It has been a wild three years for Luckin Coffee. In 2018, after coming out of nowhere to secure $200 million in investment capital, the start-up was dubbed the biggest threat to Starbucks in the rapidly-developing coffee market in China. A year later and they had done it, Luckin was the largest coffee chain in the country, with over 4,500 locations. The meteoric rise was almost too good to be true.
Because it was. In April of 2020, it was discovered that as much as $310 million in sales from the previous year had been fabricated, leading to a $180 million fine from the US Securities Exchange Commission as well as an undisclosed fine from China’s Ministry of Finance, the removal of multiple high-level executives, and ultimately a delisting from Nasdaq. And now, just seven months on, Luckin Coffee is filing for bankruptcy.
As reported by Forbes, the coffee company “filed a petition for bankruptcy protection under Chapter 15 with the United States Bankruptcy Court, in a bid to shield itself from legal action from U.S. creditors.” The filing comes just as Luckin was slowly seeing a recovery from the scandal, in September 2020 posting “35.8% year-over-year revenue growth,” though the company overall remains unprofitable.
Between the scandal and the pandemic, Luckin found themselves forced to shutter many of their underperforming stores as well as ease their own financial burden by having nearly a quarter of their 4,800 remaining locations run by third parties.
With the end of the pandemic (hopefully) in sight, Luckin expects to see a slow improvement on profitability as life returns to normal and customers are better able to visit stores in person. But for now, Luckin is trying to stem the tide. While “the company continues to burn cash at an unknown rate,” they are trying to recover $185 million former chairman Charles Lu funneled into trusts to fund other business ventures. With the bankruptcy filing, Luckin is hoping to, at least temporarily, keep the creditors at bay.