Luckin: The Takeout War "Kidnapped" the Coffee King?

Luckin Coffee (LKNCY) released its Q4 2025 financial report (for the period ending December 2025) before the US stock market opened on February 26, 2026, Beijing time.

Overall, in Q4, under the background of weakened takeout subsidies and Luckin’s own subsidy contraction, revenue growth clearly slowed down. The impact of the “takeout war” causing delivery costs to soar still significantly eroded profits in Q4, and overall performance fell short of market expectations.

1. Store opening pace slowed. Luckin added 1,834 new stores in Q4, with growth rate slightly decelerating compared to the previous quarter. I speculate the main reason is that the surge in store fulfillment costs caused by the “takeout war” led to a decline in store operating profit margins, prompting the company to slow down store openings to prioritize profit quality per store.

On the other hand, it’s worth noting that Luckin’s store opening speed in Southeast Asia (Singapore, Malaysia) has increased.

2. Same-store sales growth declined significantly. The core indicator reflecting organic growth per store, Same-Store Sales Growth (SSSG), increased by 1.2% year-over-year after excluding new stores. Due to subsidy reductions and structural price increases in Q4, it appears difficult to raise prices, and consumers’ overall price sensitivity led to lower-than-expected cup sales.

3. Monthly active paid users slowed down quarter-over-quarter. In Q4, Luckin’s monthly active paid users increased by 27% year-over-year, but the growth rate slowed significantly compared to Q2 and Q3. I believe this reflects that the conversion and retention rate of takeout users in the private domain is not high, and after subsidy reductions, repurchase willingness dropped sharply.

4. Fulfillment costs remained high, eroding profits. Luckin’s gross profit margin remained relatively stable in Q4. Looking at expenses, the biggest issue is the high proportion of takeout orders, which kept delivery costs high at 13% (normally between 7%-9%), squeezing profits. Ultimately, Non-GAAP operating profit was 960 million yuan, down 13% year-over-year.

Key performance indicators overview:

Overall view from Dolphin:
Luckin’s Q4 performance is essentially similar to Q3 — both are in a state of revenue growth and profit pressure. The market’s expectation is that, as subsidies from the takeout war gradually decline, same-store growth will not slow significantly, and increased self-pickup share will help profit margins gradually recover. However, this progress is not as fast as the market imagines.

Regarding the “takeout war,” although regulatory interventions occurred multiple times, the subsidy contraction in Q4 was not substantial. While it declined significantly from the peak in July and August, it was still far from pre-war levels. Based on survey data, subsidy levels in Q4 were roughly comparable to those in May and June.

Both platform commissions and delivery fees reduced Luckin’s profitability, fundamentally impacting its low-cost, self-pickup-centric channel model and pushing it into a high-cost takeout model. Therefore, a key reason for Luckin’s aggressive subsidy cuts in Q4 to protect profits is:

a. Reducing low-price offerings:
Luckin shrank its 9.9 yuan product range from 8-10 items in Q3 to just 2 (basic American and Latte). It also significantly cut back on “buy two get one free” promotions, large coupons, and the most favorable channel discounts on third-party platforms like Pinduoduo and Taobao.

b. Product structure adjustments:
For core products (e.g., coconut, velvet latte), although Luckin did not directly raise prices, it added value options like “extra large size” and “double shot,” indirectly increasing potential profit per cup. Additionally, popular new products like the Yellow Minion collab and Winter Nourishing Latte saw price increases of 30%-50% over basic versions.

Combining a and b, Luckin can maintain its “affordable” label at minimal cost, avoiding being undercut by ultra-low-price brands like Lucky Coffee, while maximizing profit flexibility through differentiated pricing, thus maintaining profit margins.

Although subsidies to users decreased, another notable move in Q4 was that Luckin increased subsidies to franchise stores (especially those with lower cup volumes).

I believe this is partly due to Luckin’s large-scale opening of franchise stores in lower-tier markets in 2025 to seize market share, and these franchisees are approaching their first off-peak season (Q1), helping them transition smoothly.

Additionally, it reflects that, despite reaching 30,000 stores, Luckin still sees the need to expand via franchise stores in lower-tier regions.

Looking ahead to 2026, although Luckin slowed store openings in Q4, it’s certain that, during a stage where coffee penetration in China continues to rise, leading brands will not slow their expansion. Gaining market share remains the main theme, but not through price wars — instead, more focus will be on refined operations.

From an investment perspective, considering that Luckin’s medium- and long-term competitiveness has not fundamentally changed, I believe the impact of the takeout war on profits is temporary.

