“9.9 yuan of Luckin is gone" rushed to the recent hot search, and the vigorous coffee price "** war" made users happy, but coffee companies have been moving forward with a heavy load.
Luckin Coffee, which had been soaring all the way, also felt the pressure. In the past Q4, although the revenue still maintained a good growth (91. year-on-year).2%), but in terms of sales growth, operating profit margin and net profit of self-operated stores, Luckin Coffee has experienced a large decline in many indicators.
Aside from factors such as the off-season and the poor performance of new products, the competitive pressure brought by competitors such as Cudi Coffee is the main reason, which forced Luckin to increase investment in Q4, and the decline of single cup **, coupled with the increase in subsidies for franchisees, have diluted Luckin Coffee's profit performance in this quarter.
Today's Luckin Coffee is suffering from almost the same situation as Meituan, with three negative effects of macroeconomic, seasonal factors, and increased competition. In order to get rid of the opponent and start the first battle, Q4 Luckin started a crazy store opening mode, with a net increase of 2,975 stores in a single quarter, a large increase of 22 from the previous quarter4%, and by the end of 2023, the total number of stores has exceeded 16,000.
In addition to competing with Cudi for users in the sinking market, Luckin also encrypted stores in first-tier and second-tier cities this quarter, which partially diluted the order volume of old stores, and directly led to the sales growth rate of self-operated stores in Q4 falling to 135%, the second lowest in the past two years.
After reaching a high of $38 in October last year, Luckin's stock price fell 40% in four months, and the market's fears at that time were fulfilled. What worries investors even more is that the collapse of Cudi Coffee is delayed, which means that the pressure on Luckin will remain significant in the next few quarters.
Luckin stock price trend over the past 1 year.
If you use two words to summarize the theme of Luckin Coffee Q4, "opening a store" and "subsidy" cannot be bypassed, and both can be described as crazy.
In Q4 last year, Luckin Coffee added nearly 3,000 stores in a single quarter, setting a record for new stores opened in a single quarter, which made its total number of stores exceed 16,000 in 2023, doubling in one year.
Last year, Q2 and Q3, Cudi opened 5,500 stores in one go, and the number of stores opened in a single quarter exceeded that of Luckin, which made the latter feel pressure.
Cudi and Luckin Coffee's number of stores opened in each quarter of 2023 Data**: Narrow Door Restaurant, Luckin Financial Report.
You must know that as a new coffee army, except for a slight difference in the operating model (Cudi mainly relies on franchising, Luckin is self-operated and franchised), Cudi's growth path almost continues the old path of Luckin, but it is more radical. It took Luckin 2 years to reach 4,000 stores and 6 years to break 10,000 stores, but Cudi's expansion rate is 3 times that of Luckin.
After starting a new round of "franchise with stores" policy at the end of the third quarter, Luckin lowered the threshold for opening some stores, which ushered in an explosion in the number of new stores in Q4, and this speed was also continued in Q1 this year.
In addition to slamming into the sinking market, in the store opening plan in the fourth quarter, Luckin deliberately encrypted the number of stores in first-tier and second-tier cities, from the original office buildings, shopping malls, schools, parks and other places, to expand to street stores. In addition to brand considerations, the potential benefit of this action is to maximize the proportion of pick-up, thereby optimizing delivery costs.
In the case of the same taste and **, distance (store density) is the primary consideration of users, whether they can get to the nearest point and drink a cup of coffee faster determines who can snatch users from the competition.
However, the negative impact of high-density store opening is also obvious, and the most direct manifestation is the decline in same-store sales growth, and this data of Q4 Luckin has fallen to the lowest level in the past few years except for Q4 in 2022, only 135%。
Changes in the sales growth rate of Luckin's self-operated stores Data**: Financial report.
But this is not enough to fully explain the sharp decline in the growth rate of the same store, and the high-intensity subsidies and seasonal factors brought about by the "coffee war" are all reasons, especially the former.
In the fourth quarter, Luckin's single cup** dropped from 15 yuan in Q2 to around 13 yuan, and all stores close to Cudi will distribute 99 coupons, the coverage has also covered from a few products to most products, and some areas have expanded to the whole country.
At the first meeting in the second quarter, Guo Jinyi, CEO of Luckin, also said, "99 of the subsidy will last for 2 years", because the competitors are well stocked with ammunition. Nowadays, on Meituan you can buy 20$9 for a cup of Starbucks Oat Milk Coffee, 319 yuan for two cups of matcha latte, this ** is even comparable to last year's luckin.
