After the same-store sales growth turned positive, Luckin Coffee's "overtime" officially begins

As the coffee market share battle slows down, Luckin seems to be restarting its expansion pace.

Under the new round of franchise recruitment plan, Luckin has released over 800 targeted locations in 186 cities nationwide.

The targeted franchise model, launched in early 2024, allows franchisees to propose site selections within the designated range released by Luckin.

The main purpose is to leverage the local franchisees' resource endowments to occupy core positions in the sinking markets such as schools, tourist attractions, and hospitals.

This is the first expansion signal released by Luckin after Li Hui, chairman of Dazhang Capital, stepped from behind the scenes to the forefront.

Li Hui himself and Dazhang Capital, which he leads, are key figures in Luckin's capital operations and development.

As early as 2018, Dazhang Capital participated in Luckin Coffee's first round of financing.

After the financial fraud scandal broke out, Li Hui left the Luckin board in July 2020, but Dazhang Capital's influence over Luckin continued to deepen.

Dazhang Capital holds a 31.3% stake in Luckin Coffee and controls 53.6% of the voting rights, possessing absolute say.

Now entering a new development stage, Luckin is waiting for a new story.

Acceleration Signal

After selling low-priced coffee at 9.9 for three years, the industry consolidation seems to be nearing its end, and Luckin has slowed down its land-grabbing pace.

From the first to the fourth quarter of 2024, Luckin opened 2,342, 1,371, 1,382, and 997 new stores, showing a decreasing trend.

In the fourth quarter, the year-on-year growth rate of stores was only 13.5%, close to the level before the price war in 2023.

The market had previously estimated that Luckin's next focus would return to improving profit margins and alleviating the operational pressure of franchise stores.

However, in the first quarter of 2025, Luckin suddenly accelerated its store opening speed.

The total number of new stores globally was 1,757, higher than the single-quarter store openings in the past three quarters, achieving more than one-third of the annual store opening target in one go.

The disclosed targeted location franchise plan is the first large-scale external release since the model was launched.

Prior to this, Luckin had only updated the open targeted franchise locations on its mini-program weekly.

As of the end of April this year, over 500 targeted locations passed site selection review, covering more than 200 cities, with over 400 stores opened.

Zhao Pengfei, founding partner of Chengchi Capital, who has long been concerned about Luckin, believes there is no need to overinterpret the store openings in the first quarter.

Zhao Pengfei told Xinfeng that Luckin has not raised its annual store opening guidance, "The first quarter is likely when the company predicts same-store performance has bottomed out and is opening stores to seize market share before the peak season."

"In April, the net new stores were only about 300, and the speed has already slowed down," Zhao Pengfei said.

But Luckin is not without changes.

At the first quarter earnings meeting, Luckin announced a management change: Guo Jinyi stepped down as chairman, and Li Hui, chairman of Dazhang Capital, stepped from behind the scenes to the forefront.

Li Hui had previously served as a director of Luckin Coffee and was deeply involved in the entire process of Luckin's early financing and listing.

After the financial fraud scandal broke out, Li Hui exited the board due to disagreements with Lu Zhengyao But facing the endgame, Dazhang Capital became the controlling shareholder of Luckin through multiple rounds of capital injection and debt restructuring, ensuring the stability of the equity structure and corporate governance.

Since the beginning of the year, the ready-to-drink beverage industry has seen a wave of IPOs, and the capital market's expectation for Luckin's return to the main board has grown stronger.

Li Hui's career spans international investment banks and private equity funds, with his involvement in the investment and listing of projects such as Shenzhou Car Rental, ZTO Express, and WuXi AppTec.

Li Hui's return is also seen as a signal for Luckin's business side and accelerated capitalization.

Consolidating Strengths

At the earnings conference, Li Hui stated that in the future, he will closely cooperate with Guo Jinyi and the management team to continue to firmly advance the current strategic initiatives and lead the company into the next growth phase.

At this moment of management transition, Luckin is experiencing its biggest "tailwind" in recent years.

In 2023, Luckin passively became involved in the 9.9 yuan coffee war initiated by Kudi, engaging in close competition with it across multiple dimensions such as stores and products.

A year later, faced with the pressure of declining performance from rapid expansion, Luckin is seeking a balance between scale and price while focusing on category expansion.

"This year's development theme will not be as obvious as in the past two years, but will lean towards solidifying existing strategies, whether in supply chain or brand marketing," Zhao Pengfei stated.

With over 24,000 stores, Luckin has achieved a leading advantage in overall scale.

Currently, about 40% of Kudi's stores are located within 100 meters of Luckin, while Luckin faces close competition from Kudi in less than one-fifth of its locations.

This means that for Luckin, low-price customer acquisition has become less necessary.

In recent years, Luckin has reduced the scope of its 9.9 yuan discount by raising the pre-discount prices and dynamically increasing or decreasing terminal discount subsidies for different users, thereby alleviating its subsidy pressure.

In recent quarters, the average price per cup at Luckin's self-operated stores has stabilized at just over 13 yuan.

The success of products like light milk tea has filled the order gap during the afternoon meal period, creating more orders for the stores.

