What should Luckin do if it loses its price advantage?
In the Chinese coffee market, Luckin Coffee is undoubtedly a very legendary company, from the fastest time to go public to the thunderstorm delisting, from the verge of bankruptcy to the comeback and then to set off a price war of nine yuan nine, Luckin's experience can be described as quite legendary, but just recently the news of Luckin nine yuan nine price war did not move, people can't help but want to ask what happened to Luckin who lost its price advantage?
1. Luckin nine yuan nine price war rolls are not moving?
According to a report by Shangguan News, topics such as "Luckin 9.9 yuan a cup event has shrunk" and "There are only a few drinks left in the Luckin 9.9 yuan event" continue to ferment on social media. Many netizens reported that Luckin Coffee's weekly "9.9 yuan for a drink" coupon activity has "shrunk", and it is no longer possible to use 9.9 yuan coupons for all drinks, and only designated drinks can participate in the activity.
The reporter saw on the Luckin Coffee order page that there are currently 10 kinds of products available under the "Weekly 9.9" column. Luckin Coffee insiders told reporters that the so-called "shrinkage" of 9.9 yuan preferential products did not start on February 19 as reported on the Internet. "In the past, '9.9 per week' was applicable to all products except new products, but now only designated products are available, and it has been a while, and the specific applicable products have to be determined according to the situation of the store. Luckin Coffee insiders said.
In June 2023, Luckin launched the 9 Pieces 9 Thanksgiving Reward Campaign, and sold more than 39 million cups of coffee in the first week. Guo Jinyi, chairman and CEO of Luckin Coffee, said at the second quarter 2023 results meeting that the 9 Pieces 9 Coffee discount campaign will last for at least 2 years to further increase market share. As the "volume king" in the coffee industry, Luckin Coffee has steadily increased its market share by relying on store expansion and low-price customer acquisition. At present, Luckin has also become the only coffee chain brand in China with more than 8,000 stores. Luckin Coffee's financial report for the third quarter of 2023 shows that Luckin Coffee opened 2,437 net new stores in the third quarter of last year, and the total number of stores reached 13,273 by the end of the third quarter of last year.
According to a report by the International Financial News, the previous Luckin 9.9 yuan activity was almost applicable to all drinks, and now the reporter randomly searched dozens of Luckin stores in Shanghai, and now only 10 basic items in the "Weekly 9.9" section participated, including American-style and raw coconut latte. According to the Luckin Coffee applet, the order price of single items such as the popular mascarpone cheese latte, Chu orange latte, and meteorite latte is about 20 yuan.
"If it's 20 yuan a cup, I'll choose another coffee" "It's easy to reduce the price and it's hard to raise the price", many consumers expressed their dissatisfaction with the shrinkage of Luckin activities on social platforms, and some consumers said that it is understandable that the activities are gradually decreasing, but at least they should be announced in advance, rather than quietly changing the rules.
According to an investment report on Luckin Coffee obtained by Jiemian News, 9.9 yuan is the limit of the price under the current Luckin operating efficiency. This is also a pricing strategy made under the extreme scale and supply chain, and under the comprehensive cost of rent, labor, discounts, etc., as a long-term activity, compared with brands with smaller stores, it has a certain competitive advantage. However, as the number of stores continues to rise and the number of cups in the off-season (winter) naturally declines, the growth rate of the coffee industry is expected to slow down in the future, and how to balance cup volume and promotional activities is a more challenging challenge for brands.
2. What should Luckin do if it loses its price advantage?
Since last year, coffee brands such as Luckin, Cudi, and Lucky Coffee have set off a fierce price war, which has comprehensively impacted the coffee market. In this price war, many companies have been forced to participate in the war, which has directly led to the decline in coffee prices. However, with the intensification of market competition, the advantages of brands such as Luckin in the price war have gradually weakened, and even the situation has not moved. So, how should Luckin look after losing its price advantage?
First of all, the rise and pressure of price wars. Since last year, the Chinese coffee market has experienced an unprecedented price war. This war set off by brands such as Luckin, Cudi, and Lucky Coffee has not only reshaped consumers' perception of coffee, but also forced many traditional coffee companies to join the battle. In this seemingly disorderly competition, price has become the most direct weapon, resulting in a continuous decline in the price level of the entire industry. These brands quickly gained market share through low-price strategies, forcing other coffee chains to follow suit with price cuts in order to remain competitive. This price war has not only changed the buying habits of consumers, but has also had a profound impact on the entire coffee industry.
