The Dramatic Recovery of China’s Luckin Coffee Chain Draws Fans and Skeptics

Luckin Coffee, a Chinese coffee chain, has experienced rapid growth and expansion, with its latest financial statements showing that it has surpassed Starbucks China’s operations in terms of revenue and the number of locations. The company’s latest financial statements show that Luckin finished the quarter ending December 31 with $995 million in revenue versus Starbucks’ $735 million in the same period. This is quite a turnaround from 2020, when Luckin was all over the news for fabricating over $300 million in sales and delisted from the Nasdaq stock market in the United States.

The company was touted as a high-tech Starbucks, using data collected through the Luckin app to better target customers. However, the company faced scandals in 2020, including fabricating over $300 million in sales and delisting from the Nasdaq stock market. Stock investor Zheng Litao suspected Luckin was inflating its revenue, which proved to be true.

Luckin was listed on the Nasdaq in 2019 and the following year, the U.S. Securities and Exchange Commission came down on the coffee chain for overstating its sales. Luckin had to pay a fine of $180 million and delist. The fraud led the U.S. Congress to pass the Holding Foreign Companies Accountable Act, which states that firms cannot trade on American stock exchanges unless they comply with the country’s audit rules.

Anne Stevenson-Yang, co-founder of J Capital Research, was among a group of short sellers who followed up on an anonymous report and bet against the stock, convinced that Luckin was faking its revenue. She also has doubts about the firm’s much-touted recovery, as she believes that back in 2020 and before, they had to fake at least a quarter of their transactions to demonstrate growth to the market.

Luckin, a Chinese coffee chain, has been gaining popularity as an alternative to Starbucks due to its unique business model and pricing strategy. The company’s app offers discounts for its customers, with some users being offered different types of drinks. However, analysts like Zhang Tianbing argue that Luckin might not have grown as fast as it claimed back then, but the original idea had merit. Zhang believes that Luckin’s business model was sound, offering cheap but good takeout coffee and maintaining lean operations to charge low prices.

Luckin’s coconut latte is a megahit, with 300 million cups sold since 2021. With all its discounts, Luckin charges an average of $2 a cup compared to more than $4 at Starbucks. This makes it an attractive option for students or early career workers who need coffee but cannot afford to have a cup of Starbucks every day. Luckin’s price point is also appealing for those cutting back their spending in China’s sluggish economy.

Luckin has been experimental with its flavors, which attracted positive media coverage. Last year, it collaborated with the American cartoon franchise “Tom and Jerry” to create a mascarpone cheese latte and partnered with China’s national liquor brand, Moutai, to create the Moutai latte and the chocolate drink. Each contains about half a percent of alcohol. Starbucks China also offers alcohol in coffee, but only through its bars.

Rose Liu, a coffee shop owner, drinks up to four cups of coffee a day but runs her own coffee shops. She has a favorite there, the ice coconut latte. Luckin’s app claims it has sold more than 300 million cups of its coconut latte since 2021. Former skeptic Zheng Litao, who does not like the taste of coffee but finds Luckin’s flavored coffee particularly good, holds Luckin shares, which trade publicly over the counter.

While Starbucks has nearly 7,000 stores in China, Luckin claims it has over 16,000. The firm that was allegedly behind the anonymous report exposing Luckin’s fraud in 2020 has reportedly bet on Luckin’s comeback. However, some analysts still have doubts about the company’s supposed rebound, as they believe Luckin is popular but not cash-generative. There are reports that Luckin has plans to relist its shares, potentially on the Nasdaq again.

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