A little over a year ago, Luckin Coffee was looking like one of the most promising new companies on the NASDAQ. Its kiosks spread like dandelions, cascading across China in a bid to tilt the country’s tea-drinking history towards coffee. Its IPO prospectus took seemingly insurmountable challenges, like China’s historically low rate of coffee consumption, and framed them as opportunities for growth. The deal was only sweetened by the company’s earnings reports, which chronicled exponential growth and helped its stock value catapult from its debut at approximately $20 to $50 in less than a year. It didn’t take long before Luckin was the predominant coffee chain in China, surpassing Starbucks’ store count as the U.S. based cafe chain struggled to do the very thing Luckin was doing with rabid success.
If that sounds too good to be true, it’s because it is. Last spring, as the COVID-19 pandemic took hold across the globe, Luckin became embroiled in scandal. Loan defaults, financial woes and allegations of fraudulent sales reporting rocked the company, slamming its stock into the single digits and bringing it face to face with the possibility of a delisting. Luckin continued to grow for a while after that, further increasing its presence over Starbucks, but numbers soon teetered in the other direction as closures took hold across the country. By mid-June, over 800 of its nearly 7,000 locations had closed, according to Thinknum data.
Today, Luckin's stag is on its way to becoming an endangered species. Its store count has declined nearly 27% in a single year since the scandal broke out, reducing its presence from an all-time high of over 6,900 locations down to 4,900. That number is likely to continue its descent even despite this week’s news that Luckin secured a $250 million life support investment, which the company says will be used to help the company make good on settlements with the SEC born of last year’s missteps.
Part of Luckin’s meteoric rise was its insistence that it’s not just a coffee company, but a technology company. Whereas Starbucks opens relaxing locations to sit and enjoy your coffee, Luckin’s coffees were ordered through apps and picked up at kiosks. These small-scale locations helped the company spread across China rapidly. The story of a company masquerading as a tech business to generate buzz and ultimately collapsing under controversy is reminiscent of WeWork, which saw its real estate empire turn to ash only a few months before the same happened to Luckin.
However, Luckin’s technology angle could be a path for it to potentially crawl out of its current mess. Though its spiraling store count makes the company’s prospects look grim, that count doesn’t include another core part of Luckin’s business: vending machines.
Just before misreporting of sales at its kiosks put the company on the knife’s edge, Luckin had been planning to expand its vending machine presence across China. If Luckin’s kiosks enabled it to grow faster than Starbucks, then vending machines, which dramatically cut the cost of real estate and employees, could present an opportunity for Luckin to get back on its feet and establish a clean record. But unlike WeWork, which is going public later this year, Luckin Coffee’s significant debts and settlements mean it will take a long time before the company can truly go toe-to-toe with Starbucks in a clean, honest way.
About the Data:
Thinknum tracks companies using the information they post online, jobs, social and web traffic, product sales, and app ratings, and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.