The second curve of Snow King has begun: when Luckin Coffee charges into Beijing, Shanghai, and Guangzhou

As summer approaches its halfway point, the presence of Luckin Coffee under MIXUE Ice City is rapidly increasing.

As of August 2, the number of signed Luckin Coffee stores has reached 7,300, an increase of 2,300 compared to March, with more than half of these signed in July.

Luckin Coffee has set a target of 10,000 stores by 2025, with the focus of expansion in the second half of the year shifting further to first- and second-tier cities represented by the Yangtze River Delta and the Pearl River Delta.

In terms of store scale, Luckin Coffee is the fourth largest freshly brewed coffee brand in China.

If it successfully achieves its goal of 10,000 stores, it would mean that the speed of store expansion this year will reach 1.5 times, which will undoubtedly impact affordable coffee brands like Luckin and Kudi.

However, for Luckin Coffee itself, the core challenge remains whether it can refine a store model suitable for first-tier cities amid rapid growth.

Will the 5.9 yuan Luckin Coffee rewrite the direction of the coffee market?

Past and Present

Luckin Coffee and Luckin were both born in 2017.

In its early days, Luckin Coffee was an independent brand funded by MIXUE Ice City and did not fully align with MIXUE Ice City's low-price positioning, with a cup of coffee initially priced at 15 yuan, which was described by the former general manager as "taking a detour."

It wasn't until 2020 that MIXUE Ice City fully acquired Luckin Coffee and opened it up for franchising.

The then-general manager Zhang Hongfu proposed the goal of "replicating a MIXUE Ice City within five years" and personally took the helm, positioning it as the group's second growth curve. At that time, the number of MIXUE Ice City stores had reached 7,000.

In the following two years, Luckin Coffee steadily expanded in the sinking market, growing from fewer than 500 stores to over 2,300.

However, by 2023, Luckin Coffee faced the disruptive 9.9 yuan coffee war.

That year, Luckin launched a "store franchise" model, with the list of open cities being exclusively third-tier and below. Kudi created a peak monthly opening speed of a thousand stores, reaching 6,000 stores in just one year.

At the same time, the number of new stores for Luckin Coffee declined, and the number of closures increased, with less than 500 net new stores for the entire year.

In the first half of 2024, Luckin Coffee began to experience negative growth in store numbers.

It was also during this period that MIXUE Ice City began to show its determination to aggressively enter the coffee sector.

In summer, it launched the "66 Lucky Season" campaign, responding to Luckin and Kudi's 9.9 battle with a low price of 6.6 yuan. The main brand, which previously had no endorsements, signed Wang Junkai as its spokesperson this year.

At the same time, the supply chains of Luckin Coffee and MIXUE Ice City are gradually achieving integration.

In August 2024, MIXUE Ice City opened its Lanzhou warehouse to Luckin Coffee, helping it expand its stores to remote markets such as Yushu in Qinghai.

In the second half of the year, the situation reversed, with Luckin Coffee adding nearly 1,000 new stores and beginning to regain its growth momentum.

By this summer, Luckin Coffee has shown sufficient sincerity in lowering the threshold to attract franchisees; the direction has shifted from universal subsidies to encouraging multi-store operations and expansion into first-tier cities.

In June, Luckin Coffee launched universal discounts for newly signed stores, reducing fees by 17,000 yuan.

Subsequently, it encouraged existing franchisees to continue opening stores, waiving the first-year franchise fee, management fee, and training costs for newly signed stores, and providing coffee machines and a 15,000 yuan subsidy for consumables, with a total discount amount of 49,900 yuan In response to the six cities of Beijing, Shanghai, Guangzhou, Shenzhen, Chongqing, and Tianjin, a franchise support policy has been specially launched, offering a total reduction of 34,000 yuan per store.

Entering August, the franchise policy retains the first-year fee reduction and the coffee machine giveaway, with a single-store subsidy amount still at 34,900 yuan.

However, the scope has been adjusted: it covers new customers, old customers who signed contracts in July, and franchisees preparing to open multiple stores during the discount period, further leaning towards existing franchisees.

In the past month, Luckin Coffee has opened nearly 20 stores in Beijing. However, most of the stores are still located in special resource points like campus stores, rather than entering office buildings.

Market analysis believes that the group's choice to have Luckin Coffee take the lead at this time is mainly due to the saturation of the Mixue Ice City stores.

Compared to the rapid expansion of Luckin Coffee, Mixue Ice City has slowed its store opening pace this summer: the protection distance between stores has been increased from 200 meters and 300 meters to 1,000 meters, and the review cycle for store locations has also been extended.

Mixue Ice City maintains low prices through a strong supply chain, expanding through franchisees and profiting by supplying raw materials to a large network.

As the growth rate of the 40,000 Mixue Ice City stores slows down, it is imperative to rely on the existing system to develop the high-growth coffee market.

The Bottom Line of Mixue

Luckin Coffee, inheriting the bloodline, has many strategies that bear the shadow of Mixue Ice City.

The core advantage is also based on systematic low prices from the supply chain, with an average transaction price in the range of 5-10 yuan, and the best-selling product being the 5.9 yuan Americano.