In the first quarter, the contribution of non-coffee refreshing beverages like fruit tea to cup volume increased by about 10% year-on-year.

Benefiting from the growth in cup volume, Luckin's same-store sales growth turned positive, reaching 8.1%.

The light milk tea category has a higher gross profit margin, with the operating profit margin of self-operated stores rising to 17.1%, an increase of over 10 percentage points year-on-year.

This further alleviated market concerns about the quality of store operations.

Zhao Pengfei told Xinfeng that this year, the profitability of Luckin's franchisees has significantly improved, "Our own split calculations show that the gross profit margin increased by about 10 percentage points year-on-year in the first quarter."

"Fresh milk tea has performed well in county towns, compensating for the shortfall in coffee cup volume in lower-tier markets. The discounts on coffee bean procurement prices for franchisees at the beginning of the year have also formed a cost subsidy," Zhao Pengfei stated.

In the first quarter, Luckin's revenue grew by 41.2% year-on-year to 8.865 billion yuan, with a net profit of 525 million yuan, turning a profit year-on-year.

Guo Jinyi stated that same-store sales may see some decline in the coming quarters, but the company will maintain them at a healthy and positive level. The rise in green coffee bean prices will also suppress gross profit performance in the second half of the year However, it also emphasized that Luckin will continue to maintain a competitive pricing strategy, with scale growth and market share being the strategic focus at this stage.

Against the backdrop of soaring coffee bean prices, the survival space for low-priced coffee is becoming increasingly narrow, and market share will further concentrate on Luckin, which has a clear cost advantage.

However, since February, the low-priced coffee segment, which showed signs of retreat, has made a comeback in a new round of takeout battles, somewhat delaying the industry's consolidation progress.

After JD.com’s takeout service launched, Starbucks China immediately announced that its Star Delivery service officially landed on the JD.com takeout platform, becoming the first dining brand to integrate its membership system with the JD.com takeout platform.

Kudi has also become one of the biggest beneficiaries with prices as low as 3.9 yuan. With platform traffic tilt and subsidy support, Kudi's sales on JD.com takeout exceeded 40 million orders.

Recently, Kudi announced at a joint venture meeting that it would extend the current store subsidy policy until the end of 2028.

More Competitors

Luckin's competitors are not just Starbucks and Kudi.

Since the beginning of the year, several freshly made tea brands, such as Mixue Ice City and Bawang Tea Princess, have completed their listing financing. The competition for core points may become even more intense in the next phase.

There has long been a trend of mutual integration between milk tea and coffee.

Faced with many milk tea brands crossing into the coffee sector through sub-brands, Luckin has also begun to snatch milk tea business.

In August 2024, Luckin launched its first light milk tea product, inviting Liu Yifei as the spokesperson while distributing a large number of 9.9 yuan vouchers.

In March of this year, the upgraded version of "Freshly Brewed Light Jasmine" reached a daily sales peak of 1.67 million cups, setting a new record for single product daily sales in Luckin's tea drinks this year.

However, relying solely on light milk tea cannot alleviate Luckin's category anxiety.

In the past three years, Luckin has maintained an average new product launch frequency of one every 3-4 days.

In terms of influence, the benefits of Coconut Cloud Latte, Sauce Fragrance Latte, and Jasmine Light Milk Tea for Luckin are gradually diminishing.

In the season when the first light milk tea product was launched, Luckin's average monthly transaction user count exceeded 79.8 million, with a year-on-year growth rate of 36.5%.

The performances of Coconut Cloud Latte and Sauce Fragrance Latte were year-on-year increases of 69% and 75%, respectively.

While this is certainly influenced by the increased number of stores, after crossing into the highly competitive milk tea industry, achieving new customer acquisition through differentiated blockbuster products has indeed become more challenging.

In the first quarter of this year, Luckin's average monthly active paying user count was 72.4 million, a decrease of over 5 million compared to the same off-season in the fourth quarter of last year.

For Luckin, crossing from coffee to milk tea is not only about increasing repurchase rates and enhancing purchase frequency. With the expectation of rising coffee bean prices, it also carries the hope of improving profit margins.

Whether it is the 9.9 yuan light milk tea or the lemon tea priced above 12 yuan, both maintain a certain gross profit margin.

However, there are already competitors waiting on this path.

For example, Lucky Coffee under Mixue Ice City launched 14 new products at once, adding fruit coffee products based on fresh fruits such as guava, pomegranate, green grapes, and passion fruit, priced between 6-8 yuan.

Although Lucky Coffee's 5,400 signed stores cannot be compared to Luckin, it inherits the strong supply chain system of Mixue Ice City, allowing it to procure many core raw materials at prices below the industry average In the lemon category alone, the procurement cost of Mixue Ice City is 20% lower than the industry average.

The fresh fruit supply chain is precisely the area that Luckin has yet to penetrate.

This spring, Luckin upgraded its lemon tea series products, but still uses canned lemon pulp and frozen half lemons.

Mixue Ice City has already entered Luckin's advantageous territory, recently signing a large coffee bean procurement contract worth 4 billion yuan with Brazil, and officially announcing plans to build a supply chain factory in Brazil.

Clearly, Luckin is not at a point where it can afford to slow down