How Luckin Coffee Returned to Profit in 2022

Luckin Coffee reported full-year 2022 net revenue of 13.293 billion yuan, up 66.9 percent year on year, with operating profit turning positive for the first time. Fourth-quarter net revenue reached 3.695 billion yuan, a 51.9 percent rise. The company added a net 1,290 stores during the year, bringing its total to 8,214, made up of 5,652 self-operated and 2,562 partnered locations.

The result followed a turbulent stretch: a record-speed Nasdaq listing, delisting after a 2.2 billion yuan financial fraud, a management reshuffle, and debt restructuring. Store expansion, coupon pricing, frequent new products, franchising in lower-tier markets, and youth-oriented marketing are the levers behind the recovery, though full-year profitability was achieved under continued pandemic and debt pressure.

In 2022, Luckin Coffee delivered a surprising report card: total net revenue for the year reached 13.293 billion yuan, with operating profit turning positive for the first time. From a record-breaking Nasdaq listing, to delisting due to financial fraud, a major management reshuffle, and then completing debt restructuring and returning to profitability, this brand's journey has been more dramatic than a TV series. Under the double pressure of the pandemic and debt, what did Luckin rely on to turn things around? This article will examine its store expansion pace, coupon strategy, hit product logic, new product launch speed and pricing, franchise and lower-tier market layout, as well as celebrity endorsements and youth-oriented marketing, to present a more complete picture of Luckin's recovery path.

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On March 2, 2023, Luckin released its financial report for the fourth quarter and full year of 2022. The data showed that the company's total net revenue for the quarter reached 3.695 billion yuan, a year-on-year increase of 51.9%; total net revenue for the entire 2022 fiscal year was 13.293 billion yuan, up 66.9% year-on-year, with full-year overall operating profit turning positive for the first time.

In terms of store expansion, Luckin added a net 1,290 stores in 2022, a year-on-year increase of 36.4%. By the end of 2022, the total number of stores had climbed to 8,214, including 5,652 self-operated stores and 2,562 partnered stores. (Considering Luckin's continued acceleration of expansion into lower-tier markets, the current store scale has likely reached over 8,350.) Since its founding, the events Luckin Coffee has experienced are so dramatic that even TV dramas wouldn't dare to script them. Just 18 months after the brand was established, it was listed on the US Nasdaq, setting a world record; however, one year after listing, it was delisted after being exposed for 2.2 billion yuan in financial fraud, followed by a major management reshuffle, and investors withdrew one after another.

When the outside world generally believed that Luckin would sink from then on and find it hard to recover, it did not go as everyone expected. In just two years, Luckin announced on April 11 last year that it had completed debt restructuring and, with the support of creditors, ended its bankruptcy protection proceedings as a debtor. At the same time, historical legacy issues were fully resolved, and the company returned to normal operations. By May 24 of the same year, when Luckin released its financial report for the first quarter of fiscal year 2022, it stated that the company had achieved profitability for the first time. During the same period, Starbucks' sales in the Chinese market fell 23% year-on-year due to repeated COVID-19 outbreaks and related policy restrictions.

Looking back, Luckin not only achieved rebirth under the dual pressure of debt and the pandemic, but also managed to become profitable. This can be called a miracle, and it also shows that Luckin accurately understood the needs of a new generation of consumers and quickly expanded channels with efficient execution. "Willing to let consumers 'milk the wool'" "Luckin hands out coupons as if they cost nothing!" This is the deepest impression many consumers have of Luckin. Nowadays everyone is pursuing high cost-performance products, and freshly ground coffee, once not so affordable, has gradually become an everyday drink for the masses through Luckin's repeated coupon distributions. Although Luckin still had to keep operating under loss pressure before completing debt restructuring, it never stopped distributing coupons. Although financial problems caused investors to lose confidence, at the store operation level, Luckin still won the trust and loyalty of a large number of consumers.

After completing debt restructuring, Luckin further increased its discount efforts. It not only continued to partner with third-party companies to launch more cooperative preferential policies for the corporate side, attracting customers in different regions to pay attention to Luckin, but also launched more discounted drink prices and brand merchandise through interactive livestreams on video platforms, further stimulating user participation, sharing, and dissemination. In addition, because shout-style livestreaming easily makes consumers feel fatigued, Luckin also tried a rather novel livestream format: male model runway shows! Making coffee more human and making the shopping experience more heart-racing.

