Why Is Luckin Coffee Moving Into the US Market?

Luckin Coffee plans to enter the US market as early as next year, according to a Financial Times report, aiming to compete with Starbucks through drinks priced at roughly $2 to $3. The Chinese chain is preparing its own supply chain and adapting technology for the US. Its pink-sheet market value stands near $6.5 billion.

The move follows a domestic rebound: Luckin's 2023 China revenue surpassed Starbucks for the first time, with more than 20,000 stores. Luckin was delisted from Nasdaq in 2020 after admitting to inflating transaction amounts by about 2.2 billion yuan, later paying a $180 million SEC civil penalty. Its starbucks success in china came despite that history.

Recently, reports have emerged that Luckin Coffee plans to enter the US market as early as next year, aiming to challenge local giants like Starbucks with affordable beverages priced at $2 to $3. This Chinese chain brand, which was delisted from Nasdaq due to financial fraud, has seen a strong performance rebound after management changes, with its 2023 revenue in China surpassing Starbucks for the first time and over 20,000 stores. Meanwhile, Cotti Coffee, founded by former founder Lu Zhengyao, is also expanding rapidly, and the two are engaged in a 9.9 yuan price war domestically. As Luckin heads to the US, whether it can replicate its domestic low-price experience and how its old rival Cotti will respond are being closely watched by the industry.

On October 29, the UK's Financial Times reported that Chinese chain coffee brand Luckin Coffee is planning to land in the US market as early as next year, intending to compete with strong rivals like Starbucks through low-priced beverages. This news immediately sparked high attention from the market and investors.

According to insiders, Luckin is currently actively preparing for its earliest entry into the US next year, including building its own supply chain and adjusting for technical adaptation issues in the US market. Boosted by this news, Luckin's stock price in the pink sheets rose, and its current market value in the US pink sheets is approximately $6.5 billion.

Public records show that Luckin Coffee is a chain brand headquartered in China, founded by Lu Zhengyao in 2017, listed on the US Nasdaq in May 2019, and quickly began its expansion pace.

In January 2020, short-seller Muddy Waters released an 89-page report accusing Luckin of financial fraud; in April of the same year, Luckin admitted to fraudulent acts such as inflating transaction amounts, involving about 2.2 billion yuan; in June, Luckin was required to delist from Nasdaq; in July, the China Securities Regulatory Commission launched an investigation into it.

During the fraud scandal, Luckin reached a settlement with the US Securities and Exchange Commission (SEC), paying a $180 million civil penalty, and signed a $187.5 million settlement letter of intent with plaintiff representatives due to a US class action lawsuit.

Domestically, according to the administrative penalty decision of the State Administration for Market Regulation, Luckin was fined a total of 61 million yuan for false advertising. Industry insiders believe that these penalties reflect the strict attitude of Chinese and US regulators towards Luckin's financial fraud and also highlight the high cost Luckin paid for it.

In July 2020, Luckin Coffee underwent major personnel adjustments, with Guo Jinyi taking over as Chairman and CEO, and original shareholders such as Lu Zhengyao collectively exiting.

In January 2022, Centurium Capital announced that the buyer consortium it led completed the acquisition of some shareholders' equity in Luckin, marking the complete departure of Lu Zhengyao and the original management.

Public data shows that in 2023, Luckin's revenue in the Chinese market reached 24.9 billion yuan, surpassing Starbucks for the first time. In the second quarter of this year, Luckin's revenue was 8.4 billion yuan, setting a new single-quarter high, with a net profit of 870 million yuan. In July this year, Luckin announced that its number of stores in China exceeded 20,000.

Lu Zhengyao, who left Luckin due to financial fraud, after several entrepreneurial attempts, once again targeted the coffee track and founded Cotti Coffee in 2022. As of October 2024, Cotti's domestic stores have exceeded 10,000.

Since then, Luckin and Cotti, in order to compete for franchisees and consumers, have launched a 9.9 yuan price war, attempting to quickly seize market share through discounts, and the two brands often choose locations close to each other, engaging in close-quarters competition.

This time, Luckin is rumored to enter the US as early as next year. Whether its old rival Cotti will take corresponding measures is something the industry is waiting to see.

Another media report cited informed sources saying that Luckin will focus on cities like New York with large numbers of Chinese students and tourists. Previously, the company had placed advertisements during NBA games to build momentum for its planned debut. Luckin hopes to draw on its experience in selling affordable coffee in China, launching beverages priced at about $2 to $3, challenging traditional American brands with a low-price strategy.

Image source: Internet

The above content is compiled by CoffeeHunters, a coffee news website.