The Chinese Like Coffee

       Starbucks, the American company founded in Seattle, Washington well over 20 years ago, established itself in China a few years ago.  The company and its products became an icon among Chinese youth and students, going to the coffee house for a taste of espresso, American style.  Like so many American products, the Chinese business community tries to imitate and or copy the product line for domestic consumption.  Often it is done by coercion, government pressure, or out right theft.
Enter Charles Zhengyao Lu.  He and a partner, Jenny Zhiya Qian, co-founder, started their coffee company in 2017.  That's right: 2017, or yesterday, really.  
      Within 18 months, the company made a NASDAQ initial public offering, one of the fastest ascensions by a startup globally.  The company raised more than $2 billion from private and public investors.  Then they opened more than 4500 stores and in the process over took Starbucks as coffee bar leader in China.  And then..................
       Company employees disclosed that most of the sales figures from 2019 had been fabricated.  What a shock to those Chinese coffee drinkers.  Oh, wait a minute.  Do they care about share price?  Hell, no.   They want a decent shot of espresso, maybe with a dab of foam.  Bankers on the other hand became apoplectic.  All those shares of stock that had reached above $26(ADR's), were now valued somewhere south of $5.38 last Friday,  April 3rd.  Then Monday, April 6, the shares nose dived to $4.39.   Those of us who've been around for awhile, remember the old days in China when such a public disgrace would cause some seriously harsh reprisals.  Usually a show trial, followed by a confession, then a summary execution, usually in front of a live audience.  Times have changed; haven't they.  No more executions; bad for business; bad for public relations.  So, Mr. Lu will no doubt suffer some personal losses; his partner, Ms. Qian, even more. 
       Let's not overlook the American bank who gave loans to the company backed by equity shares as collateral.    Goldman Sachs had a margin loan of $518 million that had been backed by shares valued at $3 billion at the end of 2019(about 3 months ago!!!!!).   Credit Suisse, another bank with mud on its shoes, was the front runner in the IPO and is the holder of shares lenders are looking to sell.  They declined to comment on the affair.
      Oh, Luckin Coffee claims that its beverage is premium Arabica coffee.  Wanna bet it's something other than that?

Not a Luckin coffee house

coffee house poster boys