"Product differentiation, creating hit products" When it comes to Luckin's hit products, Coconut Latte truly deserves the title! While stabilizing users with coupons, Luckin continued to understand the taste preferences of the new generation of consumers. In today's era of material abundance, people have a great pursuit of innovative and novel flavors, while also paying attention to health and environmental protection. So Luckin Coffee developed a product that had not yet appeared on the market—beating raw coconuts into rich coconut milk, then pairing it with coffee to launch Coconut Latte. Once this product was launched, not only did the coconut series become popular across the entire internet and even the entire industry, but it also brought Luckin's brand awareness to the world, and widened the positioning gap between Luckin and many coffee chain brands.

Many people believe that Luckin's "life" was saved by Coconut Latte. But in essence, Luckin saw its own advantages clearly, accurately grasped consumers' real needs, and then took a bold gamble. Luckin knew that after launching Coconut Latte, other coffee brands would inevitably imitate it one after another. If it had no means to consolidate and defend itself, when others copied it, it could easily be backlashed.

But Luckin had already accumulated a large number of loyal users, and because it was the first to launch the product, later imitators could not sell at low prices in the short term due to raw material costs. Therefore, when launching the new product, Luckin quickly captured more new users with very favorable pricing and sufficiently attractive selling points, and then, by layering on coupons, converted these new users into loyal customers.

"Fast product innovation and updates, with new products priced affordably"

How fast is Luckin at launching new products? According to observations, Luckin can launch nearly a hundred new products a year. Whether it is modified coffee products or coffee made from beans from different origins, Luckin's product iteration speed is extremely fast. Although it may not achieve perfection, in terms of taste and price, it has still won recognition from most consumers.

Compared with the 25-35 yuan pricing range of most coffee brands, Luckin's 11-20 yuan product pricing has a great advantage. At the same time, Luckin attaches great importance to customer acquisition and private domain traffic conversion, increasing user retention by joining regional WeChat groups and distributing more coupons.

"Opening franchises, expanding into lower-tier markets" After the pandemic broke out, as life pressure increased and specialty coffee culture continued to spread, people's demand for freshly ground coffee also continued to rise. According to market analysis, the compound growth rate of global freshly ground coffee consumption over the next five years will be 5.7%, while China's compound growth rate for freshly ground coffee consumption will be as high as 24.6%. The reason is that there are still many regions in China where freshly ground coffee can be popularized.

In recent years, many people who worked in large cities have moved to other smaller cities for development, driving demand for coffee in third-, fourth-, and fifth-tier cities. Therefore, during this year, Luckin reopened franchising and focused on developing lower-tier markets. The participation of franchisees allows Luckin to achieve rapid coverage in third-, fourth-, and fifth-tier cities. At a time when coffee brands are expanding into lower-tier markets one after another, "speed" is especially important. Only by being fast enough and numerous enough, plus offering high cost-performance, can a brand stabilize consumers' awareness and recognition in a new region, and also make consumers immediately think of Luckin when they mention coffee.

"Signings with unique insight & marketing that understands young people"

Before the Winter Olympics began, Luckin signed Eileen Gu like a prophet, and after Eileen Gu won the gold medal, it immediately launched related drinks. The sales of the drinks and the heated discussion about the brand occupied the hot search list for quite a while, and everyone said that Luckin really had great foresight. This was only the beginning. Luckin also continues to pay attention to competitions in different regions that young people love to watch, and after the competitions end, it invites champions of popular events to endorse products/brands. For example, the EDG team, champions of the 2021 League of Legends World Championship, and Anthony Douglas, champion of the 2022 WBC World Barista Championship.

In addition, for topics hotly discussed by netizens, Luckin is able to follow the traffic closely and promptly launch various collaborations, themes, and new products. Whether in packaging design or product names, Luckin understands young consumers' focal points and needs very well.

Every time Luckin launches a new product, it attracts attention from consumers in different regions, becomes a topic of conversation, and gains transmission from existing users.

"People-oriented, prioritizing customer needs"

From Luckin's "self-rescue strategy" over more than two years, it can be seen that nothing is more important than user stability. Luckin Coffee went from being unfavorable—the king's return—to turning losses into profits. The brand's success cannot be separated from the support of loyal users.

Success is not a miracle, but being people-oriented and prioritizing customer needs. In this era of intense competition, relying solely on copying and imitating others' paths cannot allow one to survive long-term in the industry, because only true innovation can establish a stable foothold in the industry.

When everyone cannot change their surroundings, calming down and thinking about a path that suits oneself is the most important thing~

Image source: Internet

The above content is compiled by CoffeeHunters, a coffee news website.