Scandal-ridden Luckin Coffee will pay USD 187.5 million to resolve claims made by US investors in a securities class action, in which the company was accused of fabricating USD 310 million in sales in 2019, according to a statement issued by Luckin last week.
Luckin said it has entered into a binding term sheet with the lead plaintiffs to fully resolve all claims, but the terms will be reviewed by the court. The company will resolve a crucial contingent liability after the settlement is approved.
Once considered the most promising coffee startup in China, Luckin was delisted from the Nasdaq in 2020, and filed for bankruptcy in the United States earlier this year. But the company has turned things around. It increased the prices of its drinks, slowed down the pace of expansion, and launched a franchise business to generate revenues from commission.
Most of Luckin’s shops in China remain open. It shut down several hundred locations in 2020, but still had 3,929 outlets by the end of the year. However, the chain lost its lead in storefront count to Starbucks’ 4,704 locations.
The company released its 2020 fiscal report on September 19. Luckin’s net income for 2020 was RMB 4.03 billion (USD 618.1 million), an increase of 33.3% over 2019, mainly due to its menu items commanding higher prices than before.
Operating expenses were RMB 6.6 billion (USD 1 billion), including losses and expenses of RMB 475.3 million (USD 72.8 million) related to the investigation into its sales numbers and subsequent restructuring.
A net loss of over RMB 2.6 billion (USD 402 million) was recorded on the balance sheet, a 20% drop from the RMB 3.2 billion (USD 495 million) net loss in 2019. Luckin Coffee served over 64.9 million cumulative transacting customers in 2020, a comfortable bump from the previous year’s 40.6 million.
Luckin’s rotating menu has yielded a few hot products. Its “thick milk series” that utilizes dairy with extra protein and richer flavor racked up 31.6 million unit sales in 2020, accounting for 20% of the annual sales volume. The newly launched “raw coconut series,” which is coffee with coconut water or coconut milk, was a particular hit, selling over 10 million beverages in June 2021 alone, Chinese media National Business Daily reported.
Once the bestselling domestic coffee brand and considered to be Starbucks’ most formidable rival in China, Luckin has left an indelible imprint on China’s F&B market. With more local beverage brands mushrooming in recent years, competition in takeaway beverages is set to become more fierce.