Luckin Coffee is a Chinese coffeehouse chain selling not only coffee but other beverages like tea, juices as well as food. It appeared aggressively like another Alibaba, expanding at a rate of 6 outlets a day, threatening to dethrone Starbucks. Luckin Coffee went public on the Nasdaq stock exchange in May 2019, attracting huge investor interest.
Using the strategy of predatory pricing (perfectly legal in China), their sales outlets and sales figures quickly exceeded Starbucks’. Investors were ecstatic. However, in 2020, it was found that the company’s executives had inflated 2019 sales numbers by more than $300 million, causing a delisting of its stock in June 2020.
Did Luckin go bust? Well, no. Luckin’s story begins with Director 陆正耀 who ran 神州租车. Facing bankruptcy, Lu received a life-saving infusion of funds from Li Hui from Hua Ping Finance. His car rental company continued running on empty. Soon after that, Lu backed his crony Qian Zhi Ya in setting up Luckin Coffee. His aim was to let Qian build up the company, then feed his loss-making car rental business with hidden franchise fees. Franchise revenue earned by Luckin kept 神州租车 in business.
While many patriots cheered for Luckin Coffee, hoping that they would put Starbucks out of business, Lu and Qian never had the intention of running a legitimate bistro. After being exposed by Muddy Waters, Lu and Qian made COO 刘剑 the scapegoat. To get out of the limelight, Lu and Qian resigned, appointing another crony 郭谨一 as CEO. Guo is still the CEO today. Its shares are still trading.
It should be known that Lu, Qian and other shareholders at Luckin Coffee had upon IPO, made a stock pledge and “borrowed” from US financial institutions. A stock pledge is used when a party wants to use shares he owns as a collateral for a loan. Of course, Luckin’s shares were worth a lot when the money was borrowed but became practically worthless when the fraudulent practices came to light.
After Guo took over, Luckin Coffee miraculously survived. They have even come up with a new product – Mao Tai coffee, China’s answer to Irish coffee. Initial sales figures were very impressive.