Luckin Coffee's Comeback Story: How They Turned Losses into Profits

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On March 2, 2023, Luckin released its Q4 and full-year financial report for 2022. According to the financial report, Luckin's total net revenue in Q4 was 3.695 billion yuan, a year-on-year increase of 51.9%; total net revenue for fiscal year 2022 was 13.293 billion yuan, a year-on-year increase of 66.9%, achieving overall operating profit for the first time and turning from loss to profit!

In terms of store expansion, Luckin opened 1,290 new stores in 2022, a year-on-year increase of 36.4%. By 2022, the total number of stores reached 8,214, including 5,652 self-operated stores and 2,562 franchised stores. (According to Luckin's continuous acceleration of expansion into lower-tier markets, the current number of stores has reached approximately 8,350+).

Since its establishment, Luckin Coffee's journey has been more dramatic than a TV series would dare to portray. From setting a new world record by listing on the NASDAQ in the US just 18 months after brand establishment; to being exposed for 2.2 billion yuan in financial fraud one year after listing, leading to delisting, major management changes, and investors withdrawing one after another.

Just when everyone thought Luckin would decline and be unable to recover, Luckin defied expectations. In just 2 years, on April 11th last year, it announced completion of debt restructuring, and with the support of creditors, ended its bankruptcy protection proceedings as a debtor. It also comprehensively resolved historical issues and returned to normal company status. On May 24th of the same year, when releasing its Q1 2022 financial report, Luckin stated it had achieved profitability for the first time. Meanwhile, due to the recurring COVID-19 pandemic and policy restrictions, Starbucks' sales in China declined by 23% year-on-year.

In contrast, under the dual pressures of debt and the pandemic, Luckin not only revived but also achieved profitability. Luckin's success can be called a miracle, or it can be said that Luckin saw through the needs of the new generation of consumers and quickly expanded channels and executed strategies.

Willing to Let Consumers "Get Bargains"

"Luckin's coupons seem like they're free!" This is many consumers' biggest impression of the Luckin brand. Nowadays, when everyone is pursuing high-value products, those once-expensive and not-affordable freshly ground coffee products have gradually become part of daily life through Luckin's continuous distribution of coupons.

Although Luckin Coffee needed to continue operating under the pressure of losses before completing debt restructuring, it never stopped distributing coupons. Although financial issues caused investors to lose trust, in store operations, it still gained the trust and loyalty of a large number of consumers.

After completing debt restructuring, Luckin increased its discount efforts. Not only did it continuously collaborate with other third-party companies to launch more cooperative discount policies for other companies, attracting more customers from different regions to pay attention to Luckin, but it also launched more drink discount prices and other brand peripheral products through live streaming on video platforms, further stimulating user participation, sharing, and dissemination.

Not only that, recognizing that shouting-style livestreams can easily make consumers feel tired, Luckin also tried a very new livestreaming method: male model runway shows! Making coffee come alive and shopping exciting.

Product Differentiation, Launching Hit Products

Speaking of Luckin's hit products, the Raw Coconut Latte is undoubtedly the champion! While Luckin continuously stabilized users through coupons, it also kept understanding the taste preferences of the new generation of consumers. In today's era of material abundance, people have a great pursuit of taste innovation and novelty, while also pursuing health and environmental protection.

So Luckin Coffee developed a product that didn't exist on the market - grinding raw coconuts into rich coconut milk, then combining it with coffee to launch the Raw Coconut Latte. The launch of this product not only made raw coconut products popular across the internet and the entire industry but also brought Luckin's brand recognition to a global level, distancing Luckin from many coffee chain brands in positioning.

Many people feel that Luckin's "life" was saved by the Raw Coconut Latte. But actually, Luckin understood its own advantages, knew what consumers really needed, and then made a bold move.

Luckin knew that after launching the Raw Coconut Latte, other coffee brands would imitate one after another. If it didn't have solid points to consolidate and defend, when others copied, it could easily be defeated by them in turn.

However, Luckin had already secured a large number of loyal users, and because it was the first to launch, subsequent copycats couldn't achieve low-price sales in the short term due to raw material costs. Therefore, at launch, Luckin quickly attracted more new users with very favorable pricing and attractive selling points, while also using coupons to turn these new users into loyal customers.

Fast Product Innovation and Updates, Affordable Pricing for New Products

How fast does Luckin launch new products? According to observations, Luckin can launch nearly a hundred new products in a year. Whether it's prepared coffee products or using coffee beans from different regions to make coffee, Luckin's product update and iteration speed is extremely fast. Although it may not achieve perfection, it has gained recognition from most consumers in terms of taste and price.

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

Opening Franchises, Expanding into Lower-Tier Markets

After the pandemic outbreak, as everyone's life pressure increased and the specialty coffee culture continued to spread, people's demand for freshly ground coffee has been continuously rising. Market analysis suggests that in the next 5 years, the compound annual growth rate of global freshly ground coffee consumption will be 5.7%, while China's freshly ground coffee consumption will have a compound annual growth rate as high as 24.6%. Reason: China still has many regions where freshly ground coffee can be popularized.

In recent years, many people working in big cities have moved to other smaller cities, driving demand for coffee in third, fourth, and fifth-tier cities. Therefore, during this year, Luckin reopened franchises, focusing on developing lower-tier markets. The addition of franchisees allows Luckin to achieve rapid coverage in third, fourth, and fifth-tier cities.

When all coffee brands are expanding into lower-tier markets, "speed" becomes very important. Only by being fast enough and numerous enough, plus offering high value, can the brand's recognition and approval be stabilized among consumers in new regions, and also make consumers think of Luckin immediately when mentioning coffee.

Insightful Sponsorships & Marketing That Understands Young People

Before the Winter Olympics began, Luckin signed Gu Ailing as if it were a prophet, and immediately launched related drinks after Gu Ailing won gold medals. The drink sales and people's discussion heat about the brand occupied the trending search list for a long time, with everyone expressing that Luckin really has good judgment.

This was just the beginning. Luckin will continue to pay attention to different regional events that young people love to watch, and will invite champions of popular events to endorse products/brands after competitions end. 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.

Besides these, Luckin can keep up with trending topics and timely launch various collaborations, themes, and new products. Whether in packaging design or product names, Luckin understands very well what young consumers care about and need.

Every time Luckin launches a new product, it gets attention from consumers in different regions, becoming a topic of conversation and getting shared by existing users.

People-Oriented, Customer-First Approach

From Luckin's "self-rescue strategy" over more than two years, we can see that nothing is more important than stable users. From being looked down upon - to a 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 rather being people-oriented and prioritizing customer needs. In this era of internal competition, relying solely on copying and imitating others' paths cannot lead to long-term survival in the industry, because only true innovation can establish a firm foothold in the industry.

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

Image source: Internet

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