UPDATE: April 22, 2019: Luckin Coffee filed for an initial public offering Monday with the U.S. Securities and Exchange Commission. The Chinese chain set a proposed maximum offering of $100 million.
Dive Brief:
- Chinese startup Luckin Coffee is reportedly working on a $300 million U.S. IPO. The company is working with Credit Suisse Group on the deal, which could close as soon as Q2, Bloomberg reports.
- This news comes as Luckin plans an aggressive expansion in China to take on Starbucks. The company opened about 2,000 units in 2018, its first year in operation, and expects an additional 2,500 new units this year.
- For Starbucks, China has become its fastest-growing market and the second biggest market in its 50-country portfolio.
Dive Insight:
In China, Luckin has quickly set itself up as a sort of anti-Starbucks by focusing on affordability and, thanks to its cashless format, convenience. Luckin seems to be taking advantage of a number of emerging consumer — and operator — demands. Outlets are smaller and equipped for carryout/delivery, for example, and payments are all digital. Also, Luckin is about 30% cheaper than Starbucks.
The fledgling company — not even a year and a half old — expects to have about 4,500 locations open in China by the end of this year, which would surpass Starbucks' 3,600 stores 20 years in the making.
Luckin's focus on China is no big surprise. Demand for coffee in the market is rising significantly, with consumption nearly tripling in the past four years. Coffee imports have grown 16% a year compared to about 2% in the U.S. Although the horse race could certainly get interesting as both Starbucks and Luckin eye aggressive expansion plans, the runway is long in the market and other players, including Costa Coffee, are jumping in as well.
Luckin is valued at $2.9 billion following a $150 million cash infusion led by BlackRock, reflecting investor confidence, but some red flags have been raised. Specifically, Luckin has burned through a lot of cash and fast —Capital Watch reports the company lost $128.6 million during the first three quarters of 2018. And while executives noted that this number is in line with expectations as the company grows, Starbucks is valued to be around $85 billion. So while Luckin has thrown a lot of money to scale quickly — including through an abundance of promotions like free delivery — the bigger question is whether it will be able to sustain the business from an operational, digital and marketing standpoint once its ideal footprint is in place. Will it be able to wean off of its heavy promotional activity? This is where Starbucks, thanks to its deep history and pockets, will continue to have a major advantage.
