Luckin Coffee May Overtake Starbucks as BlackRock Hedges Bet of China Coffee Master

LIAO SHUMIN

(Yicai Global) April 19 — Chinese startup Luckin Coffee has secured USD150 million in investment, led by US asset management giant BlackRock, which is hedging its investment in Starbucks, a coffee chain that Luckin Coffee is trying to outstrip on its home turf.

Luckin Coffee topped up its B round of financing with a fresh injection, including USD125 million from a private fund managed by BlackRock, CHNFund media outlet reported yesterday, citing the Beijing-based firm. The less-than-two-year-old unicorn’s valuation has reached USD2.9 billion. New York-headquartered BlackRock is Starbucks’ second-largest shareholder, holding nearly 7 percent of its common stock.

The Chinese startup will build over 2,500 new stores this year, raising the total to more than 4,500 units, and overtake Starbucks in the number of stores and cups of coffee sold to become China’s largest coffee chain, the company deemed in its business plan for the B round of financing finished last November. The firm had to pledge its coffee machines earlier this month as collateral for loans to stay in the cash-burning race with the Seattle-headquartered rival.

Starbucks has opened over 3,500 stores in China as of last September. It entered the market in 1999.

Luckin Coffee’s business model differs from that of Starbucks that builds shops and sell products that look and taste pretty similar around the world. The Chinese firm’s outlets have no seating as they are mostly designed for delivery and they campaign buy-two-get-three offers on a regular basis. At CNY24 (USD3.60), one cup of Luckin latte costs about 20 percent less than Starbucks’s in China. Discounts are here to stay, the Chinese firm has assured its clients.

Luckin Coffee secured USD200 million in its B round of financing, raising its valuation to USD2.2 billion. Joy Capital, Beijing Dazheng Management Consulting, China International Capital eked out their support from the similarly sized A round to take part in this one too.

Luckin Coffee sold 85 million cups of coffee from January to September last year. It posted CNY375 million (USD55.9 million) in sales revenue and CNY857 million in net loss, the same business plan shows. In other words, one cup of Luckin coffee costs the firm CNY27 to make, gives it CNY4 in revenue, and accrues a loss of CNY23 if absorbing all other business costs.

Editor: Emmi Laine