The State Administration for Market Regulation, the national market regulator, announced on Tuesday morning that it has fined two Luckin entities and 43 third-party companies a combined 61 million yuan (around $9 million) for Luckin’s falsification of marketing data and for misleading the public.
Embattled Luckin Coffee replied to the fine through a Weibo post, saying it respects all the decisions made in this investigation and has carried out a comprehensive rectification. “We will further regulate our business activities and ensure a steady operation in accordance with relevant laws and regulations,” the company said.
The administration launched an investigation into the company’s alleged unfair competition practices earlier this April and found, between April and December 2019, Luckin Coffee recorded 2.25 billion sales through fake coupons. In the same period, it inflated key figures, like sales revenue, cost, and profit margin, with the help of a number of third-party companies. From August 2019 to April 2020, Luckin Coffee widely publicized its false marketing data through various channels, making false and misleading commercial propaganda. Luckin Coffee violated Chinese laws regarding its falsifications and deceiving the public, according to a statement from the State Administration for Market Regulation.
On April 2, under the influence of the fraud scandal, Luckin Coffee, the once high-flying “Starbucks challenger,” carried out an internal investigation and found that its Chief Operating Officer Liu Jian had fabricated 2019 sales by about 2.2 billion yuan (around $310 million). Shares of Luckin Coffee plummeted 80% after the company’s internal probes and Luckin Coffee dismissed its CEO and COO, local media reported.
On June 29, Luckin Coffee officially stopped trading on Nasdaq, followed by the stock exchange’s delisting notification.
Since the accounting fraud was disclosed, Luckin Coffee has maintained its operations despite the serious damage to its brand image. Beijing Business Today explains that Luckin’s business focus has changed from accelerating the expansion of stores to the use of online platforms.
At the same time, Luckin coffee is still subsidizing its customers who were initially attracted to the coffee chain by its free vouchers. It is still heavily investing in discounts and deals to keep the coffee price at a low level.
With more heavy fines to come, industry analysts believe that maintaining operations is the next most important task for Luckin Coffee.