Luckin Coffee: Business Model and Unit Economics

• Velamuri, S. Ramakrishna 
• Zhang, Shiqi 

Abstract

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.

Keyword

• Business Model
• entrepreneurship
• growth strategy
• sustainability
• unit economics

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