If there is no 9 pieces of 9, how many people will betray Luckin?

降噪NoNoise

2024-05-19 12:03Posted in Hebei Science and Technology Creators

Starbucks members should be thankful for Luckin Coffee. Without the emergence of spoilers, it is impossible for the big cup of American to drop from 30 yuan to 24 yuan after the coupon.

Luckin users naturally have to thank Cudi as well. Without the price war of hand-to-hand combat, the probability that they will drink 9.9 yuan raw coconut latte and orange C American style will be greatly reduced.

Recently, this probability has been shrinking at an accelerated pace, for example, many users in first-tier cities have found that the number of designated drinks at 9.9 yuan per week has dropped from 8 at the beginning of the year to 5, and two of them are non-coffee iced teas.

At the beginning of this month, Luckin also launched the C series "super large cup" for the first time, with a 9.9 yuan drink group purchase coupon plus 3 yuan to upgrade the cup. A "super large cup" indirectly raised the unit price of promotional customers from 9 yuan to 12.9 yuan. If the "super cup" sells well in the future, it cannot be ruled out that Luckin will promote it to more products.

In the face of performance, whether the product specifications are to learn from Starbucks is irrelevant. Judging from the first-quarter financial report and market situation, the main contradiction of Luckin at present is the back-and-forth between the ambition of market share and the mind of 9 pieces of 9.

"NoNoise" believes that for Luckin Coffee, 9 pieces of 9 cannot be stopped, but shrinkage is almost inevitable. The key is how far to shrink in order to find the balance between scale and profit.

01

The king of coffee is not good

At different stages of development, the core proposition of an enterprise is constantly switching.

Two years ago, Niu Hulu Luckin's core goal was to prove that he could really make a profit. Before the second quarter of last year, this goal was dominated by the number of stores, and in Q2 2023, Luckin surpassed Starbucks China in terms of total number of stores and revenue.

Originally, winning the scale meant the beginning of "reaping" more profits, but Cudi brazenly launched a price war.

At this time, Luckin was particularly like Meituan two years ago, thinking that after winning nearly 70% of the food delivery market, it could "lie down and win" like other Internet platforms, but as a result, Douyin disrupted local life, and Meituan had to launch low-cost means such as live broadcasts and special group purchases to meet the challenge, resulting in the erosion of short-term operating profit margins.

Starting from Q2 2023, Luckin's core goal is still scale, but at this time, "scale" has become a relative indicator - market share. This change means that the value model of more stores and more revenue has been challenged, and in the face of the accelerated "enclosure" of its peers, Luckin can only maintain its leading position in market share by trapping more users than others and creating higher revenue growth.

In the face of Cudi, who is 8 pieces of 8 per week, the appearance of 9 pieces of 9 small blue cups is an inevitability.

The surprise lies in the tragic degree of "killing a thousand enemies and losing 800 yourself". Under the non-GAAP caliber, the company's operating profit margin in Q1 2023 is still 16.5%, which has dropped to 3.9% in Q4 2023 since the start of the price war in June 2023; In Q1 of this year, the operating profit margin fell directly to 0.1%.

What's worse is the performance of single-store data. In Q1 this year, the same-store sales growth rate of Luckin's self-operated stores was -20.3%, compared with 29.6% in the same period last year; Operating profit of self-operated stores was 7.0%, down 18.2% year-on-year.

If Luckin is a completely directly operated store, as long as you can bear the loss and are willing to continue to step on the accelerator, it doesn't hurt to be more aggressive. But of Luckin's 18,590 stores (as of March 30), franchised stores account for almost one-third.

The franchisee is not only the ammunition depot of Luckin's sinking battle, but also the tentacles of the brand's penetration into special scenarios such as universities, leisure, medical care, transportation hubs, and scenic spots - in order to accelerate the density of stores in the above scenarios, in January this year, Luckin launched a new franchise method - "directional point joining".

Franchisees naturally come to make money, and no one wants to be cannon fodder.

A Fujian investor who intends to join Luckin bluntly said that everyone wants to join because they see the brand effect of Luckin and the profitability of the store. Wang Guoping, a senior retail expert, told "NoNoise" that last year, the retail industry was in the sinking market to grab franchisees, and the competition in the snack industry was particularly fierce, and brands repeatedly lowered the audit threshold, and even encouraged and subsidized franchisees to fight price wars. But Luckin is very special, and it is very strict about the qualifications of franchisees, and it seems that there are not enough franchisees, "because the store is really profitable".

