Luckin Coffee A Financial Fake

By Ben Hamill - April 05 2020

Luckin Coffee A Financial Fake

There are vital lessons to be learnt from China’s Luckin Coffee disaster. Most importantly perhaps that the simplest explanation nearly always tends to be the correct one. Or in layman’s terms: if it seems too good to be true, it probably is. In the case of Luckin Coffee, the company famous for having issued a public declaration about wanting to take on Starbucks, too good to be true translates to the improbability of “all that profit” having been generated by only “so much coffee sold” when talking the actual reported volumes.

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It all started out pretty good for Luckin Coffee. The company had been one of the very few successful Chinese-owned entities trading in the positive on the U.S. stock market last year. Had Luckin refrained from the type of big-mouth talk that it had resorted to in recent months, a very smelly rat may have remained hidden. But now that the cat is literally out the bag, the ugly truth is positively boiling over.

Coffee Not Only Thing Brewing

A free flow of truth that has now prompted those not all that eager on spending months behind commercial prison bars to sing songs relating to a mass cooking of the books. This has led to Luckin Coffee suspending its chief operating officer, one Jian Liu, as well as the entire staff profile that had previously reported to him.

The special committee appointed by the company to look into certain issues that popped up in Luckin’s financial statements for book-year 2019 has made quite the discovery. Jian and his band of subordinates have been indulging in bookkeeping of the creative variety, leading to fabricated sales to the tune of roughly 2.2 billion yuan ($310m). This is equal to about 40% of its reported annual sales.

Moreover, it now seems as if it’s not only been a case of tampering with the sales column, but also shenanigans in the costs and expenses pot. These appear to have been inflated during the same period, and to the point of evident unbelievability.

Something Didn’t Ad Up

The company has subsequently warned investors about the reliability of its previous financial statements, which basically boils down to these now having to be taken with a pinch of salt. And really, it isn’t as if financial critics haven’t been crying wolf over the financial data coming out of Luckin’s cove for months now.

Elementary adding and subtracting clearly shows the proportion of coffee flipped at the advertised prices to be relatively small. What further goes to show that too much of a good thing is no longer good is that customers have been pretty vocal on social media about never having paid full price for any of Luckin’s coffees. And then of course there’s the particularly poignant truth that “the bookies and the shorties always know”. And so, when short-seller Muddy Waters Research started betting against the reliability of the company’s shares earlier on this year, despite Luckin having at the time tried to make it off as false, the final straw basically went up in flames.

It seems it’s not always a good idea to fake it ‘til you make it.


 When was Luckin Coffee established?

October 2017.

Where did Luckin Coffee open its first branch?

Beijing, China

What was Luckin Coffee’s aim?

To overtake Starbucks.

What was Luckin Coffee’s position on the stock market in 2019?

It was one of the few Chinese owned companies that traded in the positive.

How much did Luckin Coffee fake selling?

Coffee sales of as high as $310 million, or 40% of their real turnover.

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