With the major food delivery platforms in China gradually slowing down their sales subsidy wars, the largest coffee chain brand in China, Luckin Coffee, experienced a decline in same-store sales in the first quarter.
<h4>Key Points:</h4>
<ul>
<li>Luckin Coffee's revenue in the first quarter grew by 35% year-on-year, mainly driven by a 39% year-on-year increase in the number of stores, reaching a total of 33,596 stores by the end of March.</li>
<li>The company's average monthly transaction customer count grew by 25% year-on-year, significantly lower than the revenue growth rate, indicating pressure on customer retention.</li>
</ul>
Yang Ge
After a prolonged period of strong growth last year, the largest coffee chain brand in China, Luckin Coffee (LKNCY.US), inevitably experienced a &#34;coffee hangover,&#34; recording a decline in same-store sales during the three-month period, contrasting sharply with its previous strong performance over consecutive quarters.
The reason for this slowdown in growth does not stem from its own operations but rather from changes in the subsidy wars that drove growth in China's food delivery market for most of last year. In this competition, e-commerce giant JD.com entered the food delivery market, while Ele.me, one of the two major existing platforms, underwent significant adjustments, including receiving a large capital injection from Alibaba, the leading e-commerce company in China. The third major player, Meituan, was also forced to follow suit by launching large-scale subsidies to maintain market share.
Although the subsidy wars put pressure on food delivery platforms and even led Meituan to incur losses, they benefited restaurant merchants, as consumers leveraged discounts to drive rapid business growth. In the coffee and related milk tea market, consumers often use subsidies to obtain delivery beverages at extremely low prices or even for free.
Compared to Western markets, the consumption model of delivering beverages like coffee is quite unique in China. Western consumers typically pick up their orders in-store and either consume them on-site or take them away; in contrast, Chinese consumers often order a cup of coffee for about 20 yuan (approximately 3 USD) and choose delivery. This model is feasible due to local economic conditions, where delivery costs are usually very low, tips are not required, and many consumers are indifferent to the temperature drop of beverages upon delivery.
However, such benefits will eventually come to an end. Under repeated pressure from regulatory agencies and the need for self-imposed losses, the three major food delivery platforms began to reduce subsidies. Consequently, Luckin disclosed that its self-operated stores experienced a 0.1% decline in same-store sales in the first quarter. This shift to negative growth was not entirely unexpected, as this figure had already dropped to just 1.3% in the fourth quarter of last year, ending two consecutive quarters of double-digit growth.
The company's CEO, Guo Jinyi, stated during the earnings call: &#34;As we enter the comparison period affected by last year's high delivery subsidies over the next few quarters, our same-store sales may face some short-term fluctuations.&#34;
The decline in same-store sales sets the tone for Luckin's performance this quarter. On one hand, the company maintains rapid expansion; on the other hand, it faces pressures from declining customer stickiness and eroding profit margins, finding itself in a dilemma in the fiercely competitive Chinese coffee market. The company opened 2,548 new stores during the quarter, resulting in a 39.4% year-on-year increase in total store count, reaching 33,596 stores by the end of March
Its performance has also diverged from major competitor Starbucks (SBUX.US), which announced last week that same-store sales in the Chinese market rose by 0.5% in the first quarter. During this period, revenue in China grew by 8% year-on-year, higher than the store count growth rate of only 3%, with a total of 7,991 stores at the end of the quarter.
Investor Praise
As we mentioned earlier, the transition to negative same-store sales following the withdrawal of delivery subsidies was largely expected, and it is also anticipated that this metric will face pressure for the remainder of the year. At the same time, Luckin Coffee demonstrated confidence in its prospects by announcing an aggressive $500 million share repurchase plan. This is the company's first repurchase plan, amounting to approximately 5% of its current market value of about $10 billion.
Investors reacted positively to the overall performance, driving the stock price up. Luckin's stock price rose by 16% after the earnings announcement last Wednesday, returning to positive territory for the year, with a cumulative increase of 5.5% since the beginning of 2026. The current price-to-earnings ratio of the stock is about 21 times, slightly higher than that of China's largest tea brand Mixue Ice Cream (2097.HK), which had over 60,000 stores globally by the end of last year.
The Chinese coffee market is vast, but competition is extremely fierce, especially in the low-price segment. Luckin needs to compete with Manner Coffee, Kudi, and even KFC and McDonald's (MCD.US), whose products can be priced as low as 10 yuan per cup. Competitors in this price range are capturing market share from the high-end brand Starbucks, which sold 60% of its Chinese business to local private equity giant Boyu Capital in February this year to revitalize its operations in China.
Starbucks is currently evaluating its next strategic steps in the Chinese market, which may likely include intensifying efforts to enter the low-price market dominated by Luckin. This low-price segment was also a highlight for Luckin in the first quarter, where the company primarily relied on a franchise model, rather than the self-operated store model used in first-tier cities.
The company disclosed that its franchise business revenue grew by approximately 45% year-on-year to 3.02 billion yuan (about $442 million) in the first quarter, significantly outpacing the overall revenue growth rate of 35%, with total revenue for the period around 12 billion yuan. Overall performance was dragged down by the self-operated store revenue growth rate of only 33%, which accounts for about two-thirds of total revenue.
The average monthly transaction customer count grew by 25% year-on-year, far below the revenue growth rate, indicating that its customer retention ability has not kept pace with its expansion. Meanwhile, the operating profit margin at the store level has continued to decline, from 17% in the same period last year to 13.6% in the first quarter, reflecting difficulties in site selection amid a saturated market.
In terms of profitability, the company's latest quarterly net profit decreased by 3.4% year-on-year to 506 million yuan. Excluding non-GAAP items such as stock-based compensation, profit rose by 6% to 687 million yuan. Overall, the company's current profit foundation remains robust, and it still possesses competitive advantages due to its market-leading position. However, the withdrawal of delivery subsidies, combined with the intense competition expected to continue over the next one to two years, will continue to pressure its profit margins and may ultimately force the company to slow down its previous rapid expansion pace

LKNCY

As China's food delivery platforms slow down their subsidy wars, Luckin Coffee experienced a decline in same-store sales in the first quarter. Although revenue grew by 35% year-on-year, primarily driven by a 39% increase in the number of stores, customer retention is under pressure. The changes in the subsidy wars have led to a slowdown in sales growth, with Luckin's same-store sales decreasing by 0.1%. This trend echoes the 1.3% growth in the fourth quarter of last year, ending two consecutive quarters of double-digit growth

- Luckin Coffee, China's largest coffee chain, reported a 0.1% decline in same-store sales in Q1, marking a shift after consecutive strong growth periods.  
- Although revenue grew by 35% year-on-year, driven by a 39% increase in store count to 33,596 locations, the company faces challenges in customer retention as the average monthly transaction growth of 25% lags behind revenue growth.  
- Amid declining sales and increased competition, Luckin's CEO indicated that future quarters may experience short-term volatility as the effects of prior delivery subsidies wear off.

The takeaway subsidy war cools down, Luckin Coffee lacks momentum