Luckin Coffee, on expansion rout, leaves Starbucks behind
The Chinese coffee company is moving to vending machines, with plans to expand overseas, as it overtakes Starbucks in terms of stores in China
Beijing/Hong Kong — Luckin Coffee has said it is expanding into vending machines that sell freshly brewed hot beverages and snacks, seeking even more of the China market after overtaking Starbucks as the country’s biggest coffee chain by number of stores.
Luckin founder and CEO Qian Zhiya said the new strategy allows it to be asset-light and nimble. “It allows us to get closer to consumers and we are not restricted by the licence approvals,” she said at an event to launch the new business.
The three-year-old start-up also launched a share placement and a convertible bond worth a combined $821m on Wednesday, according to two term sheets seen by Reuters, at a time when global stocks fell as Iran fired rockets at US-led forces in Iraq.
Nasdaq-listed Luckin is selling 12-million American depository shares (ADS) including 4.8-million secondary ones from Chinese private equity firm Centurium Capital. Based on Luckin’s close price of $35.11 on Tuesday, the deal could raise about $421m before any over-allotment option is exercised.
Centurium, an early backer of Luckin, is selling about 20% of its holdings and will remain the largest institutional shareholder in the company after the deal.
Luckin is also raising another $400m from a five-year convertible bond, carrying a coupon of between 0.5% and 1% with a conversion premium of between 27.5% and 32.5%, according to one of the term sheets. Both deals will be priced after the US market closes on Thursday.
The company plans to use part of the proceeds to open more stores and for sales and marketing.
Growing at breakneck speed by offering cheap delivery, online ordering and big discounts, Luckin also said it now has just more than 4,500 stores across China — achieving a goal it set a year ago and topping Starbucks, which has 4,100.
Luckin showcased two vending machines at the event — one featuring a Swiss Schaerer coffee machine that can make a variety of hot and iced drinks, as well as one offering a range of snacks.
The start-up, also backed by Singapore sovereign wealth fund GIC, went public in 2019 and has a market value of $8.4bn. Starbucks has a market value of $104bn.
Luckin made a net loss attributable to shareholders of about 532-million yuan ($76m) in the third quarter ended September 30 2019, compared with a 484.9-million yuan loss in the same period a year earlier. It has also said it is looking to expand overseas.