The "terrifying" Luckin Coffee!

In the lively takeout subsidy war, players like Luckin have not really benefited.

On the evening of February 26, Luckin Coffee (LKNCY) released its earnings for Q4 and the full year of 2025, revealing the hidden concerns behind the apparent prosperity of China’s freshly brewed coffee sector. Beneath the impressive-looking report card lies the awkward reality of revenue growth without profit growth.

As expansion approaches the market ceiling and facing encirclement from cross-industry competitors as well as a comeback from traditional giants, Luckin, which once broke out with low prices and co-branding strategies, now stands again at the crossroads between scale and profitability.

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The "terrifying" Luckin: Revenue grows, profits stagnate

According to the financial report for FY2025, Luckin achieved total revenue of RMB 49.288 billion, a year-on-year increase of 43.0%. Net profit for the full year reached RMB 3.6 billion, up 21.6% year-on-year. The total number of transacting users exceeded 450 million, with 4.1 billion drinks sold throughout the year. These numbers are, frankly, “terrifying.”

This achievement is 13 times that of the brand’s former record of “over 300 million cups sold in one year, enough cups to circle the earth.” By this calculation, Luckin’s annual cup chain could wrap around the globe 13 and a half times. With this performance, Luckin has firmly secured the number one position in China’s freshly brewed coffee market by scale.

However, the stellar annual results cannot mask the profit pressure in Q4. Dissecting the financial report, in Q4 2025, Luckin achieved revenue of RMB 12.777 billion, up 32.9% year-on-year, which seems to continue the high-growth trend. However, net profit was only RMB 518 million, plunging 39.1% year-on-year, showing a striking pattern of “revenue growth without profit growth.”

The core reason is soaring costs. In Q4 2025, Luckin’s delivery cost reached RMB 1.631 billion, a surge of 94.5% year-on-year. For the full year, delivery expenses totaled RMB 6.879 billion, more than 140% higher than RMB 2.821 billion in 2024, with cost growth far outpacing revenue growth.

Luckin explained that a sharp increase in third-party delivery platform orders directly drove up delivery expenses, making it the main factor eating into profits. Although 2025 saw subsidy wars on delivery platforms for coffee and tea drinks, and Luckin leveraged subsidies to drive a surge in orders, it also fell into a “more orders, less profit” trap—when platform subsidies shrink, brands have to bear the high delivery commissions and rider fees themselves.

This situation leads to a dilemma: not accepting delivery orders makes it hard to grow scale and GMV, resulting in missing out on significant market share; but taking delivery orders means bearing high delivery costs, further increasing the pressure on costs and squeezing profit margins.

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Domestic scale nearing the ceiling

By the end of 2025, Luckin had a total of 31,048 stores worldwide, with a net increase of 8,708 stores throughout the year—equivalent to opening about 24 new stores daily on average. The newly added store network mainly covered core commercial districts, office buildings, and lower-tier markets. When I returned home for Chinese New Year, I found several Luckin stores even in my county-level town—a vivid illustration of their lower-tier market strategy.

As even rural and county-level markets are gradually covered by Luckin, the ceiling for such rapid expansion is already within sight.

According to Huayuan Securities estimates, based on disposable income of urban residents, the theoretical upper limit for Luckin's domestic stores is about 39,000. At the current scale of 31,048, the remaining space for new stores is less than 8,000. At the 2025 store opening rate, it would take only about a year to reach the remaining goal.

This means that Luckin’s growth model driven by store expansion is nearing its end. Achieving substantial revenue growth through new stores will become much more difficult. At the same time, the continual densification of the store network will lead to internal competition, diluting and compressing customer flow and profit for existing stores—this is a typical case of “diminishing marginal returns.”

To make things worse, external competition is intensifying, further squeezing Luckin’s survival space.

For example, cross-industry rival Guming now has over 8,000 stores equipped with coffee machines, offering regular coffee products for as low as RMB 7.9 per cup, with limited-time offers going down to RMB 2.9; the “Huka” sub-brand of Shanghai Auntie has expanded to over 2,000 stores, positioning its price per customer at RMB 11-15, overlapping heavily with Luckin’s. Luckin Coffee under Mixue Bingcheng has quietly broken the 10,000-store mark with extreme value pricing at RMB 6 per cup. Traditional coffee giant Starbucks, after being acquired by Chinese capital, is now accelerating localization, putting aside its “third space” approach to confront Luckin head-on. Meanwhile, long-time rival Cotti Coffee, with almost 18,000 stores and an aggressive store placement strategy, is also cramping Luckin’s space...

Faced with both internal and external pressure, Luckin chose to break through by moving “upmarket.”

Since 2025, Luckin has purposely tightened the coverage of its RMB 9.9 discount coupons and raised prices on some products, attempting to escape the mire of low-price competition. At the same time, Luckin is accelerating product portfolio optimization, focusing on non-coffee categories such as fruit and vegetable teas, baked goods, and snacks. However, non-coffee beverages currently account for just over 20% of sales. In addition, Luckin has launched specialty products like Samba Deep Roast to target the mid-to-high-end market. But so far, these new ventures have yet to deliver stable profits; neither product reviews nor market acceptance are sufficient. In the short term, these offerings are unlikely to become the core support for company profitability.

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Conclusion

Faced with an increasingly “competitive” industry environment at home, going overseas has become the collective choice for coffee and tea brands, but Luckin’s overseas push has clearly lagged behind.

Mixue Bingcheng, which began international expansion as early as 2018, had opened more than 4,700 overseas stores across 13 countries by the end of 2025, even becoming a symbol of Chinese culinary culture abroad. In comparison, by the end of 2025, Luckin had only about 160 overseas stores, mainly in Singapore, Malaysia, and the United States; especially in the U.S. market, where it is still in the preliminary exploration stage with just nine stores—nowhere near scale effect.

Overseas expansion is never achieved overnight. Different markets have different consumer habits, environments, and competitive landscapes; one misstep can spell defeat. Therefore, in the short term, overseas markets are unlikely to offset the growth pressure at home—worse, the substantial investment of capital and manpower may drain cash flow and put additional pressure on Luckin’s already stressed profits.

How should Luckin break out of its predicament?