In recent years, the global prices of coffee beans have soared to unprecedented heights, creating waves of concern among coffee enthusiasts and businesses alikeBy the end of 2024, the price of Arabica coffee futures listed on the Intercontinental Exchange (ICE) in New York skyrocketed to an astounding $3.35 per poundThis marked a historic peak, surpassing levels last seen in March 1977. Similarly, Robusta coffee futures had previously reached $5327, setting a new record not seen since the 1970sAll this culminated in a staggering annual increase of around 70% in coffee futures prices for the year.

Amidst this climbing tide of prices, Luckin Coffee, a prominent player in the Chinese coffee market, has opted for a decidedly contrary approachThe company is making strategic moves to mitigate the costs associated with coffee beans, which have become increasingly burdensome for both retailers and consumers.

Recently, industry observers have noted that Luckin Coffee has rolled out a new line of professional coffee bean products aimed at the B2B market

This venture marks a significant expansion for the company, targeting coffee shops, hotels, and other clients who require high-quality coffee suppliesNotably, a coconut-based beverage brand named Fino has been appointed as the exclusive distributor of Luckin's B2B coffee bean offerings.

Currently, three specific lines of B2B professional coffee beans have been introduced by LuckinThese include the "Constellation Series" featuring blends like Pegasus Star and Doushu Star, alongside the "Platinum Series" which boasts a caramel-flavored blend recognized by international coffee tasting competitions with platinum and gold awardsAchievements such as these serve to establish the quality and prestige of their offerings in a competitive landscape.

Interestingly, in their promotional communication, Luckin emphasizes that these professional-grade coffee beans are quite reasonably priced, though no specific pricing details have been publicly disclosed

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A source close to the company indicated that while there is not yet a defined pricing structure for this initiative, Luckin's significant purchasing power enables them to leverage lower costs compared to prevailing market prices.

Experts in the industry are quick to point out that the current market for coffee beans is highly volatileAs of January 8, a ton of medium-quality Arabica coffee beans imported from Brazil fetched prices exceeding 60 yuan per kilogramThe dynamics are such that the smaller the purchase volume and the higher the quality, the steeper the pricePrior to this, Luckin also instituted a reduction in raw material prices for its affiliated stores, lowering the price of coffee beans by an impressive 16.8%.

What underpins Luckin's ability to operate counter to the rising prices is a robust supply chainLuckin sources its coffee beans from some of the most renowned coffee-producing regions globally, including Ethiopia, Panama, Colombia, China's Yunnan province, and Brazil

This diverse sourcing strategy not only ensures stability but also scales efficiency in procurement.

Taking Brazil as a case study, it is worth noting that the country leads the world in Arabica coffee productionLuckin's procurement from Brazilian coffee has ballooned to account for over 60% of all coffee beans exported from Brazil to ChinaIn November 2024, the company formalized a memorandum of cooperation with the Brazilian Export and Investment Promotion Agency, committing to purchase a total of 240,000 tons of premium coffee beans over the next five years, representing a staggering financial commitment of around 10 billion yuanSuch procurements might be among the largest in China’s coffee industry to date.

These large-scale contracts help mitigate the risks associated with the fluctuations in international commodity pricingFurthermore, the long-term and substantial purchasing commitments provide Luckin with leverage to secure better pricing

This positioning allows Luckin to pivot favorably even in an environment of increasing coffee bean prices.

At the operational level, Luckin has already initiated three of its own factories in China, with plans for an additional four, aiming for an annual production capacity of 100,000 tons of coffee beansThis vertical integration strengthens Luckin's control over pricing and enhances their competitive edge.

The question arises: why has Luckin expanded into the B2B sector? The domestic coffee market, while thriving, is also saturated and fiercely competitive, leading to the constant emergence and exit of brandsData from Jiamen Canteen shows that between 2023 and December 15, 2024, approximately 62,430 new coffee stores opened, but only a net addition of 16,986 remained, indicating that over 45,000 coffee shops closed in the past year.

Luckin has positioned itself firmly among market leaders with over 20,000 stores; however, the dense network of outlets and nearly two years of aggressive price wars have cast a shadow over its operations

In 2024, the same-store sales growth for three consecutive quarters was in the negative, indicating an urgent need for reinventionThe company reported net profit margins of 10.4% and 12.8% in the second and third quarters, respectively, which marked a decline from the previous year's margins of 16.1% and 13.7%.

Clearly, Luckin faces significant growth hurdles, and the reduction of its promotional offerings and the foray into tea beverages reflect a desperate need to identify new avenues for growth.

The B2B venture presents an appealing opportunity for LuckinThe burgeoning coffee market continually produces new business clients, expanding the scale of potential partnershipsThis growth signals significant revenue opportunities for suppliers akin to Hefei Hengxin Living Technology Co., which recently reported a compound annual growth rate of 81.30% in sales to clients in freshly ground coffee and newly styled tea drinks from 2021 to 2023.

If Luckin succeeds in cultivating a thriving B2B division, it could amplify its upstream purchasing capacity and enhance its bargaining power across both its B2B and B2C operations