Saved 1.1 billion in delivery fees and returned profits.

Fixed focus One (dingjiaoone) original

Author | Wang Hanxing

Editor | Wei Jia

The food delivery war has subsided, and Luckin’s profits have returned.

On the evening of November 3, Luckin released its Q3 financial report. During the period, it achieved revenue of 17.89 billion yuan, a year-on-year increase of 17%, slightly lower than market expectations; Non-GAAP operating profit reached 3.047 billion yuan, a year-on-year increase of more than 58%.

At the same time, Luckin’s aggressive store expansion continues. The number of new stores opened in Q3 reached 2,599, and the total number of stores reached 38,909. With the current store opening speed, there is no suspense about breaking through 40,000 stores by the end of the year.

Last year’s takeout war allowed Luckin to see that the growth potential of the coffee market was far from being fully exploited, and the rapid growth of competitors also made Luckin feel the pressure to compete for market share. Therefore, starting from Q2 last year, Luckin launched a round of radical expansion plans. In just over a year, the number of stores grew rapidly from more than 26,000 to nearly 40,000.

The benefits and costs of expansion are equally obvious. The benefit is that the store size is far ahead of other competitors, the average number of monthly users continues to break new highs, and the profit level is also rising. What was sacrificed was the sales growth of single stores, store density increased, orders were diverted, and same-store sales declined year-on-year for three consecutive quarters.

While Luckin is expanding rapidly, its competitors have also changed, from the original Starbucks, to later Cudi, to Nova Coffee, which is rapidly rising with its “store-in-store” model, and new tea drinks in the cross-border fresh coffee field. As competition continues, Luckin’s pace of expansion cannot stop either.

01. Make money while opening a store

Compared with the growth rate of store openings in previous quarters, the number of new stores opened by Luckin in Q3 this year has slowed down, and the growth rate has declined year-on-year. This is mainly because in the same period last year, during the three months when the takeout war was the most intense, Luckin opened more than 3,000 stores in one go.

Of the 2,599 new stores opened by Luckin this quarter, 2,543 were opened domestically, and 56 new stores were added overseas. Malaysia was the main growth force, with 40 new stores opened.

Although the number of new stores has declined year-on-year, the number of store openings remains at a high level, and Luckin has no intention of stopping. CEO Guo Jinyi said that domestic coffee consumption is still in the cultivation stage, and there is still huge room for improvement compared to the coffee market in mature countries, and the per capita cup volume is still increasing, so Luckin will continue to maintain a competitive store opening pace.

Picture source / Luckin Coffee official website

At the same time, the impact of the food delivery war on year-on-year changes in operating data also reached its maximum in Q3 this year. First reflected in revenue, Luckin’s revenue growth rate during the period was only 17% year-on-year, which was far lower than the growth rate of about 30% in the first two quarters of this year. The reason is obvious. The food delivery subsidy war in Q3 last year brought a high base.

Guo Jinyi said at the earnings conference call that July to August 2025 is the peak period of the takeout war, so the high base will have a more obvious impact on the same store in Q3 this year; with the substantial decline in subsidy for takeout platforms this year, same-store sales will still be greatly affected in terms of volume and price, but the same-store trend continues to improve during the quarter, and since entering the fourth quarter, the improvement momentum has further strengthened.

With the base raised by the food delivery war and the diversion of orders caused by the increase in store density, Luckin’s same-store sales fell 11.1% year-on-year in this quarter, which was the worst performance in the past eight quarters. However, it will not be until Q4 this year, as the impact of the high base of the food delivery war subsides, that the impact of the aggressive store opening strategy on the operation of individual stores will be more clearly reflected.

It is also worth noting that Luckin’s gross profit margin dropped slightly this quarter, from 63.76% in the same period last year to 61.69%, which may be due to rising raw material costs or increased store subsidies.

The most obvious change on the expense side is distribution expenses, which dropped to 1.789 billion yuan from 2.889 billion yuan in the same period last year. The proportion of delivery expenses in total revenue has dropped to 10%, which is halved from the nearly 20% delivery rate during the food delivery war in the same period last year.

This allows Luckin’s true profitability to be demonstrated. Q3 Ruixing’s Non-GAAP operating profit increased 58.2% year-on-year to 3.047 billion yuan, and the operating profit margin reached 17%, the highest value in the past three years. At the same time, Non-GAAP net profit reached 2.145 billion yuan, a year-on-year increase of 50.9%.

After bidding farewell to the 9-9 price war and takeout war in the freshly brewed coffee industry, Ruixing has become a money printing machine.

