Luckin coffee, a Chinese coffee brand that has been established for less than two years and announced to be listed on Nasdaq, has a market value of US $5.4 billion, realized 3000 offline stores and nearly 20 million app users. But you may not understand: how can a listed company talk and fall? What’s going on behind this? Domatters is going to tell you all about it.

Omen of crash: Muddy Waters Research publishes Luckin Investigation Report

On February 1, Muddy Water Research, a famous research institution, released a survey report on Luckin coffee.

This 89 page report points directly to the fact that Luckin coffee is [fabricating the company’s financial and operational data]. In this report, Muddy Water believes that [Luckin counterfeiting is true] and decides to make it public on Twitter: in the third quarter of 2019 and the fourth quarter of 2019, the daily sales of each Luckin store were at least 69% and 88% overstated, respectively. Luckin coffee deliberately skipped the figures in the daytime to overstate the sales of each store. Luckin’s “goods per order” fell from 1.38 in the second quarter of 2019 to 1.14 in the fourth quarter of 2019. Luckin has overstated advertising spending by more than 150% in the third quarter of 2019, especially in focus media.

Yang Fei, the co-founder and chief marketing officer of Luckin, was the co-founder and general manager of Beijing word of mouth Interactive Marketing Co., Ltd. He has been sentenced to 18 months in prison for illegal business operations, with a lot of misdeeds. A stone hammer falls on Luckin, which makes Luckin’s share price drop 20% on that day.

But at that time, Luckin was still hard spoken, and they strongly responded to the muddy water: we are upright, not afraid of you to check! However, two months later, Luckin directly “blew himself up”!

Ruixing explodes

On April 2, Luckin coffee announced that an internal investigation found that its chief operating officer faked sales of about 2.2 billion yuan (about $310 million) in 2019. Luckin coffee exposed its financial fraud, which led to the collapse of the stock price in an instant, including six circuit breakers in the session, with a final decline of more than 75%.

The reason for self explosion is that:

1. Class action: due to the decline of stock price and the loss of investors, some law firms started class action proceedings against Luckin.

2. In the financial report disclosure season: from the end of February, China capital stock company began to disclose the financial report of the fourth quarter of 2019 and the whole year of 2019.

3. Change of independent directors: on April 2, Luckin set up a special committee and added two new independent directors. One is from the industry’s famous investigation auditor FTI, and the other is from Kirkland & Ellis, a world-class litigation firm.

Although the share price of Luckin coffee has collapsed, Luckin coffee has successfully cultivated the consumption habit of drinking coffee, and the prospect of Chinese coffee market is still bright.

Combined with the current situation of the epidemic, the epidemic situation improved, and the demand for coffee began to pick up.

Now, the new crown epidemic situation has shown a trend of gradual improvement, and is expected to be completely controlled in the near future, when the country will resume production, work and school in an all-round way. Data shows that after the epidemic, consumers have different degrees of willingness to spend more on fitness, coffee, catering, film and other life services. During the epidemic period, consumers, especially young groups, have been depressed for a long time in their normal life service consumption demand. Therefore, after the epidemic is completely over, the consumption desire is gradually ignited. In the short term, the coffee market is likely to see a round of retaliatory consumption growth. From a longer-term perspective, the business white-collar workers returning to normal working and learning status and the students’ consumption demand for coffee gradually picked up; at the same time, after an epidemic, the limitations of traditional retail reduced their coffee purchase experience, which will force the industry to be born and develop a new consumption mode.

Coffee culture is becoming more and more popular, and the market is sinking obviously

Data shows that in recent years, nearly 50% of online coffee buyers come from second tier cities, and nearly 40% of consumers come from third tier and fourth tier cities and below. The main reason is that in recent years, with the sinking of Internet users, the popularity of coffee culture is getting higher and higher, and the income level of urban residents is growing, consumption upgrading is not only limited to high-speed cities, low-speed cities also show strong demand for coffee consumption.

China’s per capita coffee consumption has a huge space to increase

Fresh ground coffee and coffee, including coffee and instant coffee, Chinese mainland coffee, are 6 cups / year, far below the average level of overseas countries or regions that have developed mature in the United States, South Korea and Japan. However, the difference is that the consumption demand for coffee in mainland China is diversified, that is, whether it is freshly ground coffee, instant coffee, capsule coffee or other forms of coffee, there are corresponding audience groups, and there are different degrees of overlap between the audience groups. Therefore, for the Chinese coffee market with a history of only 30 years, its development potential is very huge.