May 20, 2019 (China Knowledge) - Chinese coffee upstart Luckin Coffee commenced trading last Friday on the Nasdaq, surging nearly 50% to USD 25 per share before closing lower at USD 20.38 per share, up by 20%.
Luckin Coffee priced its IPO at USD 17 per share at the top of its indicative price range, raising more than USD 570 million in the process and giving the company a valuation of more than USD 4 billion.
Luckin Coffee which was founded less than 2 years ago in October 2017 has managed to expand rapidly in the country and is now only second to Starbucks with 2,400 stores in 28 cities. The company aims to open an addition 2,000 stores in the country by the end of this year which will bring its total to 4,500 locations, surpassing Starbucks.
According to chief financial officer Reinout Schakel, the company aims to help consumers to save money, pricing its coffee drinks at roughly RMB 20 per cup after discounts about half of what a typical cup of Starbucks coffee would cost.
At the moment, Luckin Coffee is still operating in the red with a net loss of USD 241.3 million on USD 125.3 million of sales last year. In addition, the company has also made a loss of USD 82.2 million during the first quarter this year.
Despite this, Luckin has said that it will continue with its “cash-burn” strategy in order to acquire more customers through discounts and deals, investing in technology in order to keep its costs down in the long run.
Overall, China’s coffee market still has much room for growth with Chinese consumers only drinking 6 cups of coffee a year on average in 2018, compared to 279 in Japan and 388 in the US. Even consumers in Taiwan and Hong Kong consume more than 200 cups of coffee on average annually.
Luckin hopes that the rising popularity of the caffeinated drink in the country coupled with its own more affordably priced brews will help to win over consumers and create more coffee drinkers in the country.
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