Ruixing Chairman Li Hui mentioned in a previous review of Ruixing’s development that Ruixing had a very good time in 2022. At the end of the year, the number of stores reached more than 8,000 and it maintained good profits. However, in 2023, Ruixing’s high profits gave opponents an opportunity to take advantage.

“At that time, when we had not yet achieved an absolute market leadership, we had an excessively high profit margin, so many competitors appeared in the market.”

Today, Luckin has reached a similar time point, with dominant scale and rising profit margins, but the competitors it faces today are also completely different from those three years ago.

02. Luckin started selling milk tea, and the boundaries of competition became increasingly blurred.

In October this year, many consumers noticed that a classic milk tea drink “Pearl Milk Tea” appeared on Luckin’s menu, priced at 18 yuan. According to Luckin’s official announcement, this drink will be available on the shelves of Luckin’s 36,000 stores nationwide on October 12.

For Luckin, freshly brewed coffee is no longer the only category in the store. Luckin has previously announced that as of May 31 this year, its cumulative sales of non-coffee drinks exceeded 20 billion yuan. As of the end of Q2, among Luckin’s 25 products with cumulative sales of more than 100 million cups, non-coffee products have occupied 5 seats.

The reason why Luckin did this is also very simple. Coffee drinks are not suitable for sale at all times. Adding more non-coffee drinks can allow more consumers to enter Luckin’s stores for consumption at other times.

Picture source / Luckin Coffee official Weibo

Another more direct reason is that tea stores have begun to put coffee machines in each store to compete with Luckin for customers. Among the Six Little Dragons of new tea drinks, Guming, Hushang Auntie, and Tea Baidao are the three most representative ones.

As of the end of June this year, Guming had 13,500 tea stores equipped with coffee machines, with a coverage rate of more than 90%. Throughout the first half of the year, Guming launched a total of 51 new products, 12 of which were coffee products. Founder Wang Yunan disclosed at a previous performance meeting that when there is no centralized promotion, the proportion of coffee sales is stable at more than 20%, and can exceed 25% during the event. More than half of the coffee consumers are new customers of Guming.

Chabaidao is also very active in the coffee business, with coffee machine coverage in domestic stores reaching about 30%; Shanghai Auntie also proposed a “tea and coffee two-wheel drive” strategy in the first half of this year. Its management revealed at the performance meeting that currently about 9,000 stores across the country are equipped with upgraded coffee machines, and the proportion of coffee cups has stabilized at more than 10%. About 6,000 to 7,000 stores have opened early for this purpose.

In addition, while Mixue Bingcheng relies on Lucky Coffee to make coffee, it also gradually launches freshly ground coffee drinks in its own stores.

These cross-border competitors are carving up Luckin’s future growth space. On the contrary, the competitive pressure from old rivals such as Starbucks and Cudi has relatively slowed down this year. Starbucks has gone through a long period of adjustment after selling its Chinese business, and has not posed a new threat to Luckin in a short period of time.

Kudi, who once dragged Luckin into the 9-9 battle, has also slowed down its expansion this year. According to data from Narrow Door Food, as of August 15, Kudi’s number of stores was approximately 15,599. In the past year, the number of stores has only increased by 2,245, and the number of new stores is less than a quarter of Luckin’s number in the same period. In March this year, Kudi also announced that key cities (municipalities, provincial capitals, etc.) would suspend accepting franchises or joint ventures and instead establish a number of directly operated model image stores to better enhance customer experience.

Old rivals have shifted from scale competition to competition in refined operations. New cross-border rivals have taken over the baton of scale competition and continue to compete with Luckin for market share.

The freshly brewed coffee industry itself is also facing clearing and reshuffling. Public information shows that in the past year, the number of new stores opened on the coffee track was 53,000, but the net increase was only 1,065. This means that at the same time as stores are opening, almost the same number of old stores are closing. In such a fiercely competitive environment, Luckin’s 17% operating profit margin is also an opportunity for competitors.

In addition, Ruixing may have another consideration at this stage. At the end of last year, Guo Jinyi said when attending the Xiamen Entrepreneur Day Conference that he was actively promoting the process of returning to the US main board. Today, Luckin’s revenue scale, number of stores, and profit levels have provided stronger valuation support for the company to return to the U.S. stock market.

But now, coffee and tea drinks have long lost their appeal in the secondary market. Among the six new tea dragons, five listed on the Hong Kong stock market have experienced an average decline of more than 30% year-to-date. Bawang Chaji, which is listed on the US stock market, has performed slightly better, with a year-to-date increase of 8.34%.

Judging from the financial report data, Ruixing is ready to re-list, but it is unknown whether today’s market will buy into the freshly brewed coffee business.