Caixin News | New Consumer Daily, February 24th (Researcher Liang Youyun): On the evening of February 23rd, Luckin Coffee released its financial reports for the fourth quarter and full year of 2023. According to the financial report, Luckin's total net income for the fiscal year 2023 was RMB 24.9032 billion (approximately USD 3.5075 billion), an increase of 87.3% from RMB 13.293 billion in the fiscal year 2022; The net profit attributable to the company's shareholders during the same period was 2.848 billion yuan, a nearly six fold increase compared to 488 million yuan in 2022. Under US accounting standards (GAAP), Luckin's operating profit in 2023 was 3.026 billion yuan, doubling from 2022.
From a net income perspective alone, in the same natural year of 2023, Starbucks achieved a total revenue of $3.1615 billion in the Chinese market, equivalent to approximately RMB 22.7543 billion. After rapidly surpassing its store size, Luckin Coffee has once again surpassed Starbucks China and become the largest coffee beverage brand in terms of revenue in China.
At the Luckin Coffee earnings conference call, Guo Jinyi, Chairman and CEO of Luckin Coffee, believed that 2023 is a milestone year. Faced with fierce industry competition, Luckin Coffee has achieved new highs in revenue with its unique business model, product innovation, and scale advantages. The overall profit level is healthy and controllable, which is in line with the company's expectations and strategic development direction.
As of the end of 2023, Luckin has a total of 16218 stores in China and a total of 30 stores overseas in Singapore. In 2023, the number of new trading clients exceeded 95 million, and the monthly average number of trading clients exceeded 62 million.
Thanks to Luckin's continuous increase in the number of stores in high-end cities and its rapid expansion of sinking markets through a joint venture model, the brand net increased by 8034 stores in 2023, with self operated stores being the main force of expansion.
More specifically, in 2023, Luckin Coffee's self operated store revenue was 17.88 billion yuan, a year-on-year increase of 82.7%; The revenue of joint stores in 2023 was 6.226 billion yuan, a year-on-year increase of 102.8%. With the widespread promotion of the "9.9 yuan per cup" discount nationwide, sales of Luckin stores across the country have significantly increased, and the brand's small profits and high sales, as well as price wars, have shown initial results.
In addition, co branded products, independently developed new products, and closely integrated marketing promotion have resulted in 8 out of 102 new products of Luckin's sales exceeding 100 million yuan throughout the year. Guo Jinyi specifically mentioned during a conference call, "The sauce flavored latte broke Luckin's single product record, selling 45.83 million cups throughout the year, with single product sales exceeding 900 million yuan."
However, the intense price war also brings certain burdens and risks to Luckin. According to financial report data, during the off-season of coffee beverage consumption in the fourth quarter of 2023, the operating profit margin of brand owned stores was 13.5%, compared to 21.6% in the same period of 2022. At the same time, the growth of the company's sales and marketing expenses is second only to the growth of one-time expenses for opening stores, accounting for 5.6% of total revenue, compared to 4.7% in the same period of 2022.
Luckin stated that this is mainly due to the decrease in the average selling price of the company's products, which is offset by the economies of scale brought about by the increase in the number of products sold.
When answering investor questions, Guo Jinyi emphasized, "Based on the company's continuous feedback to customers and the influence of seasonal factors on expansion decisions, the portfolio structure adjustment has led to a decline in profits in the fourth quarter. This is not only the objective scale of the industry but also fully in line with the company's strategic expectations. We are generally satisfied with the performance results of this quarter."
In fact, the competition felt by Luckin in the coffee industry not only comes from mid to high end brands such as Starbucks and Manner, but also from the "close combat" of the emerging brand "Kudi Coffee".
According to the data, Kudi Coffee was established in May 2022, founded by Lu Zhengyao and Qian Zhiya from the founding team of Luckin Coffee. They adopted a similar aggressive approach to expanding their stores. Narrow door dining eyes show that Kudi Coffee is mainly franchised, with a total of 6800 stores as of February 2024, making it the fastest opening beverage brand in China in 2023, except for Luckin Coffee.
Among them, most of Kudi's stores are located around Luckin's stores, and with subsidies, the price of Kudi coffee can be reduced to within 9.9 yuan. The price war between the two brands has become a hot topic on social media, and has also sparked a new round of price war for retail subsidies in the coffee industry.
However, as we enter the off-season for ready to drink consumption in winter, some netizens have observed that Luckin and Kudi have reduced their coupon subsidies, and the 9.9 yuan coffee discount is limited to only some coffee products that can be used. Many industry observers speculate that the coffee price war in 2024 may come to an end, entering a competitive stock market with difficult expansion. Considering the balance between revenue and profit, maintaining low prices will become increasingly difficult.
Regarding the future competition and development trend of the coffee industry, Guo Jinyi stated that the Chinese coffee market is still in the initial stage of development, and there is still a lot of room for expansion from the cultivation of user consumption habits. The Chinese coffee market has entered an important strategic opportunity period of rapid development. Luckin Coffee will continue to accelerate its store network layout, supply chain investment, and digital investment, optimize costs and improve efficiency, and form an absolute market dominant position.
At the financial report conference call, Luckin also announced that Wu Gang, Senior Vice President in charge of company affairs and strategic cooperation, will officially resign due to personal reasons.
According to the data, Wu Gang has been serving as the Vice President of Luckin Coffee since March 2019 and has been responsible for the company's supply chain management since April 2020. Wu Gang is also one of the professional managers appointed by Ruixing to "parachute" the management to maintain the basic operation of the company after being exposed for financial fraud. Before joining Luckin, Wu Gang had 26 years of experience in the aviation industry and held management positions in multiple companies including China United Airlines, China Eastern Airlines, and Air China.