Because of the off-season of coffee, the average daily cup volume of Luckin Q4 stores has also dropped to 400-450 cups, and it has gradually declined from October to December. The explosion of soy sauce latte in the third quarter partially covered up the damage of "low-price subsidies" to Luckin, but when the industry entered the off-season, many problems began to be infinitely magnified.
Before the first war, the general payback cycle of Luckin franchisees ranged from 6 to 15 months, but the low-price competition will be a long cycle. In order to ensure the interests of partners, Luckin has also increased subsidies for first-class merchants in Q4.
A franchisee revealed that before Q4 last year, 9The 9 yuan coupon product Luckin subsidized 1 yuan per cup, but after Q4, it was changed to 4 yuan to ensure the franchisee's gross profit (unit price - raw material cost) of 4 yuan, and 4 yuan was made up if it was less than 4 yuan. Cudi did not choose to follow up with a similar subsidy.
This more long-term strategy sacrificed Luckin's short-term profits, which in Q4 were only 2900 million, although there is still a good year-on-year growth (due to the epidemic), it is also the third worst performance in the past 2 years.
Luckin Coffee's quarterly net profit change (unit: 100 million).
In the eyes of most investors and franchisees, Cudi is the less favored side in this race.
A franchisee who once joined Luckin and now has transferred to Cudi once told 36Kr that if such a low-price subsidy is maintained, Cudi may usher in a wave of store closures as early as the National Day.
The basis for this inference is that Cudi's real large-scale store expansion began in January last year, and many franchisees paid their store rent semi-annually, "if Cudi's store continues to lose money within half a year, the franchisee is likely to choose to transfer the store and no longer continue to pay rent." Compared with Luckin, which relies more on the stable cash flow generated by its own stores, Cudi's subsidy funds often have to be borne by the franchisees themselves.
But Cudi's situation is a bit more optimistic than it really is.
Despite the decline in store openings in the fourth quarter, Cudi had not seen a large-scale store closure until November. The above-mentioned franchisee revealed that in the past six months, he has not made any money, but he has not lost a lot, and most of the store owners are looking forward to the arrival of the peak season.
In order to allow the best merchants to support as much as possible, Cudi has also added subsidies from Q3, such as subsidies for new takeaway platforms, and the original subsidies have also been adjusted to be stackable.
Cudi's subsidy policy is more complicated, in addition to the basic single-cup subsidy, it is also divided into multi-store subsidy, competition subsidy and rent subsidy, and the largest subsidy period is from the end of the second quarter to the beginning of the fourth quarter. "In November and December, Cudi's subsidy dropped significantly", a franchisee revealed, "At the peak, the subsidy for a single cup could reach 4-5 yuan, but now it is only 1-2 yuan in many cases". This resulted in a 25-30% month-on-month decline in the number of Cudi Q4 cups, only around 200 cups.
Cudi Coffee Subsidy Policy.
This may have something to do with the tight cash flow at Cudi's headquarters. After experiencing a quarter of crazy store expansion, the number of new stores in the fourth quarter of Cudi has fallen off a cliff**, which is less than half of Luckin. Starting in November, the number of store closures at Cudi also began to increase significantly. According to the monitoring of Jihai Big Data, the number of stores closed by Cudi has reached 854 in the past three months, but the number of stores opened is only 470, showing a negative growth in the number of stores.
The number of new stores opened and closed by Luckin and Cudi in the past 3 months Data**: Polar Sea Big Data.
But it's too early to conclude that Cudi has collapsed, and a consumer investor admits that it is reasonable to increase the number of store closures under the off-season effect, but if the number of store closures continues to increase by the quarter of this year, then this "coffee war" is likely to end with Luckin's victory.
For Cudi's opponent, Luckin actually has enough respect internally, which is not only because he is wary of Lu Zhengyao, but also because Luckin has also gone all the way. An unconfirmed claim is that Luckin's management had a fierce game with major shareholders about the 2023 performance expectations, "The management wants to invest more in competition, which will make the performance more ugly, but the shareholders do not agree", a person familiar with the matter told 36Kr.
Entering 2024, with the reduction of Cudi's competitive pressure, Luckin began to shrink by 9The scope of application of the 9 yuan coupon, but its crazy store opening plan continues, and the number will approach 20,000 by the first quarter, which is 2The ceiling of 50,000 is getting closer.
However, what is worrying is that the decline in the number of cups in Q4 Luckin has actually exceeded the seasonal impact of previous years (only -10% in previous years, and around -20% this year), mainly due to encryption. The 22% quarter-on-quarter increase in the number of stores only brought about a 7% increase in quarterly transaction users, which made many people wonder if Luckin's store ceiling would come earlier.