Goldman Sachs addresses key investor questions following initiation coverage of Luckin and Chagee

Overview

This report is a supplementary analysis by Goldman Sachs addressing investor roadshow feedback and frequently asked questions following coverage initiation of Luckin and Chagee. Key topics include growth potential in China's freshly made beverage industry, the coffee competitive landscape, whether price promotions may escalate, same-store sales pressure under the high 2Q-3Q base, store opportunities across city tiers, and the impact of coffee bean, milk, tea, and PET raw material prices.

Core views

Goldman Sachs broadly believes the freshly made beverage industry remains a relatively high-growth segment within consumer sectors, with penetration still low. Short-term same-store sales are under pressure from last year's high base and weather, but market expectations are already conservative, and some brands showed resilience in June. For Luckin, Goldman Sachs emphasizes that price competition remains rational, while a lower delivery subsidy mix and the lagged improvement in coffee bean costs should support earnings upside in 2H26. For Chagee, the report recognizes momentum from new products but maintains a Neutral rating, focusing on whether SSSG improvement can continue.

Analysis framework

The report uses an investor-feedback-driven, question-and-answer analytical framework covering five dimensions: competition, pricing, same-store sales, penetration across city tiers, and raw material costs. It combines company guidance, channel research, Hongcan, Zhaimen, ITJuzi, Yilantop, CIC, and Goldman Sachs estimates. For valuation, Luckin is valued using a 2026E P/E multiple, while Chagee is benchmarked against trading multiples of companies such as Jiumaojiu and Helens that have experienced slowing brand cycles.

Methodology notes

• Valuation methodsP/E multiple valuation

  Price-to-earnings multiple valuation

  Luckin's 12-month target price of HK$49 is based on 21x 2026E P/E; Chagee's 12-month target price of US$13.6 is based on 10x 2026E P/E, with reference to trading multiples of comparable companies such as Jiumaojiu and Helens.

• Industry competitionCompetitive landscape and pricing discipline

  Competitive landscape and pricing discipline

  The report compares Guming, Cotti, and Luckin in terms of coffee GMV, store expansion, promotional intensity, and city-tier distribution, concluding that the probability of a large-scale escalation in the price war is relatively low.

• Operating momentumSSSG and delivery mix analysis

  Same-store sales growth and delivery subsidy mix analysis

  The report incorporates the high 2Q-3Q base, promotional calendar, weather, delivery subsidy mix, and new product performance into its SSSG assessment, and believes that a lower delivery subsidy mix is favorable for store margins.

• Company profileGS Factor Profile

  Goldman Sachs factor profile

  GS Factor Profile compares individual stocks with the market and industry peers across growth, financial returns, valuation multiples, and composite percentiles to provide investment context.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Luckin Coffee Inc. (LKNCY)

  One of the report's core covered companies, rated Buy

  Strengths

  Strong brand and coffee category recognition, leading store scale, high density in higher-tier cities, and product extensions and new products that can support traffic; benefits in 2H26 from a lower delivery subsidy mix and improved coffee bean costs.

  Weaknesses

  Short-term SSSG is affected by last year's high base, weather, and promotional ASP; store network expansion may cause same-store dilution.

  Comparison

  Compared with Cotti, Luckin has greater scale and current competitive pressure has eased somewhat; compared with tea beverage brands, Luckin is stronger in coffee expertise and higher-tier city store coverage.

  Risks

  Data privacy, market competition, weaker-than-expected pricing, raw material inflation, the impact of delivery mix on margins, SSSG dilution from store expansion, and food safety.

• Chagee Holdings (CHA)

  One of the report's core covered companies, rated Neutral

  Strengths

  New products drove month-on-month improvement in June GMV and SSSG; the 2Q-3Q base is relatively low because the company did not participate in delivery subsidies last year; its premium average ticket means PET and sugar costs account for a relatively small share.

  Weaknesses

  Investors still need to observe the sustainability of SSSG improvement; valuation references comparable companies in a slowing brand-cycle phase, reflecting constraints on growth visibility.

  Comparison

  Compared with Luckin, Chagee relies more on the tea beverage product cycle and flagship products; compared with peers such as Jiumaojiu and Helens, its valuation multiple reflects the risk of a slowdown in the brand's upward cycle.

  Risks

  Product cycle strength, innovation performance, domestic and overseas store expansion pace, delivery subsidies, margins, brand reputation, and food safety.