Below is a detailed analysis:

1. Investment logic framework
   Luckin’s disclosures divide the business into self-operated and franchise segments.

1. Self-operated stores generate revenue from direct sales, with over 20,000 stores mainly in first- and second-tier cities, playing a major role in brand image. Self-operated business accounts for over 80% of profits.

2. Franchise revenue includes: raw material sales (coffee beans, milk, coconut milk), franchise store profit sharing (tiered based on gross profit), equipment sales, delivery services, and other services. Raw material sales account for nearly 70%, making it the core revenue source.

There are over 10,000 franchise stores, accounting for about 20% of revenue, mainly in third- and fourth-tier markets, aiming to capture high-quality locations in lower-tier areas. Although store opening speed is faster, profitability is lower than self-operated stores.

2. Store opening pace slowed
   In Q4, Luckin added 1,834 stores, reaching a total of 31,048 stores. The opening speed slowed compared to Q3 but still met the annual target of 8,000 new stores.

In overseas markets, Southeast Asia remains the main focus. In Singapore, Luckin operates 100% directly, replicating the domestic “fast pickup + leisurely” dual-store model, focusing on CBDs, university areas, and transit hubs. By Q4 2025, there are 81 stores, all profitable, making Singapore a flagship overseas market.

In Malaysia, Luckin uses a franchise model, partnering with local conglomerate GASB under a 10-year exclusive franchise agreement. GASB handles full operations, while Luckin provides branding, digital systems, supply chain support, and training.

Most stores are in Kuala Lumpur and Penang, adopting a 100% fast pickup model. As of Q4 2025, there are 70 stores, demonstrating franchise viability in Southeast Asia and paving the way for expansion into Indonesia, Thailand, and other markets.

In North America, high rent and low brand recognition mean the model is still being refined.

After excluding new store effects, the core indicator of organic growth, Same-Store Sales Growth (SSSG), increased by 1.2% YoY but declined significantly from Q3. Breakdown:

Average order price:
With subsidy reductions (only a few products like American and coconut latte remain subsidized), most products’ prices have risen to 10.9-13.9 yuan.

Survey data shows that, due to upgraded membership systems and increased discounts via Luckin’s own channels, combined with the launch of Lucky AI 1.0 in Q3, the proportion of paid members in Q4 continued to rise to 28%-30% (up 3 percentage points from Q3). Since paid members spend 30%-40% more per order, this also boosted average order value.

Cup volume:
Due to subsidy cuts and structural price increases, the actual same-store performance indicates difficulty in raising prices, and consumers’ high price sensitivity led to lower-than-expected cup sales.

Additionally, in Q4, Luckin launched 20 new products, increasing new product launches compared to the previous year. For coffee, Luckin introduced the Samba Deep Roast series targeting heavy coffee consumers seeking richer flavors. The deep roast and winter health series (Five Nourishments Latte) contributed 35%-40% growth in coffee cup sales.

For non-coffee categories, upgrades included fruit, vegetable, and light milk tea, along with increased IP collaborations (e.g., Honor of Kings & Minions), attracting non-coffee users.

Monthly active paid users growth slowed. In Q4, monthly active paid users reached 98 million, up 27% YoY but significantly slower than Q2 and Q3. I believe this is because, during the takeout war, high subsidies attracted price-sensitive users, but after subsidy reductions, their activity dropped sharply, lowering overall user growth and indicating that private domain retention of takeout users is not high.

1. Fulfillment costs remain high, eroding profits
   In Q4, Luckin’s total revenue was 12.78 billion yuan, up 32.9% YoY but below expectations.
   Breaking down: self-operated revenue was 9.9 billion yuan (+31.2%), franchise revenue was 2.85 billion yuan (+39.3%), faster growth than self-operated, mainly due to Luckin lowering franchise thresholds in 2025 to accelerate market penetration.

Gross profit margin remained stable in Q4.
Looking at expenses, delivery costs reached 1.63 billion yuan, up 94%, accounting for 12.8% of revenue (up from 8.7% YoY), still the biggest drag on profit.

In the medium term, since takeout subsidies are unsustainable, the surge in delivery costs this quarter is a short-term impact. As self-pickup share increases, delivery cost ratio is likely to fall back below 10% to normal levels.

Other expenses, including sales and management costs, remained stable, resulting in a Non-GAAP operating profit of 960 million yuan, down 13% YoY.

Source: Dolphin Investment Research

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