Chinese Starbucks rival Luckin falls most since IPO amid cash burn

[TOKYO] Luckin Coffee Inc posted a loss that was narrower than expectations as the startup gained ground against Starbucks Corp in China's nascent US$5.8 billion coffee market.

In the US-listed company's first results since an initial public offering in May, Luckin posted an operating loss of 681.3 million yuan (S$133.6 million), compared to estimates of 711 million yuan, as the company continues to burn through cash to grab market share. Revenue was 909.1 million yuan, compared with analysts' estimates of 909 million yuan.

Luckin is seeking to overtake Starbucks by opening more stores in two years than the industry giant has in 20 years. Investors have questioned the Xiamen, China-based company's strategy of sacrificing profits to lure new customers with discounts when the Chinese economy is growing at its slowest pace in three decades, while a prolonged US-China trade war dampens consumer confidence.

China is becoming an increasingly important market for coffee retailers as the country's middle-class tea drinkers develop a taste for java. Luckin has an uphill battle, as it claimed only 2.1 per cent of the market last year, while Starbucks has more than a 50 per cent share and also plans to continue its rapid expansion by opening one store every 15 hours. Luckin's store count may be on track to overtake Starbucks this year, but the vast majority of its outlets are kiosks for delivery and takeaway, unlike Starbucks' plush hang-out spaces.

Investors have been attracted to Luckin's growth prospects. The shares are up 44 per cent from the $17-a-share IPO price in May.

BLOOMBERG