Luckin Coffee to ramp up global expansion

Chinese coffee chain player Luckin Coffee is looking to expand in the United States and other overseas markets amid intensified domestic competition that is impacting same-store sales.

Guo Jinyi, chairman and CEO of Luckin, said during an earnings call on Wednesday that the international market is filled with opportunities, but also presents significant challenges that require patience, time and continuous investment.

Guo said: "We remain both patient and confident in our ability to succeed.

"We are actively evaluating opportunities in the US and other markets."

News outlet Financial Times reported this week that Luckin is considering a US launch as early as next year, targeting cities with large numbers of Chinese students and tourists, such as New York.

The report also suggests that Luckin Coffee plans to undercut US incumbents by selling drinks priced around $2 or $3.

Luckin expanded its presence in Singapore a year and a half ago. The company opened eight new stores there in the quarter, bringing the total number of stores to 45.

Guo said that the company's initial attempts in Singapore resulted in financial losses, but these experiences provided invaluable insights into the complexities of overseas operations.

The company will continue to increase overseas investment in areas such as store expansion, supply chains and branding.

Considering the maturity and competitiveness of the US coffee market, Luckin intends to approach its expansion strategy there with careful consideration and a disciplined execution plan, Guo said.

"With fierce competition in the Chinese coffee sector, overseas expansion and the possibility to regain trust from the capital market might be strategic options for Luckin. However, the tarnished reputation brought by its previous scandal on the capital market might affect Luckin's branding image in the US," said Jason Yu, general manager of Kantar Worldpanel China.

Luckin's Guo said that the company will continue to focus on domestic markets, given the large potential of the coffee industry in China.

According to Luckin's financial results for the three months ended Sept 30, the company's quarterly revenue stood at 10.8 billion yuan ($1.45 billion), a 41.4 percent year-on-year increase. Net profit was 1.3 billion yuan, reflecting a net margin of 12.8 percent.

The operating profit of self-operated stores was 1.75 billion yuan, with a self-operated store operating margin of 23.3 percent, compared to a store-level operating profit margin of 23.1 percent in the same quarter of 2023.

Same-store sales growth for self-operated stores in the third quarter was down 13.1 percent, compared to a growth of 19.9 percent in the same quarter of 2023.

This decline reflects domestic consumers' sensitivity toward price and fierce competition, said Yu. "As the number of coffee shops increases without a similar increase in the number of customers, the profit from each individual store is going to take a hit," Yu said, adding that this is a widespread challenge among coffee chains across the country.

In the fourth quarter, Starbucks China has faced a 14 percent decline in comparable store sales, driven by an 8 percent decrease in average product prices and a 6 percent drop in comparable transactions.

The company has accelerated its expansion into lower-tier cities and new county-level markets, where the performance of newly opened stores continues to exceed that of those in higher-tier cities, said Starbucks China.

The coffee shop chain opened a net 290 stores, entering 78 new county-level markets.

Yu is concerned about the prospects of their penetration strategy where coffee consumption at county-level stores is often seen just as "social currency" and not a necessity.

"Starbucks continues to face challenges in China somehow, as the overall consumer spend remained soft and consumers are increasingly opting for a cost-effective option when it comes to coffee consumption," Yu said.

wangzhuoqiong@chinadaily.com.cn