financial scandals

Luckin Coffee, associated firms fined $9 million over scandal

Agence France-Presse
Luckin Coffee, associated firms fined $9 million over scandal

A cup of coffee at Luckin Coffee on January 14, 2019. - When Starbucks came to China two decades ago it promised to open a new store every 15 hours. Now a homegrown rival, Luckin Coffee, plans to build a high tech-driven shop every three and a half hours to dethrone the US giant. The Chinese upstart is burning through millions of dollars to lure customers with steep discounts, challenging Starbucks' dominance by targeting office workers and students who prefer to have their java on-the-go or delivered to their doorstep. (Photo by Fred DUFOUR / AFP)


Chinese authorities find that Luckin Coffee, with the help of other companies, falsely increased its 2019 sales revenue, costs, and profit margins

Embattled Chinese chain Luckin Coffee is among a raft of 45 companies hit with a combined fine of nearly $9 million over a scandal involving false sales figures, China’s market regulator said on Tuesday, September 22.

Luckin – Starbucks’ rival in China – had boosted transactions last year through fake coupons by 2.25 billion yuan ($330 million) and inflated its revenue by some 2.12 billion yuan, according to an earlier probe by the finance ministry.

The scandal led to the company being delisted from New York’s Nasdaq and the removal of top executives.

On Tuesday, China’s State Administration for Market Regulation said investigations found that Luckin, with the help of other companies, had falsely increased its 2019 sales revenue, costs, and profit margins, and imposed a combined fine of 61 million yuan.

The coffee chain launched in 2017 and aimed to dethrone Starbucks in China via an aggressive growth strategy, enticing customers with an app-based purchasing model that prioritized takeaway and delivery options, as well as generous mobile coupons. 

But its shares went into freefall after the company revealed in April that a top executive had cooked the books.

From August last year to April, it also used false marketing data to “deceive and mislead the public,” going against Chinese unfair competition laws, the market regulator said on Tuesday.

More than 40 third-party companies, including Beijing Auto World Consulting Service and Beijing Shenzhou Youtong Technology Development, were found to have given “substantive assistance” for the false advertising.

Luckin said on Tuesday that it “respects and will resolutely implement” the decision after the investigation.

It also said it had carried out “comprehensive rectification” on the relevant issues, adding that it will regulate business activities in line with laws and regulations to ensure stable operations. –

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