Luckin Coffee is facing a perfect storm of declining same-store sales, squeezed profit margins, and intensifying competition. This triple threat has turned the company's growth strategy into a fight for survival.
The chain, now operating over 35,000 locations, is aggressively expanding its menu beyond its core coffee model. This push includes fruit teas, light milk teas, vegetable and fruit blends, lemonades, yogurt smoothies, and even alcoholic specials. The result is a dramatic increase in operational complexity, putting immense strain on its workforce and dismantling the very efficiency model that made it successful.
Strained Staff and a Broken Efficiency Model
For many employees, the job has become a relentless grind. Chen Chao, a former employee, joined Luckin right after graduation, attracted by the simplicity of the work. The process was straightforward: pull a ticket, press a button, add ice, pour the concentrate, and cap the cup. An Americano could be made in under a minute. However, the constant stream of new products has transformed the workflow. The menu now extends far beyond coffee, with complex items like black chocolate drinks requiring staff to grind the chocolate into a paste, use a blender for each Rui Na Bing, and then thoroughly clean and sanitize the equipment. The mango puree in the Mango Sago Pomelo drink often clogs the drains, requiring extra cleaning after closing. The pressure is immense, with staff fearing mistakes and facing penalties for slow service, all while customer complaints can have a strong negative impact.
A fully staffed store typically has only three people: a store manager, one full-time employee, and one part-time worker. This team is responsible for everything from opening to closing. Before Chen Chao left, the store was preparing to introduce fresh-cut fruit, adding yet another layer of work: washing, peeling, cutting, portioning, and preserving. The pressure was so intense that the store manager messaged her after she left, complaining about the new 'oven' products that made the job even more difficult.
Li Bin, who worked as a long-term part-timer, noted that the job felt more like a cleaning service than a coffee-making role. The strict hygiene protocols require 20-second handwashing, color-coded cloths for different areas, and mandatory towel changes every 30 minutes, regardless of the queue of customers. This creates a conflict: change the towel to avoid a penalty, or serve customers to avoid a complaint. The final straw for Li Bin was the introduction of alcoholic special drinks in May 2026, which require a lengthy 3-to-5-minute preparation process and the added step of verifying customer IDs. This slows down service and leads to arguments and refunds when customers don't have ID. The core issue is that regardless of the drink's complexity, staff are paid per cup, making a complex special drink five times less efficient than a simple Americano. This "more work for the same pay" mentality extends to unpaid overtime, with opening hours being pushed back earlier and closing times being extended, while staff are forced to work for free to complete closing tasks.
Three Forces Driving the Push for Expansion
The pressure to expand the menu comes from three main sources. First, the company's core business is weakening. Same-store sales growth, which was 8.1% in Q1 2025, peaked at 13.4% and 14.4% in Q2 and Q3, but then plummeted to just 1.2% in Q4 2025 before turning negative in Q1 2026. The earlier surge was an illusion created by delivery subsidies, which boosted order volume but eroded profitability due to delivery fees, platform commissions, and packaging costs.
Second, Luckin has hit a ceiling in the coffee market. While total net revenue in 2025 reached 49.29 billion yuan, a 43% increase, net profit was only 3.6 billion yuan, a margin of about 7.3%. The trend worsened through the year, with Q4 2025 net profit falling 39.1% year-over-year. In Q1 2026, despite a 35.3% increase in revenue, net profit margin dropped to 4.2%. The company finds it difficult to raise prices, as its customer base views it as a low-cost option, similar to "Pinduoduo" for coffee. Premium beans are rarely ordered, and the 9.9 yuan average price point leaves little room for profit. With no room to move up or down in coffee, Luckin is forced to seek growth in non-coffee categories.
Third, fast-food and tea chains are aggressively entering the coffee market. Competitors like Mixue Bingcheng, Guming, KFC's K Coffee, and Wallace are all adding coffee machines to their stores, often at extremely low prices. This triple threat has turned Luckin's expansion from a choice into a necessity for survival. The company's strategy is to transform from a coffee seller into a full-time, full-category beverage platform, covering all consumer needs throughout the day. CEO Guo Jinyi has stated that the industry has moved from a stage of opening stores and price wars to a phase of competition in system capabilities. The strategy has shown some success, with 20 billion yuan in non-coffee sales indicating that customers are accepting the idea of buying milk tea at Luckin.
Dismantling the Very Model That Made It
Luckin's original business model was built on standardization and efficiency. Its small stores, minimal staff, and 50-second Americano production time were the foundation of its success. However, the current strategy is actively dismantling this system. Adding tea-based drinks is a more difficult and complex process for a coffee company than adding coffee is for a tea company. Tea brands already have the infrastructure for complex, manual tasks, so adding a simple coffee machine is a natural and easy addition. For Luckin, each new product line adds layers of complexity: new equipment, new training, and new procedures. Its supply chain, a powerful asset for coffee, is not as efficient for fresh fruit and other tea ingredients.
While Luckin has advantages like its vast store network, digital operations, and value-for-money perception, its rapid, high-frequency product launches (over 140 in 2025) are creating chaos. The complexity increases exponentially, and the manual for store operations is becoming thicker. The risk of errors is high, leading to penalties, overtime, and burnout. The hidden cost is the loss of experienced staff, who must be constantly retrained, leading to slower service and more negative reviews. The problem is that the benefits of expansion (e.g., 20 billion in sales) are visible and reported in earnings, while the costs (staff turnover, customer complaints) are hidden, only appearing much later in the form of declining same-store sales. Luckin is in the process of transforming from a coffee company into a full-category beverage company. Whether this transformation will succeed is still uncertain, but one thing is clear: there are no easy winners in this war of blending coffee and tea.
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