Luckin Coffee, a Chinese coffee-on-demand startup hailed as Starbuck-competitor, has faced criticism for its heavy cash burn after financial documents leaked in December. The firm is posting burgeoning losses – RMB 857 million (US$124 million) – over the first nine months of 2018. This has sparked concerns whether Luckin would be the next Ofo – China’s former bike-sharing darling that’s now facing bankruptcy.
It’s all under control, has been Luckin’s response to critics so far. When the financial plans first leaked, KrASIA reported that the 9-month losses were in line with Luckin’s expectations. Winning market share quickly through subsidies is Luckin’s well-established strategy, says the startup. It is still going forward with the same strategy this year and is not hard pressed to turn a profit anytime in the near future.
At the firm’s first strategy press conference in 2019 held on Thursday, it offered a more detailed response to critics of its cash-burning strategy. Chinese research and consulting firm Chinaventure reports Luckin’s response in three parts (link in Chinese), although it’s unclear whether Chinaventure representatives attended the meeting.
Off the bat, Luckin suggests negative media coverage in the past weeks were the result of a targeted smear campaign.
“We conducted a source analysis of more than 2,000 users who [contributed to] the topic on Weibo, and found that 28.8% of the users were from overseas;” users who hadn’t even tasted its coffee, Luckin told local media at the conference. The Chinese coffee startup reportedly also suggests that there are “hands pushing behind the scenes” in a “public relations war”. It doesn’t name names but suggests actors who are “jealous” of Luckin’s quick rise are responsible for the strong criticism online.
Luckin re-iterated that it’s seeing no reason to shift strategies and that these losses were anticipated. Going into 2019, Luckin said, the target is to open another 2,500 new stores in its bid to become China’s largest coffee chain.
The startup’s speed at capturing the market has been impressive. It only began its operations at the beginning of 2018.
The firm counts the likes of China International Capital Corp Ltd, Singapore’s GIC amongst its pool of investors and is valued at US$2.2 billion after its last fundraising round.
Editor: Nadine Freischlad
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