In the short term, price wars can quickly attract consumer attention and expand market share. For new brands entering the market, a low-price strategy can quickly establish a brand image and seize market share. At the same time, the price war can also promote the innovation and progress of the industry to a certain extent, prompting enterprises to continuously optimize products and services and reduce costs. Therefore, the short-term price war is actually relatively beneficial to the industry. However, as competition heats up, some companies are starting to feel the side effects of the price war, including Luckin Coffee, which once rose rapidly with a low-price strategy.
Second, the double-edged sword effect of price wars is very significant. In the short term, the price war can indeed help companies quickly expand their market share and attract consumers, but in the long run, it is more of a test of the comprehensive strength of enterprises. On the one hand, capital accumulation and thickness are the basis for enterprises to continue to "fight" in the price war. Only with sufficient financial strength can enterprises ensure the normal operation of operational activities, as well as the necessary R&D investment and marketing expenditures, while subsidizing users and lowering prices.
On the other hand, the role of cost control in price wars is particularly important. Enterprises need to reduce raw materials and operating costs through large-scale procurement, optimization of production processes, and improvement of logistics efficiency, and at the same time, they also need to effectively balance the relationship between price concessions and profit margins, so as to avoid profit compression and even losses due to over-reliance on price wars, that is, the phenomenon of breaking down operating costs.
Once the cost control of the enterprise is insufficient, it may fall into a passive situation in the price war, which will not only affect short-term profits, but also may have a negative impact on brand image, quality reputation and long-term development. In the case of Luckin, the ongoing price war has put a huge pressure on its financial situation, especially given its past financial fraud scandals, and it is particularly urgent to restore profitability, which makes Luckin's price war less sufficient.
Third, Luckin's shrinkage price war at this time is also a consideration for timely stop loss. In the face of such a fierce price war, it is normal for Luckin to choose to shrink the price war. As we said above, the cost pressure on Luckin is not insignificant, and as the price war is in full swing, Luckin Coffee has begun to re-examine its pricing strategy. On the one hand, with the growth of market size and the cultivation of consumer habits, the continued substantial subsidies may further compress the profit margins of enterprises; on the other hand, after the gradual maturity of market education, consumers' demand for quality and service will also increase. Therefore, it is more pragmatic and wise for Luckin to reduce the intensity of its overly aggressive price war and turn to a profit balance point.
What's more, the strategic focus of Luckin has also shifted, and the current Luckin should realize that relying solely on price advantage is not a long-term solution, and enterprises need to build sustainable competitive barriers. This means enhancing core competitiveness in terms of product innovation, service upgrading, supply chain optimization, etc., and exploring diversified profit models, such as expanding product lines with high gross margins, enhancing the stickiness of the membership system, and creating a unique brand culture experience.
At this time, for Luckin, instead of gritting its teeth and resisting, it is better to stop losses in time and invest more resources in improving product quality and service levels, so as to win the recognition and trust of consumers.
Fourth, Luckin's biggest risk at the moment is the prisoner's dilemma. Arguably, the biggest pressure on Luckin is that it is already mired in a prisoner's dilemma, and if it chooses to exit the price war and raise the price of its products to recover or increase profit margins, rival brands such as Cudi Coffee may continue to maintain a low price strategy to attract price-sensitive consumers. In this case, Luckin may lose its hard-won customer base in pursuit of cost performance, resulting in a decline in market share.
However, if Luckin insists on participating in the price war, although it can temporarily gain and maintain market share through the low price strategy, the long-term price competition will compress its operating profits, affect the profitability and sustainable development of the company, and once all participants are caught in a competitive cycle of continuous price reduction, the profitability of the entire industry will be damaged. For Luckin Coffee, which already had financial problems, it was even worse.
Therefore, the prisoner's dilemma facing Luckin Coffee's competitive strategy in the market is a complex and thorny problem. In order to find a balance between short-term market share and long-term profitability, Luckin needs to consider the strategies of competitors, consumers' price sensitivities, and its own resources and capabilities.