Luckin Coffee Achieves Profitability in Cut-throat Market

luckin coffee
(Source: PYMNTS.com)

Tech Planet reported on Thursday that Luckin Coffee began to be profitable in May this year, meaning it has achieved its annual target ahead of schedule. Luckin Coffee declined to comment.

An employee of Luckin said that after the announcement, Guo Jin, the company’s chairman, set a more radical goal.

Luckin’s sucess once again proves the potential of the coffee market.

After being involved financial fraud, the company suspended all expansion plans. Originally, it planned to open 10,000 stores before 2021. Later, the strategy was changed to ensure that the number of stores remained the same by the end of 2020. As of May 31, 2021, the firm has 3,949 self-operated stores and 1,175 franchises in China and plans to open 4,800 to 6,900 more in 2023.

At the end of June this year, the company reissued the re-audited 2019 annual report. It shows that Luckin suffered an operating loss of 3.212 billion yuan in 2019, up 101% from the loss of 1.598 billion yuan in the same period in 2018. However, the proportion of operating losses in revenue decreased from 190% in 2018 to 106% in 2019.

SEE ALSO: Stained by Fraud Scandal, Luckin Coffee Is Seeking a Path Out

Up until now, the company has not reissued its 2020 financial report. However, it has promised to release the annual report as soon as possible and gradually return to normal financial report disclosures.

In December last year, a report submitted to the court by Luckin Coffee Joint Provisional Liquidators showed that Luckin’s profitability began to improve since May 2020, and achieved break-even at the store level for the first time in August.

Luckin is a leader in the coffee market. Manner, Tims and McDonald’s McCoffee are all learning from Luckin’s business model.

However, the company also faces a bottleneck. According to Tech Planet, there is a serious outflow of staff, and many people have been poached to Lu Zhengyao’s startup -A Bite Technology – and participated in noodle catering startup projects. In order to attract and retain talent, Luckin has given employees a substantial salary increase, in many cases exceeding 50%. The salaries for some key positions have doubled or went even higher.