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Fast-growing Chinese chain Luckin Coffee files for a U.S. IPO

The Starbucks competitor wants to raise $100 million, says RB’s The Bottom Line.
Photograph: Shutterstock

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Luckin Coffee, the Chinese company that has gone from nonexistent to giving Starbucks major headaches in just two years, on Monday filed for a $100 million initial public offering in the U.S. as part of a major effort to fund its continued expansion.

The Beijing-based company opened its first location in October 2017, and quickly ramped up its tech and delivery-centric operations in just two years. 

As of March 31, Luckin operated nearly 2,400 locations and had 17 million customers. Its customer retention rate had also improved, meaning it is starting to generate a loyal following.

Luckin generated $71.3 million in revenue in the quarter ended March 31, according to the company’s registration filing.

But it also lost a lot of money—losses during the quarter totaled nearly $79 million. The company acknowledged that it plans to spend aggressively to expand its brand awareness and store network and expects to “continue to invest heavily in offering discounts,” which could keep those losses coming.

Still, the filing shows a company that stands as a major threat to a key element in Starbucks’ growth strategy—providing an instant, major threat to one of the company’s biggest markets by tapping into the population’s demand for convenience.

Starbucks operates more than 3,500 locations in China and views the country as a major growth engine. But the chain’s same-store sales there slowed last year to 2%, a slowdown that coincides with Luckin’s emergence as the second-largest player in the market.

Luckin has tapped into the tech-savvy Chinese consumer with a takeout- and delivery-friendly offering.

China is a rapidly growing coffee market—Luckin cited data that predicts that the coffee market will more than triple by 2023, when Chinese consumers are expected to consume 15.5 billion cups.

Luckin has used mobile apps and a rapidly growing network of bare-bones stores that don’t accept cash and have few seats and are located in areas where demand for coffee is high. That reduces costs for things such as leases and buildout because the stores have few decorations. And the chain doesn’t have cashiers.

“By disrupting the status quo of the traditional coffee shop model, we have gained significant cost advantages and provided attractive value propositions to our customers,” the company said.

Luckin has a centralized technology system with improved operational efficiency and an ability to scale up its business. It uses data analytics and artificial intelligence to generate data from its operations to continue to improve the business.

The company also has a strong delivery business—China is perhaps the most delivery-friendly country on earth. Luckin frequently uses delivery-only kitchens to introduce itself to a new market. The company operates 98 delivery-only locations. It also operates 109 larger “relax stores” that are more like a traditional coffee shop.

The company has seen major growth in its non-coffee business, too. In the first quarter, 17.6% of its sales came from food and other products.

The Luckin Coffee IPO would be the first traditional IPO in the U.S. since 2015—though companies have gone public through reverse mergers and crowdfunded mini offerings in the years since. That it's a high-growth, Chinese company threatening a major U.S. brand's growth in that country is probably an appropriate sign of the times.

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