The performance fraud scandal has put the spotlight on Luckin Coffee’s sales data, and the latest has just been disclosed.
Luckin Coffee’s liquidator submitted a report to the Grand Court of the Cayman Islands, revealing the latest unaudited financial information of Luckin Coffee, according to a Yicai report. Data shows that the company maintained growth momentum in the first three quarters of 2020, despite a slowed growth rate.
The report also pointed out that Luckin had transitioned from a rapid expansion strategy to a targeted expansion, with a focus on increasing profitability and cash flow.
According to the strategic plan laid out in the report, Luckin Coffee closed some underperforming stores and opened new ones. The number of Luckin Coffee stores has been reduced from 4,507 to 3,898, including 894 affiliated stores. The chain closed 69 stores in the first quarter, 378 in the second and 448 in the third quarter. With 69, 134 and 133 new additions respectively in each quarter. The chain plans to operate 4,800 to 6,900 coffee shops by 2023.
Luckin Coffee’s sales were hit by the epidemic in the first quarter, but from April to November, the company’s net income and revenue from its coffee shops showed continued growth. In the first three quarters this year, Luckin Coffee’s single-quarter revenue was 565 million yuan, 980 million yuan, and 1.15 billion yuan, respectively, a year-on-year increase of 18.1%, 49.9% and 35.8%, significant drops compared with the previous three-digit growth rate. The company expects revenue between 3.8 billion yuan and 4.2 billion yuan in the fiscal year 2020.
The report attributed the sales increase to growing customers, more frequent purchases, more appealing prices and new product combinations.
After the fake transactions were exposed, Luckin took the initiative to reduce discounts and 60% of Luckin’s stores have since achieved profitability. Luckin Coffee has also launched an unmanned retail strategy with 150 operating self-service retail machines, yet this business line is still losing money.
Danpeng Zhu, a researcher at the China Brand Research Institute, told Yicai that Luckin’s business model is legitimate while uncertainties remain in the chain’s future prospects.
From April through December 2019, Luckin Coffee faked its revenue, cost, profit and other key marketing statistics to create misleading achievements to appeal to consumers and build competitive advantages. The company also created fake transactions, procurement, deliveries and fake advertising costs with third-party firms to inflate its expenditures to balance the fraudulent profit, thus creating a boosted revenue.