Luckin Coffee Aims to Open 10K Stores
Luckin Coffee’s annual revenue exceeded 10 billion yuan ($1.45 billion) for the first time last year. This year, the Chinese coffee chain targets to establish 10,000 stores despite competition from Cotti Coffee, a new brand launched by Luckin former chairman Charles Lu.
On March 2, Luckin Coffee’s earnings report showed that in the fourth quarter of last year, its net income was 3.695 billion yuan ($535.7 million), a year-over-year increase of 51.9%, while its net profit was 54.5 million yuan ($7.9 million), a year-on-year decrease of 94%. Luckin Coffee pointed out that the sharp drop in net profit was due to a 1,146.5 million yuan ($159 million) payment on a settlement with the US Securities and Exchange Commission (SEC) for allegations of financial fraud.
In fiscal year 2022, its total net income was 13.293 billion yuan ($1,927.3 million), a year-over-year increase of 66.9%. Its GAAP operating income was 1,156.2 million yuan ($167.6 million) and its operating margin was 8.7%.
Guo Jinyi, Chairman and CEO of Luckin Coffee, pointed out on the earnings call that due to the COVID-19 pandemic, nearly 1,500 stores were temporarily closed and 368 new stores were opened in the fourth quarter. By the end of 2022, the brand had 8,214 stores, including 5,652 self-operated stores and 2,562 partnership stores.
“We are confident about reaching the goal of opening 10,000 stores in 2023.” Guo said, “Restarting the recruitment of partners for partnership stores is an important means to help us reach the goal.”
At the end of December 2022, Luckin Coffee began efforts to recruit partners in nine provinces and 41 cities. At the end of January this year, the recruitment scope was expanded to 15 provinces and 80 cities. The company’s CFO revealed that nearly 500 new stores were opened in January this year after reinitating the recruitment plan.
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Nevertheless, Luckin Coffee, which is becoming increasingly more expensive for consumers, faces challenges. In October 2022, Charles Lu and Jenny Qian, two former Luckin Coffee executives, established Cotti Coffee with the same marketing strategies as Luckin Coffee, such as the aggressive establishment of new storefronts, discount offers, and celebrity endorsements. As of February 3, 2023, Cotti Coffee has opened 231 stores nationwide.
Cotti Coffee attracts customers with prices as low as 9.9 yuan ($1.43) per cup of coffee, while the average price of Luckin Coffee’s products is 20 yuan ($2.89). However, Cotti Coffee offers over 70 types of products and has not yet established a clear brand image. It remains unknown whether Cotti Coffee can replicate the success of Luckin Coffee.