Analysis | Downfall of behemoth Luckin Coffee raises questions

Luckin Coffee. (Photo courtesy of Shutterstock)

TAIPEI (The China Post) — Earlier this year, Luckin Coffee Inc. faced intense scrutiny over its fabrication of transactions totaling approximately NT$9.1 billion (USD$310.1 million).

The accounting scandal resulted in the removal of various corporate executives, delisting of their stock from the NASDAQ, and dramatic plummet of their share price. 

Based in Xiamen, China, Luckin Coffee Inc. was a pioneer in technology-based beverage retail. Their online-offline model offered cashier-less, minimalistic experiences which only allowed app-based ordering.

The market appeal centered around heavy discounts and technology, targeting white-collar workers and students with less time.

The high-tech appeal, coupled with explosive growth and publicity, earned it a dominant position in the Chinese beverage industry.

As of January 2020, Luckin announced that it surpassed Starbucks in physical stores, becoming the biggest coffee chain brand in China.

An anonymous report began circulating in February among the finance industry, however, alleging Luckin Coffee falsified financial and operational figures.

Internal investigations were launched after Muddy Water Research published the anonymous report.

On April 3, the internal investigation confirmed the accusations of financial misconduct and led to a cascade of catastrophe. 

At its peak, the Luckin Coffee Inc. (LK) stock traded at US$50 per share in mid-January. However, as of May 2020, the stock has plummeted 89 percent to date.

The company now faces a multitude of legal liabilities, ranging from the U.S. and Chinese securities regulators to Hong Kong funds holding convertible bonds issued by the company. 

The Chief Executive Officer Qian Zhiya, Chief Operating Officer Liu Jian, and Chairman Lu Zhengyao have since been removed from the company. The company has relisted on OTC Markets after choosing to not appeal to being delisted by NASDAQ.

With its reputation severely tarnished, the fate of Luckin Coffee is now unknown.