But the state of mind inside and outside the "siege" is different. Caixin reported that at the beginning of the price reduction, a Luckin franchisee sent an email to the headquarters saying that he did not want to fight a price war, and the price reduction activity was suspended in the store for a month, and then went online again at the request of the headquarters.

A portion of Luckin's revenue comes from the profit share of franchised stores. This may be a microcosm of the survival of Luckin franchisees in the price war. According to a previous report by "Interface", Luckin adopts a stepped deduction point for the profits of franchisees - the gross profit of 20,000 yuan is the threshold for deduction, such as 10% between 2-40,000 yuan, 20% for 4-60,000 yuan, and until the 40% cap.

By comparing the profit share and the total number of franchised stores in the current quarter since Q2 2022, we find that since Q3 2023, the profit contribution of a single store of associated stores has decreased significantly. From an average of 47,000 yuan (US$7,000) in Q2 2022, it decreased to 18,600 yuan (US$2,500). Of course, it is not excluded that Luckin will take the initiative to adjust the deduction plan to subsidize franchisees during the price war.

▲ Noise Reduction NoNoise Mapping

But the pressure on franchisees is palpable. The owner of a local chain coffee brand in Ma'anshan, Anhui Province, told us that a friend had recently joined Luckin and invested 7.8 million yuan in the early stage to locate in the non-core business district of the local county.

A year ago, the average payback cycle of Luckin stores estimated by Ping An Securities Research Report was about 1.5 years.

The above-mentioned people believe that the current cycle has a certain risk for franchisees. Especially in the context of the price war in the industry. For example, in some local Luckin stores, 9 yuan 9 activities are held every day, and there are one or two dozen kinds of category coupons.

It's hard to ignore this. To achieve its market share target, Luckin must enlist the support of its existing franchisee base and attract more potential partners to join the battle of scale. However, the premise is to alleviate the operating pressure at the store level as soon as possible and improve the growth rate of turnover and profit margin.

To put it more bluntly, reduce the lethality of 9 pieces of 9. "Interface" also mentioned in a previous report that 9.9 yuan is already the ultimate cost under the current operating efficiency.

▲The designated drink of 9.9 yuan per week has been reduced to 5

Based on this, we believe that Luckin's 9 9 will further shrink in disguise in the future.

Guo Jinyi, CEO of Luckin, who previously announced that "the 9.9 yuan discount will be extended to at least two years", has already turned his words on this quarter's earnings call. When asked if he would adjust his store expansion strategy, he replied that he would continue to strengthen his market leadership and create long-term value through a pricing strategy that rewards customers with continuous product innovation.

The words point to tightening discounts and driving sales growth with new large items.

This is more in line with the expectations of the capital market. The advantage is that the second and third quarters are the peak season for coffee drinks, but the trouble is that it is contrary to consumer expectations.

02

Can 9 pieces of 9 stop?

In February this year, Luckin's weekly "9.9 yuan for a drink" discount was reduced from all drinks to only 8 designated drinks.

Subsequently, the topic of "Luckin 9.9 yuan a cup activity shrinked" appeared on Weibo hot search. A day later, Luckin Coffee added two 9.9 yuan single products, and the number of products participating in the 9.9 yuan coupon on the official APP increased to 10.

This quick response was more like a poll. Without the 9.9 yuan coupon, will users continue to buy Luckin?

▲ Discussions among Xiaohongshu users

Judging from the hot search comments, the "wailing" of Luckin has prevailed as a migrant worker who "can't afford to drink", and some people have said that they will turn to lucky coffee, Cudi, McCafe and other replacements.

For this reason, some people are puzzled: whether the price adjustment or promotion is the free and normal market behavior of the merchants, how can consumers still be "hypocritical" to the extent of protesting the alliance? Even if there is no 9.9 coupon, a raw coconut latte of 13.9 yuan is much cheaper than Starbucks.

Even compared with the average price band of milk tea of 16-17 yuan, Luckin also has a relative advantage.

