Scale Expansion and Profit Pressure: Luckin Coffee's Challenges and Opportunities in the Food Delivery War

Luckin Coffee (LKNCY) is facing the challenge of balancing profit growth with scale expansion on its rapid growth path. The latest financial report for fiscal year 2025 shows the company’s total annual revenue reached 49.288 billion yuan, a 43.0% increase year-over-year, but net profit only grew by 21.8% to 3.6 billion yuan, with profit growth lagging behind revenue growth. Behind this phenomenon are the cost pressures from store expansion and delivery subsidy strategies.

In 2025, Luckin Coffee’s global store count surpassed 31,000, a net increase of 8,708 stores from the previous year, including 8,599 new stores in mainland China and a total of 109 new stores in overseas markets (Singapore, Malaysia, the United States). Store expansion directly drove sales growth—annual sales of freshly made beverages reached 4.1 billion cups, which, based on China’s population of 1.4 billion, averages about 3 cups per person. Meanwhile, the average monthly number of transaction customers increased by 31.1% year-over-year, and same-store sales growth for company-operated stores rebounded from -16.7% in 2024 to 7.5%, indicating operational efficiency improvements.

However, the costs of scale expansion are becoming apparent. The financial report points out that fierce competition on delivery platforms led to a surge in delivery costs: in Q2 and Q3 of 2025, delivery fees increased by triple digits year-over-year. Although in Q4, due to industry off-season subsidies decreasing, costs still rose by 94.5% year-over-year to 1.631 billion yuan, and total delivery costs for the year increased by 4 billion yuan compared to 2024, directly squeezing profit margins. In Q4, the company’s net profit declined nearly 40% year-over-year to 518 million yuan, with net profit margin dropping to 4.1%, the lowest for the year; while operating profit from self-operated stores reached 1.4 billion yuan, it was roughly flat year-over-year, and operating profit margin declined compared to the same period last year.

Company co-founder and CEO Guo Jin Yi admitted at the earnings conference that changes in delivery subsidies and the shift in consumer order volume from delivery back to pickup will take time, and that same-store sales and profit performance in 2026 may experience temporary fluctuations. However, he emphasized that China’s coffee market is still in a rapid growth phase, and short-term fluctuations will not alter the long-term growth logic. Data shows that, based on 2023 beverage volume and retail sales, Luckin Coffee holds a 31.7% market share in China’s fresh-ground coffee market and a 21.8% share in the overall market, leading competitors like Starbucks and Cotti.

In response to intensifying industry competition, Luckin Coffee is expanding its consumer scenarios through product diversification. In 2025, non-coffee beverages accounted for over 20% of cup sales, meaning that one in five drinks sold is a light milk tea, fruit and vegetable tea, or other non-coffee product. Guo Jin Yi stated that the success of the freshly brewed coffee brand no longer depends solely on single blockbuster products or pricing strategies but requires a comprehensive capability including brand recognition, customer experience, product development, and store coverage. With the advantage of over 30,000 stores, Luckin Coffee believes it can better capture growing consumer demand.

Currently, the boundaries between the coffee and tea beverage industries are increasingly blurred. Brands like Gu Ming are entering the scene with 9.9 yuan coffee products, while companies like Luckin are launching non-coffee drinks to compete for leisure consumption scenarios. This cross-industry competition is forcing companies to reevaluate their strategies—from relying on blockbuster products to building a full-scene product matrix, and from price wars to improving operational efficiency. Whether Luckin Coffee’s transformation can establish a sustainable competitive advantage remains to be seen by the market.