The high-flying, money-losing Chinese coffee chain Luckin Coffee said, on April 2, that an internal investigation had found that its chief operating officer had fabricated 2019 sales by about CNY2.2 billion yuan ($310 million). Luckin’s US shares, listed less than a year ago, plummeted 83% since disclosing the fraud. Since April 7, trading has been halted, basically freezing whatever is left of investors’ money.
It was only on March 5 that the investment advisors Motley Fool sent out a special alert with the subject heading “Buy Luckin Coffee,” saying “the rapidly expanding coffee chain's spirit of innovation and ambitious growth plans make it the player to watch among China's highest-growth stocks.”
That recommendation changed to “hold” on April 2 on the news of fraudulent operations, underscoring the company’s plummeting value.
Luckin Coffee’s management was openly boastful about its prospects of selling coffee via an app for delivery as the Chinese wave of the future. In two years, the company opened almost 5,000 stores, many more than its stated rival, Starbucks.
STiR will have a feature story on the crash and burn of Luckin in the upcoming June/July issue.