Luckin Coffee: Business Model and Unit Economics

Founded in October 2017 by Jenny QIAN Zhiya, Luckin Coffee quickly expanded its stores from one trial store in Beijing to 2,370 stores across 28 cities in China by the end of March 2019. More importantly, less than two years after its establishment, Luckin Coffee listed on the NASDAQ on May 17, 2019, a key milestone in its short history. Despite impressive numbers of customers acquired and products sold, Luckin continuously incurred large losses due to heavy expenditure on marketing and promotional activities. By the end of 2018, Luckin achieved an annual revenue of RMB840.7 million with a total loss of RMB1.6 billion. Therefore, the management team needed to decide whether the current business model was healthy or not. If it was healthy, all that was needed was to achieve further scale to turn the 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.