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Abu Dhabi, UAESunday 24 March 2019

China's coffee unicorn Luckin said to be planning US IPO

Chinese firm, which has ambitions to overtake Starbucks at home this year but is still loss-making, chose New York for the listing, sources said

A Luckin Coffee store in Beijing. The firm is said to be mulling a New York initial public offering. Reuters
A Luckin Coffee store in Beijing. The firm is said to be mulling a New York initial public offering. Reuters

Chinese start-up Luckin Coffee, which has ambitions to overtake Starbucks at home this year, has tapped three banks including Credit Suisse to work on a US initial public offering in 2019, sources said.

Goldman Sachs and Morgan Stanley are also advising Luckin, one of the quickest firms to reach "unicorn" status in China, on preparatory work for the IPO, said the people. One of the people said the company is targeting a valuation of about $3 billion in the IPO.

Credit Suisse is the only bank that has so far won the formal mandate for the offering, which will likely take place early in May or June, or the second half of the year, said another source.

Beijing-based Luckin, which officially launched its business only in January last year and is still loss-making, chose New York for the listing as Hong Kong generally requires IPO applicants to have a track record of three financial years.

Another reason is that Luckin looks to benchmark itself against Seattle-based Starbucks in terms of valuation, said the sources. Starbucks has long dominated China's coffee scene and has over 3,600 stores in the country.

Luckin didn't respond to requests for comment. Credit Suisse, Goldman Sachs and Morgan Stanley declined to comment.

The move comes as Luckin, backed by Singapore sovereign wealth fund GIC, expands at breakneck speed across China. The firm already opened over 2,000 cafes last year, propelled by a focus on online ordering, cheap delivery, and heavy discounting even at the cost of mounting losses.

It said last month it is aiming to open 2,500 new stores this year and overtake Starbucks as the largest coffee chain by number of outlets in the world's second-biggest economy.

In December, it raised $200 million in its latest funding round from investors including GIC and investment bank China International Capital, increasing its valuation to $2.2bn.

Luckin raised $200m in July from investors including GIC, making it a unicorn with a valuation of $1bn. Unicorns are start-ups valued at $1bn or more.

The firm recorded a loss of $120m last year, which chief marketing officer Yang Fei said in January was in line with expectations as it pushed to expand.

Separately, Tim Hortons has arrived in China, joining the high-stakes battle to sell coffee in a huge country that mostly drinks tea.

The Canadian coffee-and-doughnut chain, run by Burger King-owner Restaurant Brands International, plans to focus on “everyday value” as it muscles up against the ambitious plans of local and foreign players. Its also debuting at a tricky time as a diplomatic row brews between China and Canada, according to Bloomberg.

While more consumers may be giving java a shot, the coffee market remains relatively small. Only about a third of Chinese consumers bought hot coffee in 2017, according to a report from Kantar Worldpanel. Tim Hortons has its work cut out for it, said Jennifer Bartashus, an analyst at Bloomberg Intelligence.

“It’s a tough market,” Ms Bartashus said. “Competitors have been there for a long time, and already established some sort of reputation with the consumer.”

Tim Hortons is targeting to open 10 to 20 locations in Shanghai this year, said Alex Macedo, president of the chain. The brand is trying to stand out from rivals with a robust food menu that includes made-to-order shrimp sandwiches and salads, he said.

“Some of these other competitors, these coffee shops, they don’t have food at all,” Mr Macedo said. “We’re going to migrate toward being more of a cafe destination for a place for you to sit and hang out for a while.”

Updated: February 28, 2019 01:49 PM

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