World Coffee Portal data shows Luckin Coffee operates 4,272 stores in China, a reduction of 235 sites over the last 12 months

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Luckin Coffee has agreed to pay a $180m penalty in the US following an investigation into fraudulent accounting by the Securities and Commission (SEC). Concluding its findings on the scandal, which came to light in early 2020, the US Government regulator said Luckin Coffee ‘intentionally and materially overstated its reported revenue and expenses and materially understated its net loss in its publicly disclosed financial statements in 2019.’
 
“Public issuers who access our markets, regardless of where they are located, must not provide false or misleading information to investors,” SEC Director of Enforcement Stephanie Avakian said in a statement.
 
Luckin raised more than $864m from debt and equity investors during the period of the fraud, the SEC said, adding the agreed penalty does not equate to an admission or denial of guilt relating to the charges.
 
“This settlement with the SEC reflects our cooperation and remediation efforts, and enables the company to continue with the execution of its business strategy,” Dr. Jinyi Guo, Chairman and CEO of Luckin Coffee said in a statement.
 
“The Company’s Board of Directors and management are committed to a system of strong internal financial controls, and adhering to best practices for compliance and corporate governance,” Guo added.
 
Shares in Luckin Coffee, which launched a highly successful IPO in 2019, plunged after it was revealed that up to 40% of coffee chain’s annual sales, around $310m, had been fabricated by senior employees. In May 2020, the e-commerce coffee chain sacked senior management, including its CEO Jenny Zhiya Qian, and COO, Jian Liu, who were implicated in the scandal
 
In June 2020, the Xiamen-headquartered company delisted from the Nasdaq as a consequence of the revelations.
 
Touted as a significant challenger to Starbucks’ dominance in the Chinese coffee shop market, Luckin’s fortunes foundered as revelations of financial irregularities emerged.

In May 2020, the e-commerce coffee chain sacked senior management, including its CEO Jenny Zhiya Qian, and COO, Jian Liu, who were implicated in the scandal.
 
In September 2020 China's State Administration for Market Regulation handed 45 companies, including two Luckin Coffee entities, a combined fine of 61m yuan ($9m) for ‘providing substantive assistance for false advertising’ that broke Chinese fair competition rules.
 
Despite its turbulent year, Luckin Coffee’s pioneering deployment of app-based ordering, delivery and e-commerce remains highly influential in the Chinese coffee shop market.

With formidable global brands, such as Starbucks, McCafé and Costa Coffee, as well as a fast-growing domestic segment, investing heavily in Chinese expansion and digital tools to adapt to the pandemic, competition in the highly opportune market looks set to become fierce in 2021.