Luckin Coffee, the Xiamen-based challenger to Seattle-based Starbucks, is aiming to open 2,500 new stores this year in the world’s most populous nation.
That would bring the Chinese coffee-and-bakery chain's total number of stores in the country to more than 4,500, overtaking Starbucks’ current total of about 3,600 stores.
“Luckin aims to become China’s biggest coffee chain brand by the year end, totally surpassing Starbucks by cups of coffee sold and number of shops,” co-founder and chief executive Qian Zhiya told reporters at a press briefing in Beijing on Thursday 17 January.
The 43-year-old Chinese entrepreneur, who graduated from Wuhan Textile University in 1999, and has an executive M.B.A. from Peking University, spent most of the last decade as COO of Shenzhou, a car rental app and website. She is also co-founder of UCAR, a ride-hailing platform spun off from Shenzhou.
Currently valued at $2.2 billion after raising $200 million in a funding round last month, Luckin is backed by investors including Singapore’s sovereign wealth fund GIC and China International Capital Corp.
It opened more than 2,000 locations in the last year, including one in Beijing's Forbidden City, the former imperial palace site from which Starbucks was famously evicted more than a decade ago, after protests that it trampled Chinese culture.
Most of Luckin's outlets, in or near office buildings, are designed for both fast pickup and delivery and don't accept cash with Customers being only pay through the Luckin app, as the startup has placed the savvy use of technology at the heart of its business.
Luckin is also luring customers with cheap prices. The South China Morning Post says the price for a large cup of latte coffee at Luckin is 24 yuan (US$3.50), roughly 20 percent lower than comparable items from Starbucks in China
The startup also gives away promo coupons to those who invite WeChat friends to register on the Luckin app. For delivery orders, if your coffee is spilled or doesn’t arrive within 30 minutes as promised, the next drink is on them.
Luckin is estimated having more than 12 million customers and nearly 90 million cups of coffee sold as of December. According to a Goldman Sachs report, nearly 70 percent of Luckin customers are below 30 years old.
The firm has reported a loss of 860 million yuan from January to September last year.
“Profitability is off discussion at this stage,” Luckin chief marketing officer Yang Fei said in the same briefing. “What we see is [growing] speed and user scale.”
The coffee shop market in China, traditionally a land of tea, is estimated to be worth over US$4.5 billion.The Chinese on average drink only four cups of coffee every year. This number is a bit higher in first-tier cities, where the average amount is twenty, compared to the 400 by the typical American.
With so much room for growth, the Chinese coffee market can easily accommodate more than two successful retail chains. Luckin is reportedly seeking an IPO in Hong Kong this year targeting a valuation of HK$30 billion.
Luckin filed on Monday (April 22) for a U.S. initial public offering (IPO). According to a SEC filing dated May 6, the coffee chain will offer 30 million American depositary shares or ADS -each of which is worth eight Class A ordinary shares of stock- priced at between $15 and $17. If it sells the shares at the high point of that range, it would raise $510 million.
Last month, the ambitious startup closed a Series B-plus raise totalling $150 million led by New York private equity firm Blackrock, which holds a 6.58 percent stake in Starbucks.
The IPO is scheduled to take place on May 17. Credit Suisse, Morgan Stanley, CICC, and Haitong International are the underwriters for the IPO, which would be the sixth largest of the 53 IPOs on US exchanges so far this year, according to Bloomberg data.
Luckin has applied to trade on the Nasdaq Global Select Market under the ticker “LK.”
Luckin Coffee begun trading for the first time on the Nasdaq on Friday (May 17) at $25 per share, well above its IPO price of $17. The coffee chain sold 33 million American depositary shares in the IPO, which is 3 million more than previously planned. The pricing values Luckin at about $4.2 billion.