Blogs Luckin spill will get China coffee war brewing

Luckin spill will get China coffee war brewing

An ice-cold Luckin could reheat the competition for China’s coffee drinkers. The reeling chain, once worth $12 billion, is being kicked off the Nasdaq for fraud. Its brand may be toxic, but some of its assets – and ideas – will be of interest to Yum China, Tim Hortons or homegrown Heytea. With deeper pockets, these rivals could present an even more formidable challenge to $91 billion Starbucks.To get more news about luckin coffee earnings, you can visit shine news official website.

The Luckin delisting will destroy additional value. Major investment banks including Morgan Stanley and Credit Suisse are stuck holding stacks of shares they received as collateral when Chairman Lu Zhengyao defaulted on a $518 million loan. Given that sales were falsified, it raises fresh questions about just how many tea-drinking Chinese consumers are ready to reach for java.

Even if its financial results had been accurate, the operation was exuberantly overvalued for a cappuccino maker. One question for remaining stakeholders is whether there are buyers for some of the pieces. Roughly 4,000 stores were mostly focused on delivery and situated in low-rent back-corners. Luckin’s app, though, without which it was impossible to buy a cup of its joe, will contain useful data on some 30 million customers, assuming that figure isn’t also inflated.

If nothing else, Luckin seems to have successfully persuaded others that there is room for more bean grinders in the People’s Republic. KFC owner Yum China, which says it sold over 130 million cups of coffee last year, recently unveiled a joint venture with Italy’s Lavazza to develop a chain on the mainland. Tim Hortons also just secured backing from Chinese internet giant Tencent, which should be able to help the Canadian doughnut and coffee purveyor improve its digital capabilities. Maybe the wildly successful Heytea will develop Heycoffee.

Starbucks has a good head start, and Luckin may have helped gird it for a fight. It will have to re-caffeinate itself, though. China revenue in its fiscal second quarter ending March 29 tumbled by nearly half, to $384 million, during the nationwide virus lockdown. The company expects sales at existing stores could fall by as much as 25% this fiscal year before eventually staging a full recovery. By then, however, it may find itself in a more bitter battle.