Luckin Coffee: Rise, Fall, and Reinvention — Part 1

The Origin Story: Designing a 15 RMB Coffee Business

This article is Part 1 of the eight-part chronicle on Luckin Coffee’s rise, collapse, and reinvention. It is the excerpt of a sharing by Luckin Coffee CEO Guo Jinyi in 2024, translated into English here. 

You can also read the other parts of the series here: Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8

I was the first employee of Luckin Coffee.

In 2009, after earning my Ph.D. in Transportation Planning and Management from Beijing Jiaotong University, I took the civil service exam and joined the Ministry of Transport, where I was responsible for overseeing taxi and subway operations across China in the Transport Services Department.

In May 2016, I resigned and started preparing for the launch of Luckin Coffee in March 2017.

At the time, I saw a huge opportunity to optimize Starbucks’ cost structure and profitability. Their rental costs were too high, accounting for almost 10 RMB per cup, with an additional 5 RMB for labor and 5 RMB for raw materials, bringing the total cost to 20 RMB, while the selling price was over 30 RMB.

So, we considered using digitalization to encourage customers who buy coffee without staying in the store to take their orders to go, thereby reducing rental costs. This became the foundation of our business logic—to bring the cost of a cup of coffee down to 10 RMB, sell it for 15 RMB, and make a profit of 5 RMB.

Luckin Coffee was officially founded in October 2017, opening its first store in Beijing’s Galaxy SOHO. In May 2019, the company went public on Nasdaq. It became the fastest company to go from founding to IPO and was even included as a case study at Harvard Business School. However, in April 2020, Luckin self-disclosed financial fraud, possibly making it one of the fastest companies to go from IPO to delisting.

Even if Luckin’s financial issues had not been exposed at the time, given the company’s operational structure, it would have likely struggled to survive the downturn in the food and beverage industry during the pandemic.

On the day of the financial scandal in April 2020, Luckin had 4,500 stores, but we had to shut down nearly 3,000 stores afterward.

In May 2020, I took over as CEO, and in July, I became Chairman of the Board. Professor Liu Feng joined the board during this restructuring period as an independent director.

At the time, the outside world believed Luckin had no future. However, over the past four years, with a new team and new investors, the company has seen significant changes.

From a revenue perspective, in the past four years, our revenue grew from 4.03 billion RMB in the first year to 7.97 billion in the second year, 13.29 billion in the third year, and 24.9 billion last year.

In terms of profit, we had a loss of 2.59 billion RMB in 2020, a loss of 540 million in 2021, a profit of 1.16 billion in 2022, and last year, we made a profit of 3.03 billion.

For the first three quarters of 2024, Luckin Coffee’s revenue reached 24.86 billion RMB (a year-on-year growth of 39.4%, with a Q3 operating profit margin of 15.3%), which is close to the total revenue of last year. It is highly likely that our revenue will exceed 30 billion RMB by the end of this year.

In Q2 2023, Luckin Coffee surpassed Starbucks China in terms of revenue for the first time.

Starbucks China had such a strong foundation and first-mover advantage, so why was it overtaken by an emerging brand in China? Moreover, after being surpassed, as long as Luckin doesn’t make any mistakes, Starbucks is unlikely to regain its lead. In such a favorable market, what did Starbucks China fail to do right?

In reality, there is still a huge gap between Luckin and Starbucks.

Luckin’s revenue this year is only about 30 billion RMB, which accounts for just 1/7 or 1/8 of Starbucks’ global revenue. We still have a long way to go in our quest to build a world-class coffee brand.

We must also remain vigilant, as potential competitors could disrupt us at any time.

China produces 1% of the world’s coffee beans but accounts for 2% of global coffee consumption. We are just at the beginning, standing under such a vast sky, and must remain alert.

There have been many external analyses about why Luckin was able to rebound and achieve a turnaround over the past four years.

Some say it was the Coconut Latte that saved Luckin. Currently, the Coconut Latte sells 2 million cups per day, with each cup consuming one coconut. For every five coconuts consumed in China, one is sold by Luckin.

Others say it was private traffic that saved Luckin. Our private traffic channels now have over 100 million users we can directly reach.

Some believe that Luckin’s success came from expanding into lower-tier markets and opening up franchising. Currently, our store structure consists of two-thirds self-operated stores, with 14,000 directly operated locations and more than 7,000 franchised stores in broader lower-tier markets.

However, what outsiders see is just the tip of the iceberg. The transformation of Luckin is driven by many deep-rooted changes, which ultimately manifest in every tactical action.

Luckin’s success today is because we have fundamentally changed the company at its core. Along the way, we have endured many hardships and gained valuable, painful insights that we can share.

You can also make reference to the following Momentum Works reports for more:

• Inside Luckin Coffee
• Coffee in Southeast Asia
• Chinese F&B in Southeast Asia
• Quick Commerce in China 2025
• Food delivery in Southeast Asia 5.0