• Guming Holdings

  Industry competition reference and coffee expansion case

  Strengths

  Its coffee rollout leads among freshly made tea beverage brands, and June SSSG showed resilience.

  Weaknesses

  Even if its coffee scale increases, it is expected to remain only a low-double-digit percentage of Luckin's scale.

  Comparison

  Its coffee promotion of one Rmb9.9 coupon per week is significantly less aggressive than Cotti's Rmb8.8-9.9 promotions across the entire menu from 2023 through early 2026.

  Risks

  If it accelerates coffee promotions or lower-tier-city coffee education falls short of expectations, industry pricing discipline and store returns could be affected.

• Cotti Coffee

  Reference point for Luckin's competitive pressure

  Strengths

  Previously expanded rapidly through aggressive store openings and low-price promotions.

  Weaknesses

  Some months have seen net store closures since the beginning of the year, opening has slowed, and channel research indicates that approximately half of its stores were unprofitable before delivery subsidies in 2024.

  Comparison

  Cotti's current pressure has eased the direct pricing and store expansion competition faced by Luckin.

  Risks

  A renewed aggressive price war could weigh on industry ASP and earnings forecasts.

Key data

• Luckin 2Q26 SSSG forecast-5%Goldman Sachs forecasts a result better than market expectations of a high-single-digit decline.
• Luckin 3Q26 SSSG forecast-8%Market expectations are for a high-single-digit to low-double-digit decline.
• Luckin 12-month target priceHK$49Based on 21x 2026E P/E, with a Buy rating.
• Chagee 12-month target priceUS$13.6Based on 10x 2026E P/E, with a Neutral rating.
• Guming coffee revenue contribution target2026E 20%; 2027E 25%The report believes coffee expansion by tea beverage brands remains relatively rational.
• Guming 2026E coffee GMV estimateapproximately Rmb8bnAssumes a 20% coffee mix at stores equipped with coffee machines, equivalent to a low-double-digit percentage of Luckin's scale.
• Luckin store distribution by city tiertier1 16%; new tier1 44%Goldman Sachs believes Luckin and tea beverage brands with higher exposure to lower-tier cities are not in entirely direct competition.
• Luckin annual cups per capita in tier1 citiesapproximately 9 cupsUsing convenience-store coffee in Taiwan and Starbucks in the US as references, Goldman Sachs believes tier1 cities still have room for store count to double.
• Luckin coffee bean cost as a percentage of raw material costs30%-40%Spot coffee bean prices are approximately 20% below 2025 levels; considering an inventory period of about six months, the cost benefit should be more pronounced in 2H.
• Chagee Boya jasmine tea GMV contributionmore than 40%The potential impact of flooding in Guangxi on jasmine tea prices requires monitoring.

Impact & implications

The report's investment implication is that the freshly made beverage sector still faces near-term caution due to the high base and weak consumption, but earnings visibility should improve in 2H if 2Q and 1H results demonstrate resilient SSSG and profitability. Luckin's risk-reward profile is more positive, supported by its scale, brand, store density, declining delivery mix, and improving coffee bean costs. Chagee, by contrast, relies more heavily on validation of its new product cycle and the recovery of same-store sales.

Risks

• Large-scale irrational price competition re-emerges, forcing major players to follow defensively to protect market share.
• Weak consumption and last year's high base cause 2Q-3Q SSSG to fall below expectations.
• Unfavorable changes in delivery subsidies or delivery mix pressure store margins.
• Prices of key raw materials such as coffee beans, milk, PET, sugar, or jasmine tea increase.
• Rapid store expansion causes same-store sales dilution or deterioration in store-level economics.
• The new product cycle is weaker than expected, affecting traffic and GMV at Chagee and Luckin.
• Food safety, brand reputation, and data privacy incidents.

What to watch

• Whether Luckin's actual 2Q26 SSSG is close to or better than -5%.
• Whether SSSG resilience at freshly made beverage brands continues after the high-base period in July-August.
• Whether Cotti continues to close stores net and whether its promotional intensity escalates again.
• GMV, promotional frequency, and the pace of coffee machine deployment at Guming and other tea beverage brands.
• Whether Luckin's delivery subsidy mix and delivery mix continue to decline.
• Whether coffee bean prices continue rising after their recent rebound, and the actual impact of the six-month inventory lag on 2H costs.
• Changes in the impact of Chagee's new products on GMV and SSSG, and in its reliance on Boya jasmine tea.
• The impact of flooding in Guangxi, a major jasmine tea-producing region, on procurement prices and gross margins.