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- Source/Night Deep Finance
- Author/Night Deep Finance
Introduction: Recently, a topic about "Luckin Coffee was exposed to ice cubes and mold" appeared on the hot search, causing heated discussions among the majority of netizens.
It is said that the person concerned vomited three times, and the matter has now been complained to the Municipal Supervision Bureau.
●Source: Weibo
Not long ago, Luckin announced its first-quarter financial results. According to the financial report, Luckin had a net loss of 65.1 million yuan and an operating profit margin of -1%. It should be emphasized that in the same period of 2023, Luckin's net profit will be 678 million yuan.
In other words, the number of stores has increased, the operating income has increased, but the increase in revenue has not increased profits, and Luckin Coffee has returned to losses!
01. Luckin Coffee returned to losses
Regarding the loss, Luckin's explanation is:
"The company adjusted the average selling price of its products, the continued volatility of the market environment and competitive dynamics, and the negative impact of seasonal factors."
What do you think of this explanation?
Starting in May 2023, Luckin Coffee will launch a "9.9 yuan drink" coupon and promote it in stores across the country, so compared with the first quarter of last year, the unit price of customers this year is declining.
However, although the company has repeatedly claimed that "at 9.9 yuan, every cup is profitable", however, the financial data does not lie.
●Source: Luckin official website
In the second quarter of 2023, Luckin's operating margin was 18.9%, the highest in history; However, in the third and fourth quarters of 2023, this figure was 13.4% and 3%, respectively, declining quarter by quarter.
In addition, store expansion is also an important reason for losses.
In the first quarter of this year, Luckin opened 2,342 new stores, bringing the total number of stores to 18,600. In official terms, as the number of stores continues to grow, leasing costs, labor costs, and material costs are also increasing, eroding the company's profits.
Therefore, the regular "9.9 drink" marketing campaign, superimposed on the newly opened stores, and the increase in various operating costs, eventually led to a continuous decline in operating profit margin, and the company returned to losses.
02. Behind the low price, Luckin has not established a moat
Some people say that Luckin has been poisoned by the price war, but in fact, this is not true.
I don't know if you have noticed that the "9.9 yuan" coffee coupon that originally appeared in the prominent position of the Luckin coffee menu is no longer there, it is hidden, and there are fewer and fewer products that can enjoy the 9.9 coupon, limited to 5 basic coffee products. That said, Luckin seems reluctant to continue rolling in price.
●Source: Luckin APP
However, it is not up to Luckin to do so.
Recently, Cudi Coffee announced that it would extend the current store subsidy policy for 2 years, and the maximum single cup of the store can be subsidized by 14.5 yuan, continue to increase the price war, and play the slogan of "9.9 unlimited products, unlimited quantities" in a prominent position.
This means that even if Luckin has the will to end the price war, it will not be able to end it in the short term; This means that it is difficult for Luckin's profitability to change in the short term.
So, what are the underlying reasons?
It shows that in terms of products, the homogenization of coffee products is serious; It shows that in terms of branding, compared with peer companies, Luckin has not been able to build differentiation and premium capabilities.
Although the result of involution is that everyone does not make money or even loses money, it seems that they can only continue to continue involution.
03. Coffee is not a good business
If someone tells you that the newly opened stores in the early stage are not profitable due to the lack of scale effect, most people should be able to accept it. However, if someone tells you that even if there are more than 10,000 stores, or even close to 20,000, it is not profitable, then do you still think that this is a good business?
● Source: Internet
In fact, referring to bubble tea shops, there are generally two profit models.
One is the direct sales model represented by Naixue, and the other is the franchise chain model represented by Mixue Bingcheng. Practice has proved that Naixue, who goes directly to the business, does not make money, but Mixue Bingcheng, which is a franchise, makes a lot of money by making money from franchisees.
At present, Luckin is also looking to Mixue Bingcheng.
As of the end of the first quarter of 2024, Luckin has 12,119 directly operated stores and 6,391 franchised stores. However, the coffee market is more involuted than the milk tea market.
Luckin's idea is to open up the distance from competitors through rapid store expansion. But the result is that the speed of peer store expansion has not slowed down, resulting in an increasing density of stores, old stores being "diverted" by new stores, and finally everyone does not make money.
Some people may ask, is there a possibility that after the knockout round, Luckin will earn back all the money from the price war?
Hard!
It is true that, in the case of Cudi, the company was exposed to a crisis in the capital chain, and its founder was forced many times, but coffee is not an industry with a high threshold.
On the one hand, milk tea brands represented by Mixue Bingcheng and Tea Baidao have entered the coffee market through subsidies; On the other hand, giants such as KFC and McDonald's are also making efforts in the coffee market. Therefore, it is not realistic to expect coffee brands to make monopoly profits after they are cleared.
The most important thing is that consumers are accustomed to low prices, and once the price increases, they will dissuade consumers and switch to other brands.
To sum it up:
In the short term, everyone is grabbing market share at low prices, low-price competition superimposed on old stores to "divert" new stores, and the decline in same-store sales cannot be reversed for the time being.
In the medium term, more and more bubble tea shops and restaurants will launch coffee brands, further intensifying the involution of the market.
In the long run, consumers are accustomed to low prices and are highly price-sensitive, and it is not easy for brands to get high prices.
In a word, coffee is not a good business.
Perhaps, Luckin learns from Mixue Bingcheng and fully turns to the B-end to make money from suppliers. But if that's the case, won't things like "ice cubes become moldy" become more uncontrollable?
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