Luckin Coffee Makes Nasdaq Debut

Author: Butao Wang May 17, 2019 09:52 PM (GMT+8)

Unlike traditional retail companies, Luckin gains profit from the efficiency of its store management efficiency as well as a more sophisticated middle-back end system.

Luckin Coffee, Centurium Capital and other investors celebrating. Photo: Credit to Centurium Capital

Luckin Coffee (瑞幸咖啡), the start-up coffee brand challenges Starbucks in China’s coffee market, rang the Nasdaq MarketSite bell on May 17 in celebration of its initial public offering (IPO).

The company, trading under the ticker symbol of "LK," announced its IPO of 33 million American depositary shares (ADSs), each representing eight Class A ordinary shares of the Company. The stock priced at USD 17 after Luckin priced its shares from USD 15 to USD 17 a week ago, aiming for a total offering of more than USD 500 million.

Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, China International Capital Corporation Hong Kong Securities Limited and Haitong International Securities Company Limited are acting as underwriters of this offering. KeyBanc Capital Markets Inc. and Needham & Company, LLC are co-managers.

Founded in 2017, the company applies a fast-expanding strategy that leverages the power of social media, mobile payment and operation efficiency, more importantly, the power of capital. By the end of March, Luckin Coffee has 2370 stores opened in China and is planning to set up another 2500 stores this year. The number of stores, if completed as planned, will surpass that of Starbucks with around 3700 stores in China.

Even though considered the second largest coffee chains in China, Luckin bears great controversy from its inception. “Its strong capacity in capital raising has not been backed by a sound performance,” said Wang Zhendong, “Luckin Coffee should consider closing its non-profitable stores and focus on quality growth.”

During the first quarter of this year, the company incurred losses of CNY 552 million (USD 82.1 million), with declining revenue growth.

Centurium Capital (大钲资本) is a private equity company who cooperated with Luckin from day zero. It invested in two rounds of fundraising with more than USD 180 million. “Different from traditional retail companies, Luckin gains profit from the efficiency of its store management efficiency as well as a more sophisticated middle-back end system.” David LI the founder of Centurium Capital explained in an interview, “the business model has been repeatedly tested even before its inception and we are confident on this investment.”

“Luckin Coffee, is benefit from efficiency in its store management system, Customer Relationship Management (CRM) system, logistics management system.” David added, “And cost saved will compensate for China’s coffee consumers.”

“China's coffee market is highly under-penetrated. Inconsistent qualities, high prices and inconvenience have hampered the growth of the freshly brewed coffee market in China,” the company said in its F-1 filing. “We believe that our model has successfully driven the mass market coffee consumption in China by addressing these pain points. We aim to become the largest coffee network in China, in terms of the number of stores, by the end of 2019.”