"NoNoise" believes that it is the trouble of Luckin that is reflected behind this - the problem of users' minds. When Luckin took the initiative to join the price war, it wanted to lock the minds of users with 9 pieces of 9, and continue to deepen the stickiness of members through the frequency of repurchases. But now, the long-term 9 yuan 9 also has a counter-eating effect, not only to make Luckin from profit to loss, but also to lay a low price mentality at the consumer psychological level.

Beijing Luckin user "Yuanzi" shared her psychological changes. Since downgrading from Starbucks and Costa consumption to drinking a 9.9 yuan Luckin Ice American, she has almost gotten used to this price. During the May Day holiday, when she habitually opened the Luckin Coffee App, she found that the iced American style of 9.9 yuan had changed to 13 yuan, and the former 13 yuan of Yirgacheffe American had become 16 yuan. This made her so angry that she shouted, "Don't drink anymore."

If it weren't for the husband's operation experience in the operation of a major Internet factory, he gave up the purchase when the App placed an order and paid, opened the App again, and the 9.9 yuan coupon appeared, "Yuanzi" was a little uneasy.

As a standard Beijing middle class, of course, she is not distressed and quietly rises for 3 yuan, but there is no harm if there is no comparison. As we mentioned earlier, there is a well-known "loss aversion" in psychology, where people perceive losses as more unbearable when faced with the same amount of gains and losses.

On Xiaohongshu, some Luckin users complained that the 9.9 yuan group purchase coupon they sold, thinking that the orange C American super large cup was found to be a large cup after buying, and they added 3 yuan when ordering to upgrade the cup, "Let's just say, this 9.9 is better than nothing".

The 9 yuan 9 coupons that quietly disappeared just hit the sensitive nerves of consumers. Luckin may also be overestimating the loyalty of its members that it has cultivated so hard.

It's hard to blame the consumer for that. The soaring domestic chain coffee brands and the crossover of involution and new tea brands have objectively further diluted consumer loyalty.

When Luckin and Starbucks rolled up prices, they probably wouldn't have thought that in the future, there would be a number of low-cost brands such as Cudi and Lucky Coffee competing to do "Luckin Flat".

The competitive business environment has shaped the decision-making scale of this generation of consumers. Among the 22.92 million new trading customers of Luckin Coffee in the first quarter of 2024, how many of them are aiming for 9 yuan 9? Luckin, who is proficient in digital operations, must have its own answers.

Even if you don't consider the market strategy announced by Cudi to extend the store discount until the end of next year, in a short period of time, there is a high probability that the 9 pieces of 9 small blue cups will not stop, but the way to receive them may be transferred from the App coupon pop-up window to the store's private domain community.

With market share ambitions, Luckin cannot afford to risk a decline in the frequency of user transactions. However, more hedging actions can be done to compensate consumers for their sense of gain, such as increasing the unit price of customers through product innovation and cooperation and co-branding.

Judging from the number alone, in the first quarter of this year, Luckin launched 22 new models, but compared with Starbucks' 27 models in the same period, it is still a little less interesting. It's not that Luckin doesn't work hard enough, but this industry doesn't have the most volume now, only more volume.

Starbucks only launched 9 new products in the same period last year, and behind the sudden tripling this year, it is natural to feel the competitive pressure of the domestic market. Reflected in the results, Starbucks China revenue fell to $705.8 million in the first quarter of this year from $763.8 million, and same-store sales fell 11% due to a 4% decline in transaction volume and an 8% decline in average order value.

At the same time, the speed of new stores in the industry has shown a downshift trend. In a Luckin investment research report in December last year, it was mentioned that according to data obtained from various parties, the number of new stores in the entire coffee industry is declining, including the head brands, and the speed of opening stores is marginally decreasing.

If you only look at the quarter-on-quarter data of Luckin franchised stores, in the fourth quarter of last year, Luckin added 1,153 franchised stores, and only 771 more in the first quarter of this year.

The latest statistics from Kamen also confirm the above trend - from January to April this year, in addition to Luckin Coffee, the total number of new stores of more than 20+ coffee brands with more than 100 stores decreased by about 37% compared with the same period last year. In the past year, more than 40,000 coffee shops have left the market.

If Luckin wants to distance itself from competitors and further expand its market share, it is necessary to take a good balance between speed and user mentality. Because more stores at this time does not necessarily mean higher sales expectations.

This is the conundrum for the war declarers.

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