Luckin's fall from grace capped by bankruptcy filing in US

Dive Brief:

Chinese coffee chain Luckin Coffee filed for Ch. 15 bankruptcy on Friday in New York, a move that could protect the company from lawsuits by U.S. creditors, including bondholders who are owed $460 million, Bloomberg reports .
Luckin's China system will not be affected by the bankruptcy, and the company will continue to operate in that market. Luckin first surpassed Starbucks as the largest coffee chain in China in 2019, and had nearly 4,000 locations as of Nov. 30, Bloomberg reports. Starbucks now has 4,800 locations in the market.
In December, the Securities and Exchange Commission charged Luckin with misstating its revenue, expenses and net operating loss to make it look like it was growing faster than it was. The company agreed to pay $180 million as part of its settlement.

Dive Insight:

The SEC's investigation of Luckin hasn't closed yet, so there could be more obstacles ahead for the chain. Still, it seems that the bombshell discovery of its fraud may not actually be a nail in the company's coffin.

Bloomberg reports Luckin's sales in China grew more than 35% year-over-year for the quarter ended Sept. 30 — when the company was very much embroiled in its SEC scandal in the U.S. This could mean that Chinese consumers are willing to forgive the company's tumultuous year and that Luckin could refocus on its ambitious growth plans in that market. In January, Luckin said in a statement that it remains focused on growing its core business and is "committed to its long-term growth targets."

Starbucks may take advantage of Luckin's struggles. Analyst firm Gordon Haskett said Starbucks should gain from its "increasingly aggressive pursuit of competitive advantages across digital, delivery, convenience, customer loyalty and labor force stability." On Friday when Luckin filed, the Chinese company's shares fell more than 46% while Starbucks shares rose about 3.5%. Luckin's convenience-first model has also influenced Starbucks to launch express stores in 2019.

Starbucks also plans to open 600 new China stores this year in what the company calls its "lead international growth market." During its most recent Q1 earnings call, Starbucks CEO Kevin Johnson said the company has rapidly reaccelerated new store development in China, and the company has confidence in the long-term growth opportunity for the market.