Blue Whale Finance journalist Zhang Jinglun
In 2023, Luckin Coffee's store size and revenue reached a new high.
On the evening of February 23, Luckin Coffee released its financial reports for the fourth quarter and full year of 2023. The total net income for the fiscal year 2023 was RMB 24.903 billion, a year-on-year increase of 87.3%, and the revenue scale reached a new historical high. In 2023, Luckin Coffee's operating profit under US accounting standards (GAAP) was RMB 3.026 billion, doubling from 2022.
Blue Whale Finance reporter noticed that this is the first time Luckin Coffee has surpassed Starbucks in annual sales to become the largest coffee chain in China. In 2023, Starbucks achieved a revenue of 3.16 billion US dollars (22.739 billion yuan) in the Chinese market.
At the same time, Luckin Coffee's store scale has further expanded and entered the "era of ten thousand stores" in 2023. As of the end of 2023, Luckin Coffee had a net new opening of 8034 stores throughout the year, a year-on-year increase of 97.8%. There are 16218 domestic stores, including 10598 self operated stores and 5620 joint venture stores. In addition, Luckin Coffee successfully expanded its overseas market in 2023, with a total of 30 stores in Singapore during the reporting period.
From the perspective of store operations, Luckin Coffee's self operated store revenue for the whole year of 2023 was 17.88 billion yuan, an increase of 82.7% from 9.786 billion yuan in 2022. The revenue of joint stores for the whole year of 2023 was 6.226 billion yuan, an increase of 102.8% from 3.069 billion yuan in 2022.
But looking solely at the performance in the fourth quarter of 2023, Luckin Coffee's revenue, although growing strongly year-on-year, has declined slightly compared to the previous quarter.
According to the financial report, Luckin Coffee's revenue in the fourth quarter of 2023 was 7.065 billion yuan, an increase of 91.2% from 3.695 billion yuan in the same period last year and a decrease of 2% from 7.2 billion yuan in the previous quarter. The net profit was 296 million yuan, an increase of 444% from 54.52 million yuan in the same period last year, but a decrease of 70% from 988 million yuan in the previous quarter.
Luckin explained in its financial report that the profit growth rate has slowed down due to factors such as seasonality, promotional activities for thousands of stores, and fierce industry competition, but it meets the company's expectations.
It is reported that in June last year, Luckin officially distributed a 9.9 yuan discount coupon nationwide in the name of exceeding 10000 yuan in store size, which is considered by the industry to be a signal that Luckin is actively competing with Kudi.
This "price reduction sales" strategy also led to an increase in the monthly average number of trading customers of Luckin in 2023 to 48.37 million, a year-on-year increase of 124.1%; Among them, the monthly average number of trading clients in the fourth quarter increased by 154.2% year-on-year to 62.44 million.
From Luckin's financial report, it can also be seen that the "price war" is a double-edged sword, which has led to new highs in customer traffic and revenue for Luckin's stores, but also affected profit margins.
Luckin Coffee achieved a revenue of 7.2 billion yuan in the third quarter of 2023, a year-on-year increase of 84.9%, setting a new historical high, during the 9.9 yuan coffee event; However, operating profit under US accounting standards has declined to 962 million yuan; The operating profit margin was 13.4%, a year-on-year decrease of 1.6 percentage points, and a month on month decrease of over 5 percentage points.
In addition, this promotional activity has also led to a sharp increase in sales and marketing expenses for Luckin. According to the financial report, in the third quarter of 2023, Luckin Coffee's sales and marketing expenses were 384 million yuan, an increase of 141.3% over the same period; In the fourth quarter, its sales and marketing expenses were 399 million yuan, a year-on-year increase of 130.2%. Mainly due to the increase in advertising and other promotional expenses, increased commission payments to third-party delivery platforms, and subcontracting service fees to support the company's e-commerce business and promotional activities.
In recent days, the weekly "9.9 yuan for a drink" coupon activity of Luckin has been criticized by many netizens as "shrinking". The 9.9 yuan coupon can no longer be used for all drinks in the event, leaving only 10 designated drinks to participate in the activity.
"We have calculated that Luckin's 9.9 yuan has basically reached the lowest price. However, the price of 9.9 yuan should also be sustainable, except that franchisees' profits are very thin." Yu Mingyang, Dean of the China Enterprise Development Research Institute at Shanghai Jiao Tong University, stated in an interview with 21st Century Business Herald reporters, "If the supply chain has strong capabilities, raw materials are self controlled, and there are no problems with processing, the pure material cost of a cup of coffee should be between 5 yuan and 5.5 yuan. In addition, there are management, operation, terminal space, and other expenses, and franchisees also need to have profits. Therefore, 9.9 yuan should have reached the floor price, and even lower prices cannot make a profit."
Therefore, based on cost estimation, Luckin has made a reduction in the 9.9 yuan coupon or taken measures to alleviate profit pressure.
Chinese food industry analyst Zhu Danpeng stated that the adjustment of Luckin Coffee's 9.9 discount activity is a normal business behavior of the enterprise and a strategy adopted by the enterprise at different stages. "Luckin has gained an advantage and a certain say in the entire supply chain, service system, customer stickiness, and competition process."
In addition to distributing a large number of low-priced coupons, constantly launching new products is also an important factor in attracting consumers. Last year, the brand launched a total of 102 new products, with sales exceeding 2 billion units and over 1.9 billion freshly made drinks. As of the end of 2023, Luckin Coffee had 8 SKU sales exceeding 100 million. Among them, sauce flavored lattes, Chu orange lattes, and others have become popular heavyweight items.
"2023 is a milestone year for the company," said Guo Jinyi, Chairman and CEO of Luckin Coffee. The overall profit level is healthy and controllable, in line with the company's expectations and strategic development direction. "In the future, we will continue to adhere to our current development and pricing strategies, continuously expanding our market share while giving back to our customers."