Starbucks competitor Luckin apologizes for fraud scandal

Agence France-Presse

Posted at Apr 06 2020 07:13 AM

Starbucks competitor Luckin apologizes for fraud scandal 1
A cup of 'Luckin Coffee,' coffee is displayed during the company's IPO at the Nasdaq Market site in New York, US, May 17, 2019. Brendan McDermid, Reuters/File 

BEIJING - Luckin Coffee, China's biggest rival to Starbucks, apologized on Sunday after it revealed a top executive may have faked 2.2 billion yuan worth of sales in 2019.

The company's former chief operating officer, Liu Jian, and several of his staff have been suspended pending an internal investigation, it said in a US Securities and Exchange Commission filing last week. 

"The company retains the right to take legal measures against those suspected to be involved, it will not shield them or be lenient," Luckin Coffee said in a statement on Weibo Sunday.

Luckin Coffee added that its stores would remain open as usual, and acknowledged that it relied on the support of its customers.

The company said in its filing that fabricated sales extended from the second to fourth quarter last year, making up almost half of its estimated 2019 revenue of US$732 million. 

Luckin Coffee has not yet released its fourth-quarter results. 

After the bombshell was revealed Thursday, shares in the NASDAQ-listed firm plunged more than 70 percent. 

Launched in 2017, the Chinese coffee chain made a remarkable debut on Wall Street in May 2019, raising US$561 million during its IPO. Shares soared by more than 50 percent during initial trading. 

The coffee start-up had aimed to dethrone Starbucks in China by pursuing an aggressive growth strategy, enticing customers with an app-based purchasing model which prioritized takeaway and delivery options, and generous mobile coupons. 

By the end of 2019, the Xiamen-headquartered chain's 4,500 outlets in mainland China had already surpassed Starbucks' 4,300 stores, and investors touted the company's potential to go global. 

Short-selling firm Muddy Waters Research raised doubts over the accuracy of Luckin Coffee's third-quarter financial transactions in a report earlier this year.

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