Luckin’s Rebirth—Provided the Financial Data Are Real

Verification notes (2026-10-28): 1. In the first half of 2021, total net revenue was RMB3.1825 billion, up 106.0% year over year; net loss was RMB211.4 million, narrowing by 86.4%. Sources: https://investor.luckincoffee.com/news-releases/news-release-details/luckin-coffee-inc-announces-unaudited-first-half-2021-financial https://finance.sina.com.cn/tech/2021-10-21/doc-iktzscyy1015347.shtml 2. In the third quarter of 2021, company-operated stores generated store-level operating profit of RMB452 million, with a margin of 25.2%, versus a small loss in the same period a year earlier. Source: https://investor.luckincoffee.com/news-releases/news-release-details/luckin-coffee-inc-announces-unaudited-third-quarter-2021 3. Franchising opened on 2021-01-18 with no franchise fee. Under the rebate model, 100% of the first RMB20,000 in merchandise gross profit was returned, with progressively lower rates thereafter. Sources: https://www.jiemian.com/article/5572962.html https://www.lkcoffee.com/faq/franchising/settlement-fee-distribution 4. In 2019 there were 4,507 company-operated stores and 282 franchised stores; in 2020, there were 3,929 and 874 respectively. Source: https://www.jiemian.com/article/7272849.html 5. Xiaolu Tea was integrated into the Luckin Coffee brand in 2021. Source: https://www.bbtnews.com.cn/2021/0818/407625.shtml 6. Luckin listed on Nasdaq on 2019-05-17. Source: https://ir.nasdaq.com/news-releases/news-release-details/nasdaq-welcomes-luckin-coffee-inc-nasdaq-lk-nasdaq-stock-market 7. Based on comparisons with these sources, statements for which no reliable source could be found have been removed, and some wording has been revised to a traceable version (seven changes in total). ---- Luckin’s Rebirth—Provided the Financial Data Are Real The previous article discussed Microsoft’s legendary journey from PC dominance through missing a series of internet developments to finding renewed success in a new era. This article concerns another recent Chinese case that almost belongs in a textbook: Luckin Coffee. The story is, of course, still unfolding. It took only 18 months from founding to Nasdaq, was quickly delisted because of accounting fraud, and has recently turned around again, announcing its intention to reapply for a Nasdaq listing. ----- Few people probably expected Luckin to survive. Among companies listed in the US, those suspended and delisted over accounting fraud almost always end in bankruptcy. Following fraud and delisting, companies often face huge litigation costs, customer losses, management chaos, and other difficulties. When Luckin’s scandal broke, many thought it would become history. Its frequently half-price subsidized coffees seemed like a finite supply: every cup consumed was one fewer remaining. Unexpectedly, two years later, Luckin not only completed its debt restructuring but was operating increasingly well. Before the scandal, Luckin relied on spending heavily to “create miracles”—so-called strategic losses. Afterward, funding dried up. Subsidies were out of the question, and even day-to-day operating funds nearly ran out. Remarkably, store losses fell substantially under these conditions, and many stores became profitable. Here are the financial figures. In the first half of 2021, net revenue reached RMB3.183 billion (all amounts below are also in renminbi), up 106% year over year. Net loss was RMB211 million, down 86%. By the third quarter of 2021, Luckin’s stores had achieved a historic turnaround to profitability. How did Luckin come back from the brink? Several critical shifts explain it. First, a shift in product positioning. Luckin initially benchmarked itself against Starbucks, seeking to become “China’s Starbucks.” It promoted premium “master coffee,” emphasizing internationally renowned coffee experts, selected beans, and advanced roasting techniques. But Starbucks already occupied the premium-coffee niche in consumers’ minds. Luckin was positioned as a cheaper substitute and could attract buyers only through enormous subsidies. If it raised prices, consumers would ask: why not drink Starbucks? Looking for a way forward, Luckin tried fresh juices and Xiaolu Tea, only to encounter an even more crowded and fiercely competitive tea-drinks market. That did not work either. It has now stopped using the Xiaolu Tea brand. After repeated experiments, Luckin finally found its own category of hits: milk-based coffee, using coffee as a base with various milk flavorings. From rich-milk lattes to coconut lattes to velvet lattes, each new release became a hit. Developing milk-based coffee also does not require a team of specialist coffee masters. Instead, very young teams develop new products in batches, with internal competition selecting the winners. As Luckin’s advertisement puts it: “This velvet latte fought its way out of a test of 23 lattes.” Luckin could not beat Starbucks at classic coffee or Heytea at milk tea. But in the new milk-based coffee category it created for itself, it became the undisputed king of hit products. Robin: “I previously mentioned a famous example of innovation at the edges: Starbucks pioneered lattes—coffee with fresh milk—in the US coffee market, where Americans did not drink coffee that way at the time. It then developed Frappuccinos and a series of other innovative product categories.” Second, a shift in store expansion strategy. Luckin previously operated only its own stores, without franchises. Company-operated stores ensure standardized products and service, but consume considerable cash, especially during rapid expansion. Before the scandal, Luckin had opened more than 4,500 stores. The model required ongoing spending on fit-outs, equipment, staff, and rent. Starting in January last year, Luckin introduced “zero-fee franchising,” charging no franchise fee. The first RMB20,000 of a store’s monthly merchandise gross profit was returned entirely to the franchisee; above that, the franchisee shared profits with Luckin on a tiered basis. Franchising enabled low-cost expansion, and franchise-generated profits became an important component of Luckin’s revenue. Why could it franchise now when it could not before? Mainly because milk-based coffee was simpler to prepare than classic coffee. One full-time employee and one part-time university student could run a pop-up store. At the same time, its ingredients were more complex, so Luckin needed to devote more resources to supply chain management and hit-product development rather than opening stores. A further point: whether a brand uses company-operated or franchised stores depends on where the greatest value is created. If it is in the store, as with Starbucks’ “third place,” company-operated stores make sense. If it is in the supply chain, as with McDonald’s and 7-Eleven, franchising is the model. Third, a shift in marketing. Luckin used to distribute coupons aggressively, offering prices of 18% or 38% of the original amount at the drop of a hat. With abundant funding, it thought little of subsidies. After the scandal, even the wealthy household’s reserves were empty, and marketing spending kept declining. Yet revenue rose as spending fell, thanks to more refined operations. Rather than blanket discounting, it now offered varied incentives: timed offers, referrals, flash sales, price-cutting promotions, quizzes, and more. Previously, users would not buy without a coupon reducing the price to 18% of the original. Now discounts were smaller, yet user loyalty increased. Looking back at this textbook turnaround reveals something interesting: Luckin corrected the mistakes it made when it had money only after it ran out of money. #得到頭條