Summary of Key Points
Lufaxing's financial report for Q2 2026 appears impressive: revenue increased by 28.5% to 15.9 billion yuan, profit rose by 26.5% to 2.4 billion yuan, and the stock price soared by 5.9%. However, this growth is largely due to aggressive expansion (2,714 new stores added in a single quarter, bringing the total number of stores to over 36,000). At the same time, sales at existing stores have declined (a 5.3% decrease in same-store sales), and efficiency per store has also slightly dropped. While competitors such as Kudi, Starbucks, and Lucky Coffee have slowed down their expansion, Lufaxing cannot afford to stop—because its new rivals are not traditional coffee brands but milk tea shops (such as Mixue Bingcheng and Cha Baidao). To stay competitive, Lufaxing relies on "scale" and a comprehensive range of business models. It is diversifying its product offerings by introducing non-coffee beverages with a milk tea flavor, selling bottled coffee for 6-7 yuan, and launching high-end premium coffee (Blue Bottle) to target customers across all price segments.
1. Aggressive Expansion, but Diluted Sales at Existing Stores
In Q2, Lufaxing opened 2,714 new stores, the second-highest number in the past two quarters (it opened over 3,000 new stores in Q3 of last year), bringing the total store count to over 36,000. While opening more stores directly drove revenue growth, it also had negative consequences:
- Decline in Same-Store Sales: Same-store sales (from stores open for at least one year) decreased by 5.3% year-over-year, a significant worsening from the previous quarter's slight decrease of 0.1%. This is due to two main factors: new stores competing with existing ones for customers and high subsidies during last year's delivery competition, which inflated the base number.
- Slight Drop in Efficiency per Store: The profit margin per store decreased from 21.5% last year to 21.3%, indicating that the cost of opening new stores is eroding profits.
However, Lufaxing is confident, with average monthly transaction users reaching a record high of 110 million. As long as the total user base continues to grow, temporary pressure on per-store profitability is considered "acceptable."
2. Competitors Slowing Down, but Why Can't Lufaxing Stop?
This quarter, Lufaxing's competitors have slowed their expansion:
- Kudi: No longer accepting franchise agreements in key cities; average monthly store openings dropped from 750 to 283.
- Starbucks China: The number of stores remained stable at 7,991 for two consecutive quarters (no new expansions during the reporting period).
- Lucky Coffee: Added no more than 2,000 new stores throughout the year and only opened 1,000 in the second half.
Why doesn't Lufaxing slow down? Because as the market leader, defending its position is more challenging than expanding. It once outperformed Starbucks with cost-effectiveness and a larger store network. If it stops now, it could be overtaken by cross-industry players like milk tea shops or other competitors. This is similar to the "Red Queen Effect"—you must keep moving fast to stay in the same place; otherwise, you will fall behind.
3. New Rivals: Milk Tea Shops Selling Coffee
Lufaxing's main competitors are now milk tea shops. This year, many have added coffee machines to their stores:
- Mixue Bingcheng: Some of its stores sell freshly brewed coffee.
- Cha Baidao: Over 500 of its stores sell coffee, with nearly 50 cups sold per day per store.
- Guming: Plans to increase the proportion of coffee products to 20%-25% this year.
- Shangha Auntie: 85% of its stores are equipped with coffee machines.
These milk tea shops have several advantages: a large network (e.g., Mixue has over 20,000 stores), proximity to consumers, and inherent customer traffic. Their coffee may not be the best, but they offer convenience, which could attract Lufaxing's customers.
4. Lufaxing's Countermeasures: Diversifying Products and Expanding Price Segments
To address this competition, Lufaxing has taken two approaches:
- Diversifying Products with a Milk Tea Flavor: Launched 28 new beverages in Q2, with non-coffee options (such as raw coconut latte and grapefruit Americano) selling particularly well. Non-coffee products accounted for 5 out of the 25 best-selling items.
- Expanding Price Segments:
- Lower End: Selling bottled coffee (classic Americano, raw coconut latte, etc.) for 6-7 yuan to compete in the instant coffee market.
- Upper End: Its major shareholder, Dacheng Capital, is acquiring Blue Bottle Coffee, a high-end premium brand. If the deal goes through, Lufaxing will be able to offer a range of coffee products from affordable options to luxury brands, covering all price ranges.
This strategy aims to expand its business beyond just store numbers by focusing on different usage scenarios and price points.
5. Profit Analysis: Lower Delivery Costs, but Rising Expansion Expenses
Although the profit for Q2 was good (2.4 billion yuan, up 26.5%), there are significant changes in costs:
- Good News: The proportion of delivery fees decreased from 13.1% last year to 10%, indicating a reduction in subsidies and lower delivery costs.
- Bad News: Other expenses have increased: the cost of raw materials rose from 36.9% to 38.6% (more stores require more supplies); rent and operating costs increased from 21.6% to 22.8% (higher rents for new stores and additional staff); sales expenses also increased from 4.8% to 5.8% (marketing efforts for new stores).
In summary, the more stores Lufaxing opens, the higher these costs become. If per-store profitability does not improve, the pressure of continued expansion will increase.
Conclusion: Lufaxing's Dilemma and Ambitions
Lufaxing is in a difficult position where it cannot afford to stop expanding, as it may be overtaken by cross-industry competitors. Its ambition is to become a "comprehensive coffee giant" that covers all consumer segments—from traditional stores to bottled products, from affordable to premium options. The real challenge is turning its 36,000 stores into an efficient and profitable network. After all, going too fast can lead to problems, so it needs to balance scale and efficiency.