Luckin Coffee(US:LKNCY) Hua Xia Shi Bao·2025-11-28 05:44Core Insights - The coffee market in China is experiencing a price war initiated by brands like Luckin Coffee and Kudi, with prices dropping significantly to attract consumers [3][6] - Luckin Coffee has recently surpassed 10,000 stores globally, becoming the third domestic coffee chain to achieve this milestone, following Luckin and Kudi [3][4] - The entry of new players like JD's Qixian Coffee and discount supermarket Haotemai is intensifying the competition in the low-price coffee segment [4][5] Price Competition - Kudi Coffee started the price war in 2023 with a price point of 9.9 yuan, followed by Luckin Coffee lowering prices to 6.6 yuan, leading to a significant shift towards affordable coffee options [3][6] - The average price of coffee is approaching cost levels, raising concerns about quality and profitability for brands [3][6] - The competitive landscape is shifting towards everyday consumption, with brands needing to optimize supply chains and reduce operational costs to maintain low prices [6][8] Market Expansion - Luckin Coffee has rapidly expanded its store count, particularly in first-tier cities, reaching over 1,000 stores in these markets [4][5] - Kudi Coffee has also seen significant growth, with over 18,000 stores globally, making it the second-largest domestic coffee chain [4][5] - The overall coffee market in China is still considered to have substantial growth potential, with expectations of a consumption growth rate exceeding 20% [5] Profitability Concerns - The cost structure of a cup of coffee includes raw materials, rent, labor, and utilities, with the raw material cost estimated at around 5.5 yuan per cup [6][7] - Kudi Coffee maintains a long-term strategy of pricing all products at 9.9 yuan while ensuring product quality and profitability for franchisees [7] - Luckin Coffee reported a decline in net profit despite a 50% increase in net revenue, indicating challenges in maintaining profitability amid aggressive pricing [7] Supply Chain Strategies - The trend towards affordable coffee is pushing brands to enhance supply chain efficiency and adopt digital or automated operations to reduce costs [8] - Luckin Coffee has established a comprehensive supply chain, including direct sourcing of coffee beans and self-built logistics systems [8][9] - Kudi Coffee is also focusing on securing stable supplies of coffee beans through strategic partnerships with producers in countries like Rwanda and Colombia [9]