Dive Brief:
- Luckin has dropped its appeal of Nasdaq’s decision to delist the coffee chain’s shares, according to the Wall Street Journal.
- Nasdaq made the decision to delist the rapidly growing company after Luckin disclosed fraud involving as much as $310 million of its 2019 sales.
- Luckin will officially stop trading in the U.S. market the morning of June 30. In May 2019, it raised $561 million during its IPO.
Dive Insight:
Over the last two years, Luckin experienced meteoric growth in China. But when news broke earlier this year that the company’s internal workings have been steeped in fraud to the tune of millions of dollars, its future became a serious question mark.
Members of the company artificially inflated numbers to make Luckin seem more successful than it actually was. In response, the chain fired its CEO Jenny Zhiya Qian and COO Jian Liu while also demanding that they step down from the board. The company faces a class-action lawsuit alleging securities fraud against executive members of its team and has assembled an independent special committee to conduct an investigation. Its stock fell over 70% after the company admitted the fabricated sales could total roughly $300 million.
Beyond the investigation, the scandal has tarnished Luckin’s image and could undercut its plans for global expansion. This may be welcome news to Starbucks, which has been feeling pressure from Luckin in recent months, especially in China — its fastest-growing and second biggest market.
Luckin has established itself as the anti-Starbucks, focusing on offering cheaper drinks, a cashless format and convenience. The competition has influenced some of Starbucks’ recent plays, including the launch of express stores in China to offer a similar convenience-oriented format that Luckin’s customers like.
What may come to Luckin’s aid during this tumultuous time is the loyalty that it brewed among some Chinese consumers. Known fondly as the Little Blue Cup, the brand issued an apology and pledge to do better. An online survey circulated in China concluded that over 50% of the 80,000 respondents indicated they accepted the chain’s apology and still view it as a national champion if it corrects its mistakes. Some are rallying behind the brand as a challenger to Starbucks, motivated by the idea of turning a homegrown startup into a global competitor. Others are flocking to the store to redeem coupons before they may become invalid, while a less forgiving contingent view the company’s conduct as damaging to the reputations of Chinese companies abroad.