image credit: Bamboo Works
Key Takeaways:
Luckin's revenue rose 35% in the first quarter, driven by a 39% year-on-year rise in its store count to 33,596 shops at the end of March
The chain's average monthly transacting customers rose 25% in the quarter, far slower than its revenue growth, indicating it is having difficulty retaining customers
Call it a coffee hangover. That was the story for Luckin Coffee Inc. (OTC:LKNCY) in the first quarter, as China's leading coffee chain slipped into same-store sales contraction during the three-month period after reporting strong gains for that metric for most of last year.
In this case, the culprit behind the slowdown was unrelated to Luckin's own operations, and instead was the result of changes in a subsidy war that charged up China's takeout dining market for much of last year. That war saw e-commerce giant JD.com (NASDAQ:JD) enter the takeout dining market, while Ele.me, one of the two major existing players, underwent a big overhaul that included a major cash infusion from Alibaba, China's leading e-commerce company. The third major player, online-to-offline services leader Meituan, was forced to follow suit by offering its own major subsidies to hold on to its market share.
While those subsidy wars hit the food delivery companies, sending Meituan into the red, they were a boon to food and beverage operators whose business surged as consumers took advantage of bargains. Within the coffee and adjacent bubble tea sectors, consumers often used subsidies to get their drinks delivered for just pennies or sometimes for free.
The whole phenomenon of ordering such drinks for delivery is relatively unique to China compared with the West, where people tend to personally pick up their products at stores and either consume them on the premises, or grab them and go. Chinese, by comparison, often order a cup of coffee costing just 20 yuan, or about $3, for delivery. The local economics allow for that, since delivery costs ...
