Luckin Coffee Q3 Net Profit Exceeds 500 Million, Franchise Expansion Planned by Year-End

Luckin Coffee Reports Strong Q3 2022 Financial Performance

Yesterday, Luckin Coffee released its financial data for the third quarter of 2022. Total quarterly revenue rose 65.7% year on year to 3.895 billion RMB, and net profit reached 529 million RMB. Under US Generally Accepted Accounting Principles (GAAP), operating profit was 585.3 million RMB, with an operating profit margin of 15.0%. Average monthly transacting customers reached 25.1 million, up 70.5% year on year, marking a full turnaround from losses to profitability.

On the store side, Luckin Coffee opened 651 net new stores in the third quarter. As of the end of Q3, the company operated a total of 7,846 stores, including 2,473 partnership stores and 5,373 self-operated stores, an increase of 2,175 stores over the same period last year. In Q3 2021, Luckin Coffee had 5,671 stores, including 1,465 partnership stores and 4,206 self-operated stores. Today its store count continues to lead the industry.

In October 2017, the first Luckin Coffee store opened in Galaxy SOHO. Its headquarters, Luckin Coffee (China) Co., Ltd., was established in Xiamen in March 2018, with Guo Jinyi as legal representative. The chain has since grown into the coffee brand with the most stores in China, far outpacing Starbucks' thousands of locations.

Market Competition and Future Expansion

In the second quarter of this year, media outlets predicted that Luckin would likely overtake Starbucks China in revenue during the third quarter and claim the top spot in China's coffee market. Based on the current data, however, Starbucks has held onto first place for now. Starbucks China's Q3 results showed a partial recovery, with net revenue of 696 million US dollars (4.968 billion RMB). Although still down year on year, that figure rose 29% quarter on quarter. Starbucks currently has 6,021 stores in China.

According to reports, Luckin Coffee's total operating expenses in the third quarter were 3.3094 billion RMB, up 40.4% year on year. Within that, sales and marketing expenses were 159.3 million RMB, up 64.3% year on year, mainly because of Luckin's continued strategic investment in its brand across channels, which drove up advertising costs.

On August 22 this year, Luckin Coffee announced that it had temporarily suspended partner recruitment, with the reopening date to be announced officially. It also stated that Luckin Coffee has not developed any sub-brands, and that online information about franchising or acting as an agent for Luckin Coffee and its sub-brands is false.

During a conference call, however, Luckin's current Chairman and CEO, Guo Jinyi, outlined plans for franchise expansion, saying that in December this year Luckin Coffee will open a new round of partnership opportunities in lower-tier markets.

Strategic Market Positioning

In terms of store count, Luckin's self-operated stores in first- and second-tier cities are gradually approaching their ceiling. Although that number has grown by nearly 1,000 stores over the past three quarters, the growth rate has slowed to around 7%. That may be exactly why Luckin is reopening partnership opportunities in lower-tier markets.

Competition in China's coffee sector remains fierce. The coffee track has attracted many entrepreneurs, and more companies from different industries keep entering the market. Beyond food and beverage players, cross-industry participants include China Railway, China Post, Huawei, and NIO, all adding to the buzz around coffee.

Recently, Canadian coffee chain Tims China partnered with e-commerce giant Alibaba Group to bring coffee products to millions of users on Alibaba's online marketplace. Tims China, which has also drawn investment from tech giant Tencent Holdings, is expanding quickly and expects to open 2,750 stores in China by 2026.

Future Growth Prospects

To date, Luckin's self-operated stores cover 60 cities, while franchise stores cover more than 230 cities. With partnership opportunities reopening, Luckin may be poised for another round of growth.

Image source: Internet

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