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Game on: Starbucks’s Chinese rival luckin coffee files IPO in the US

Fierce competition between Starbucks and China’s home-grown chain luckin coffee has moved to a new arena with luckin’s April 22 IPO filing on the US Nasdaq.

Reportedly, the coffee chain plans to raise about USD 300 M in the IPO. Luckin’s current valuation of USD 2.9 M follows a USD 150 M investment on April 18, an investment largely led by notable Starbucks investor, BlackRock.

Previously, luckin received an influx totalling USD400 M in funding from investors including Singapore-based sovereign wealth fund GIC, Joy Capital, and CICC, among others.

The CNBC program “Closing Bell” interviewed two commentators on April 23. Kevin O’Leary, chairman of O’Shares ETFs said that many companies opting for IPOs these days, unlike before, are ones with little or no cash flow. An example of this is ride-hailing giant Uber, which has a massive market value. Thus, investors should be aware of potential risks. The other Michael Yoshikami, founder and CEO of Destination Wealth Management,  commented that in evaluating luckin, perhaps investors should focus on its growth. After all, the coffee chain had already expanded to 2073 stores across 22 Chinese cities by the end of 2018, merely a year after starting operations.

Both commentators pointed to the notable fact that the Chinese middle class is expanding, equating to a huge potential for growth in coffee consumers. In fact, the Chinese coffee market is expected to grow to as large as USD 145 billion (RMB 1 trillion) by 2025.

To conquer the market, luckin’s ambitious development plan centers around becoming China’s largest coffee chain with a total of 4,500 coffee shops in operation by the end of this year.  It took Starbucks 20 years to open 3600 stores across 150 cities in China. 

In 2019, Fast Company deemed luckin coffee China’s 8th most innovative company, citing that “luckin is working quickly to make coffee-drinking a habit in China” through fast-growing outposts, innovative app-powered networks, and competitive prices

(Top photo from luckin)

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