Luckin Coffee: Business Model and Unit Economics

Founded in October 2017 by Jenny Qian, Luckin Coffee quickly expanded from one trial store in Beijing to 2,370 stores across 28 cities in China by March 2019. More importantly, less than two years after establishment, Luckin listed on the Nasdaq on May 17, 2019, a key milestone in its short history. Despite impressive numbers of customers and products sold, Luckin continuously incurred large losses due to heavy expenditure on marketing and promotional activities. Therefore, management needed to decide whether the current model was healthy or not. If it was healthy, all that was needed was to achieve further scaling to turn losses into profits. If, on the other hand, there were fundamental problems with the business model, then growth would need to be put on hold while these problems were corrected.