franchisee revealed to the "City Boundary" that in the middle of last year, although the public information required franchisees to verify the threshold of 600,000 yuan, the actual "need for at least 1.5 million". In addition, Luckin also requires franchisees to have experience in tea drinks and have certain store resources. According to media reports, the actual approval rate of Luckin is less than 5%. "A lot of people have moved to join Cudi, which has a lower bar to entry. ”

In terms of the layout density of point site selection, Luckin has also done relatively moderation to avoid mutual blood drawing between stores. Kaka told "City Boundary" that she saw that there were already three Luckin in the county town of Hubei, and now the business is relatively hot. "But the county has a limited population, and if there are a few more, it will be difficult to say business. ”

In addition, Luckin, which is known for its supply chain capabilities in the industry, has ensured stable output while launching new products every month from first-tier cities to lower-tier markets. In September 2023, the sales volume of Luckin's soy sauce latte will reach 5.42 million cups on the first day, and the sales volume of the mascarpone cheese latte will also reach 16.24 million cups in the first week, but the market as a whole has not experienced a shortage of supply and quality fluctuations.

After winning the battle of Cudi, Luckin quietly went offline from the "9.9 yuan" activity, obviously hoping to return to the rhythm he is more familiar with as soon as possible.

"City Boundary" has found that after 2021, by creating popular models such as raw coconut lattes, Luckin has significantly increased the unit price and repurchase rate: the price of a single cup has increased from less than 10 yuan in 2019 to 15 yuan in 2022. Snow Lake Capital also said in the "long" report released in November 2022 that 32% of Luckin's sales come from high-frequency users who buy more than 5 times a month, which is significantly ahead of other brands, and Luckin has gotten rid of its dependence on coupons and promotional subsidies at that time.

But then, Luckin has bigger problems to solve. After the "9.9 yuan" activity is gradually offline, whether consumers who are accustomed to low prices will still buy it, you must know that the lucky coffee in Mixue Bingcheng is much cheaper, and the development speed is not slow.

After crossing the hill of Cudi, another more difficult battle awaits Luckin.

(The name of the consumer in the article has been changed)

Author | Li Yuan

Edit | Chen Fang

Operations | Liu Shan

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