Luckin Coffeewas founded in Beijing in 2017 as an aggressive Chinese competitor of Starbucks. Up until
recently, the company’s growth and expansion made it look like an exceptional success story. According
to Wikipedia (https://en.wikipedia.org/wiki/Luckin_Coffee ), by January of this year the company was
managing 4,507 stores and thus had overtaken Starbucks in terms of the total number of locations. Along
the way, the company did not just raise funds in China, but was also able to raise significant funds in the
US first through bond offerings and later through sales of stock.
According to an article in that was published in Quartz online (https://qz.com/1616270/luckin-ipo-what-
you-can-eat-and-drink-at-chinas-starbucks-rival/ ) the day before the company went public on Nasdaq, one
reason for the company’s phenomenal growth was its aggressive investment in its marketing and set-up
expenditures, which “were three times its net revenue”!!! Of course, this number alone should have made
everyone very skeptical and suspicious, but even that did not tell the whole story. It turns out that the
company had seriously exaggerated its receipts, to the point “that fabricated sales from the second
quarter of last year to the fourth quarter amounted to about 40% of its estimated annual sales.”(See this
BBC story: https://www.bbc.com/news/business-52438399 ).
In the aftermath of all of this, trading of the company’s stock was halted on Nasdaq, and on April
26thChinese regulators raided the offices of the company and seized company records for further
investigations. Even so, some people actually still believe that Luckin Coffee will eventually survive all of
this, albeit others are far more skeptical (see https://investorplace.com/2020/04/turn-out-the-lights-on-
luckin-coffee-lk-stock/ )
In this context, your assignment is to write a short essay about what you see as the incentives and ethical
issues associated with the rise and fall of this company. As part of your answer, also make sure you also
discuss what you believe the long term consequences of this story may, not just for the future of Luckin
Coffee, but also for other companies who might attempt to use similar growth and financing strategies in
the future.
Sample Solution