[Biz & Issue] "Chinese Starbucks" Luckin Eyes New York Entry, Aims for Nasdaq Relisting

Luckin Coffee Shares Rise in U.S. OTC Market
Preparing to Open First Store in New York

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Luckin Coffee, the largest coffee brand in China, is seeing its share price rise in the U.S. over-the-counter (OTC) market as it prepares to open its first store in New York. As Luckin Coffee, often called the "Chinese Starbucks," has dominated the coffee market in China, there is growing interest in whether its competitive edge will also prove effective in the U.S. market. Given its history of being delisted from Nasdaq in 2020 due to an accounting fraud scandal, many emphasize that regaining investor trust is of utmost importance.

Luckin Coffee Shares Rise 34% in U.S. OTC Market Since Start of Year

Since its delisting from Nasdaq in 2020, Luckin Coffee has been trading in the U.S. OTC market, where its share price has recently been on the rise. On June 12 (local time), Luckin Coffee's share price in the U.S. OTC market reached $36.04, up 34% from $26.92 at the beginning of the year. Expectations for increased U.S. sales are growing as Luckin Coffee announced plans to open its first store in Manhattan, New York, by the end of the year.

According to CNBC, Luckin Coffee's first U.S. store is scheduled to open later this year in the East Village area of lower Manhattan, New York. The specific opening date has not yet been disclosed. Although Luckin Coffee has already expanded into Singapore, Hong Kong, and Malaysia, this will be its first store in the U.S. Investors are closely watching to see if the company can outperform Starbucks outside of the Greater China region.

Last year, Luckin Coffee overtook Starbucks in the Chinese market, maintaining its position as the top seller for two consecutive years. Its sales in China last year reached 34.47481 billion yuan (about 6.5605 trillion won), far surpassing Starbucks, which recorded $3 billion (4.1004 trillion won) in sales. As of the end of last year, Luckin Coffee operated 22,340 stores in China, compared to Starbucks' 7,750, widening the gap to nearly three times.

Winning Over Local Tastes Is Key... Will the Low-Price Strategy Work in the U.S.?

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The main factor behind Luckin Coffee's victory over Starbucks in China is considered to be its low-price policy. In China, Luckin Coffee sold its drinks at an average price of 9.9 yuan (about 1,880 won) per cup, while Starbucks charged 30 yuan (about 5,700 won), giving Luckin Coffee a clear advantage in price competition. The ability to order and receive delivery via WeChat, China's social networking service (SNS), is also cited as a major reason for its popularity.

Additionally, specialized menu items such as the "Moutai Latte," which is extremely popular in China, have served as another strength. In 2023, Luckin Coffee partnered with Moutai, China's largest liquor company, to launch a latte containing Moutai liquor. The product became a huge trend, selling 5.42 million cups on its first day. Last year alone, Luckin Coffee developed 119 new coffee and beverage menu items, significantly boosting its sales.

However, it remains uncertain whether these strategies will work in New York. Danilo Gargiulo, senior analyst at Bernstein, a U.S. investment bank, told CNBC, "New York, with its diversity and large young consumer base, will be a culturally optimal testing ground for a Chinese coffee brand. However, the coffee market in New York is already saturated and highly competitive. If Luckin Coffee is seen merely as a unique, exotic brand, it will be difficult to become part of Americans' daily morning coffee routine."

Delisted from Nasdaq in 2020 Due to Accounting Fraud... Revived by Expansion in Chinese Market 

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Analysts say that even if Luckin Coffee succeeds in establishing itself in the U.S., it must regain market trust to seek relisting on Nasdaq. Since it was delisted just one year after its IPO due to accounting fraud in 2020, investor concerns still linger.

According to CNN, in June 2020, the U.S. Securities and Exchange Commission (SEC) revealed that Luckin Coffee's Chief Operating Officer (COO) Liu Jian and several employees fabricated transactions to inflate revenues, resulting in the company's delisting from Nasdaq and a fine of $180 million (about 245.2 billion won).

At the time, Luckin Coffee was found to have inflated its reported revenue by more than 2.2 billion yuan (about 418.1 billion won), or 40%, from the second to the fourth quarter of 2019. As a result, the company was delisted from Nasdaq in May 2019, just one year after its IPO, and its market capitalization of $4.97 billion (about 6.77 trillion won) was wiped out overnight. Subsequently, Luckin Coffee filed for bankruptcy protection in U.S. court.

Following the incident, the U.S. Congress enacted the Holding Foreign Companies Accountable Act. The main point of the law is that foreign companies listed in the U.S. must comply with U.S. government auditing regulations to remain listed on U.S. stock exchanges. The law significantly tightened regulations, making it impossible for foreign companies with opaque governance or accounting practices to be listed in the U.S. market.

Experts believe that Luckin Coffee must demonstrate solid profitability not only in China but also in the U.S. market to regain investor trust. Elise Malmsten, China Strategy Director at Daxue Consulting, a Chinese market research firm, pointed out, "Luckin Coffee must prove it can handle New York's high labor costs and respond well to additional cost increases. The company must also overcome U.S. government tariff issues facing Chinese firms."