△ Picture self-dining book
On April 30, Luckin Coffee disclosed its financial results for the first quarter of 2024. The financial report shows that while Luckin has grown rapidly in revenue, scale and trading volume, it has once again suffered a loss, with a net loss of 83.2 million yuan in the first quarter, compared with a net profit of 564.8 million yuan in the same period last year.
It's only been a year before and after, but the performance is very different, what happened to Luckin?
1 瑞幸重回亏损
In the first quarter of 2022, Luckin achieved a single-quarter profit for the first time in five years after its establishment, and since then, it has been soaring all the way, achieving a double harvest in terms of performance and scale. During this period, it is worth mentioning that after the number of stores surpassed Starbucks at the end of 2021, Luckin surpassed Starbucks in annual sales for the first time in 2023 and became the "first coffee brother in China".
According to the current momentum of development, Luckin's status as the "first brother of coffee" is unshakable, and it seems that the future is very good. Who knows that the good times will not last long, just over 2 months after the announcement of the 2023 annual report, Luckin has lost again, and it has shown an obvious "increase in revenue but not profit".
According to the financial report, in the first quarter of this year, Luckin's total revenue was 6.278 billion yuan, a year-on-year increase of 41.5%, the net new stores were 2,342, an increase of 14.4% month-on-month, and the total number of stores at the end of the reporting period reached 18,590, and the average number of monthly trading customers was about 59.91 million, a year-on-year increase of 103.2%. At the same time, Luckin had a net loss of 83.2 million yuan in the first quarter, compared with a net profit of 564.8 million yuan in the same period last year.
In addition, at the self-operated store level, same-store sales growth rate was -20.3%, compared to 29.6% in the same period of 2023, and operating profit was 320 million yuan, with a profit margin of 7.0%, compared with 790 million yuan and 25.2% in the same period of 2023, respectively.
In response to the loss, Guo Jinyi, chairman and CEO of Luckin Coffee, said on the earnings call that on the one hand, it is the influence of objective factors, and on the other hand, it is also the result of active adjustment. Objectively, the cold wave and temperature fluctuations in the first quarter affected consumption and travel. Subjectively, the company regards market share as the main strategic goal of development, adjusts the pace of store opening, and further distances itself from competitors through rapid store expansion.
2 9.9 Erosion of profits
The CEO listed the subjective and objective reasons for the loss, but the more real and direct reasons should be found in the financial report.
According to the financial report, in the first quarter of 2024, Luckin's total operating expenses reached 6,343.3 million yuan, an increase of 68.8% from 3,758.4 million yuan in the same period of 2023, and the percentage of operating expenses in net income reached 101%, far exceeding 84.7% in the same period last year. In other words, this year's Q1 Luckin is not making ends meet.
The reason why this is the case, the financial report also gave an explanation, mainly because of the increase in the proportion of store leasing costs, labor costs and material costs in net income, which in turn is due to the decline in the average selling price of the company's products.
The price war is greatly eroding Luckin's profits.
The store level is particularly straightforward: the overall profit margin of Luckin's directly operated stores has dropped from 25.2% in the first quarter of 2023 to 7.0% in the first quarter of 2024.
3 There are no winners in price wars
The price war between Luckin and Cudi lasted for more than a year, but neither side achieved any brilliant results, and the overall can only be described in eight words: 1,000 enemies killed, 800 self-inflicted.
At the same time, a large number of coffee shops have become "cannon fodder" in price wars, and some boutique brands have also cut prices in order to survive.
As for Starbucks, although executives have repeatedly stated that they will not participate in price wars, the laws of the market are never shifted by human will. On the one hand, Starbucks' "15 yuan off over 70 yuan", "55.9 yuan for three cups", "45.9 yuan for two cups" various coupons began to appear, "9 yuan 9 wind finally swept to Starbucks"; on the other hand, Starbucks China's store sales fell year-on-year.
△ Picture self-dining book
On May 1, Starbucks released data for the second quarter of fiscal year 2024 (January 1 to March 31, 2024), during the reporting period, Starbucks achieved revenue of $8.56 billion, down 2% year-on-year, and the previous market expectation was $9.13 billion, and net profit for the same period was $772 million, down 14.96% year-on-year, which was also significantly lower than market expectations. Among them, the second largest market, store sales in China fell by 11% year-on-year, compared with the previous market expectation of a decline of 1.64%.
JPMorgan Chase lowered its Starbucks price target to $92 from $100 due to poor earnings performance, while Deutsche Bank and William Blair downgraded Starbucks stocks. The double "blow" of performance and rating directly triggered the "dive" of Starbucks' U.S. stock price. On the night of May 1, Starbucks' stock price fell 15.82%, and its market value evaporated by about 115 billion yuan, the largest decline in nearly four years.
As a result, Starbucks management had to revise the company's growth target for 2024 for the third time, adjusting from the previous forecast of 7%~10% to a lower single-digit growth.
4 Price war, Luckin wants to retreat but can't
In April last year, Luckin insiders said that Luckin is confident of fighting a long-lasting price war, and the internal price war has been set at 2~3 years, "because every cup makes money". On August 1, Luckin CEO Guo Jinyi announced at the second quarter performance communication meeting that he would normalize the 9.9 yuan activity and "decided that the event would last for at least two years."
However, only half a year later, Luckin wanted to exit the price war. On the first working day after the Spring Festival holiday this year, some netizens found that Luckin Coffee's weekly "9.9 yuan for a drink" coupon activity quietly "shrunk", and it is no longer a 9.9 yuan coupon that can be used for all drinks, and only designated drinks can participate in the activity. At present, there are only 5 products left in the weekly 9.9 section of the Luckin Mini Program, and classic models such as raw coconut latte and velvet latte have been cancelled. On May 2, the #瑞幸9.9 yuan activity shrank again# and rushed to the hot search.
For Luckin, it had to do it, and it wasn't just "shrinking", it was "icy", even though it would greatly damage the user experience.
So, can Luckin, which once took the initiative to respond to the war, withdraw from the price war?
I'm afraid not. Under the vigorous "education" of Luckin and Cudi, consumers have become accustomed to 9.9, and in people's eyes, the price of drinking a cup of coffee is only 9 yuan 9, and any more points must be considered again.
What's more, the opponent did not let up. On April 29, Cudi Coffee announced that the current store subsidy policy will be extended to December 31, 2026, covering existing stores and newly opened stores in the future, different stores can receive different amounts of subsidies according to different factors such as rent and competition, and the maximum single cup can be subsidized to 14 yuan.
Obviously, the price war has made it difficult for Luckin to ride the tiger.
5 Conclusion
Luckin and Starbucks, the two leading brands, achieved growth in the number of stores despite their poor performance in the first quarter, with a net increase of 2,342 and 118 stores respectively during the period. NCBD's research also shows that it is expected that by 2025, the size of China's freshly made coffee market will exceed 220 billion yuan. The domestic coffee market as a whole is growing upward.
It's a market that still has a lot of potential, and at the same time it's extremely competitive. How will Luckin deal with the price war next, and what will be the endgame of the coffee price war?