Some franchisees estimate that among all the products sold by Luckin Coffee, the highest gross profit is from the 5.9 yuan Americano, with a single cup cost of only 2.5 yuan after excluding consumables like cup lids and packaging bags; the average single cup cost for fruit coffee and lattes is also controlled within 3 yuan.

The huge supply chain advantage forms the basis for low prices.

In May of this year, Mixue Group signed a procurement intention contract worth 4 billion yuan with Brazil, most of which is for coffee beans.

In terms of coffee roasting capacity, Luckin Coffee's Hainan factory roasting line has recently gone into production, with a designed capacity of 20,000 tons. Previously, the coffee beans used by Luckin Coffee were mainly supplied by the Wengxian factory, with an annual capacity of 8,000 tons.

Luckin Coffee sells coffee beans to franchisees at a price not exceeding 70 yuan/kg, which is roughly the cost price after roasting, nearly 40% lower than the industry average procurement price.

The product quality has not solely followed a downward route. The raw materials currently used by Luckin Coffee include IIAC international gold award coffee beans and Asahi pure milk.

Although Luckin Coffee has only 7,000 stores, it is actually backed by the 46,000 stores under the Mixue system, and can directly utilize Mixue's warehousing and logistics system.

However, the verification of Mixue Ice City's products and marketing strategies may not be perfectly replicated at Luckin Coffee.

Mixue's comparative advantage lies not in the frequency of new product launches, but in the golden combination of cost-effectiveness and big-ticket items, with lemon water and ice cream being hard to replace. It builds recognition through the "Snow King" IP and participates less in co-branding marketing.

However, Luckin Coffee neither has a big-ticket item like lemon water for Mixue Ice City, nor possesses the speed of new product launches and co-branding like Luckin and Kudi In the first half of this year, Luckin Coffee launched 32 new products, an increase of 88% compared to the same period last year.

In May alone, it introduced 14 "True Fruit Coffee" series products priced between 6-8 yuan, marking a rare product launch in recent years. The monthly sales of the fruit coffee series have already exceeded 100 million yuan.

However, some franchisees believe that compared to the continuous collaborations and marketing efforts of Luckin and Kudi, Luckin Coffee's "low profile" makes it quite challenging to achieve the goal of expanding its business.

Competition at the Frontline

Unlike milk tea, urban white-collar workers are the main consumers of coffee.

In first-tier cities, the repurchase rate is higher compared to lower-tier markets, and the demand for coffee is more stable. Whether considering the regional scale advantages brought by density or the brand momentum, opening stores in first-tier cities is an inevitable choice.

Luckin Coffee stores are relatively concentrated in the home base of MIXUE, Henan, where 1,500 stores account for more than one-fifth of the total number of stores. Another strategic focus is in Shandong, where the number of stores in the province has now exceeded 600.

Currently, about 70% of Luckin Coffee's stores are located in third-tier cities and below, while Kudi and Luckin both have less than 40%.

For Luckin Coffee, which is a bit late to the game, the positive aspect is that market education has already been completed during the fierce competition between Luckin and Kudi, and coffee consumption has significantly increased.

However, this also means that there are more competitors, and in mature market areas, potential franchisees and quality locations for matching expansion are scarce resources.

The primary attraction of MIXUE for franchisees lies in the low cost of opening stores, followed by the supply chain stability provided by the MIXUE brand.

Brands that have grown under low prices face the primary challenge of whether their store model can be successfully implemented under the pressure of rising rent and labor costs when entering first-tier cities.

Luckin Coffee has made adjustments to support its expansion in first-tier cities: the store type mainly consists of quick-service stores of about 20-30 square meters. By reducing store size to lower fixed expenses, it has also raised the prices of all products by 1 yuan.

However, due to the limited profit margin per cup, whether it can dilute fixed costs still depends on its ability to capture more sales volume.

The intensity of competition in the entire industry is still increasing.

As the first half of the year passed, Luckin opened nearly 4,000 new stores, achieving the annual target set at the beginning of the year.

Kudi benefited from platform subsidies and experienced a surge in store openings, with over a thousand stores opened in both April and May.

Kenyue Coffee, backed by Yum China, has also raised its store opening target twice this year.

In an increasingly dense network of coffee shops, balancing scale and individual store performance has become more challenging.

The recent delivery battle has further lowered the price anchor for coffee. The price gap between Luckin Coffee and Kudi, as well as Luckin, is now smaller than when MIXUE faced mid-range brands in the past.

If it cannot attract enough stores to land, and through "recreating" MIXUE to further consolidate its scale advantage, Luckin Coffee's own profitability will also face challenges.

In fact, coffee and milk tea are stepping into each other's rivers.

Referring to Luckin's current path, it relies on expanding categories like light milk tea and fruit tea to enhance afternoon tea consumption periods and improve gross profit performance.

However, if Luckin Coffee replicates this move, it will inevitably lead to competition with MIXUE, which has a higher store density Before this, coffee had become an important component of the MIXUE Ice City menu.

Freshly brewed coffee has become a separate section in the MIXUE Ice City ordering system, including regular coffee varieties such as Americano and Latte. Among them, Coconut Latte and Jasmine Latte were the main products launched first on Luckin Coffee.

Luckin Coffee may need to find its own strategy more quickly, in addition to following MIXUE Ice City