The Chinese coffeehouse chain Luckin Coffee appeared to be on its deathbed in the summer of 2020. In April, the company admitted to inflating its sales by more than $300 million. The Chinese police had conducted a raid on the company’s headquarters. Both debt and equity investors filed a fraud lawsuit against the company. The board of Luckin expelled the company’s top executives. The price of the company’s Nasdaq-traded shares decreased by more than 90 percent. Nasdaq officials expelled Luckin from the U.S. exchange in July. According to Henrik Bork, founder of the Beijing-based research firm Asia Waypoint, “it was a massive fraud.” “They falsified their records. Nobody anticipated their survival.”
Now, however, less than two years later, Luckin Coffee is attempting one of the most audacious corporate turnarounds in history. The coffee chain has recently surpassed Starbucks as the largest coffee chain in China based on the number of stores. Luckin now has 6,024 stores in China, compared to 5,654 for Starbucks. The company has never been profitable. According to Luckin’s unaudited quarterly earnings statement, the company’s losses were reduced from $406 million in 2020 to $86 million in 2019, while revenues increased by 80 percent compared to the previous year.
Eileen Gu, a Chinese snowboarder and Olympic star, is the face of a new advertising campaign for Luckin, which, according to multiple media reports, is planning to list in Hong Kong or even re-list on Nasdaq. Luckin denies that it intends to list in Hong Kong. The company, whose American Depository Receipts (ADRs) are still traded over-the-counter, maintains its “commitment to U.S. capital markets,” however.