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Luckin's New Marketing Campaign: Even Distribution of 5 Million
COVID-19 and China
Luckin's New Marketing Campaign: Even Distribution of 5 Million. PHOTO: Credit to Luckin Coffee

On the night of March 17, the draw result of the first Luckin campaign published - every eligible user received CNY 39.13 (USD 5.83) as an even distribution of CNY 5 million  (USD 74.5 thousand). Adding to that 5000 users who have spent the most on received another CNY 200 (USD 29.79) reward. 

This campaign will be running from March 11 to May 19, as in 10 weeks in total. 

For the first campaign, the number of participants is 127,779 (5 million divided by 39.13).

For this campaign, Luckin needs at least CNY 60 million (USD 9 million) plus some other selling expenses. The calculation is listed below:

50 million (10 weeks x 5 million rewards each week) +10 million (10 weeks x 200 per customer x 5000 users)

It comes to the question: will this campaign worsens the financial position of Luckin, which has already incurred the loss of CNY 800 million (USD 120 million) in the year of 2018? 

Worst Case Scenarios

By assuming the worst case scenarios, a customer orders the cheapest option for 7 times. For example, one of the cheapest product at Luckin is the single chicken warp currently selling at CNY 8.58.

And if the customer orders that for seven times, the total revenue for Luckin will be CNY 60.06 (8.58 x 7).

After subtracting subsidies, Luckin's profit for 7 wraps is CNY 20.93 (60.06-39.13). Or 2.99 each.

Compared to the profit margin for snacks selling at convenience stores or cafes (usually 20%-30%), selling at CNY 2.99 each is in the loss.

Sure that if customers take more orders on higher margin products such as higher priced coffee or meals, Luckin might be profitable. 

However, what else can Luckin get from this marketing campaign other than revenues? The two obvious answers are more transactions and better brand influences. 

Luckin's rapid development is largely attributed to a large number of subsidies, also known as burning money to expand and educate the market. 

Luckin rumors seek to be listed in the US as early as June this year. Given this, there might a pressure for Luckin to perform well financially and operationally. The large profit gap is not going to be closed soon, however, it might be easy to create an illustration that there is an increasing number of orders and users.

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