Luckin has not fallen since the financial fraud incident, and has received another $250 million investment from "old friends". It can be said that although Luckin's alarm is still sounding, capital is still optimistic about its model and market potential in the long term.

ONE

Luckin receives another $250 million in investment

Got some blood back?

On the evening of April 15th, Luckin Coffee issued an announcement announcing that it had reached a new round of financing agreement with the company's shareholders, Dazheng Capital and Joy Capital, with a total of 250 million U.S. dollars.

According to the financing agreement: (1) Dazheng Capital agreed to subscribe for a total of US$240 million in senior convertible preferred shares through private placement; (2) Joy Capital agreed to subscribe for a total of US$10 million in senior convertible through the company’s private placement Preferred shares. Under certain circumstances, Dazheng Capital and Joy Capital can invest an additional US$150 million year-on-year. The settlement of the transaction depends on several conditions, including the completion of the debt restructuring plan between Ruixing Coffee and the holders of convertible bonds holding US$460 million.

According to the announcement, for this financing, Ruixing said that it will mainly be used for Ruixing Coffee's overseas debt restructuring plan and the implementation of the settlement agreement reached with the United States Securities and Exchange Commission (SEC).

"The transaction will enable the company to focus on business operations and development, continue to expand its core coffee business and long-term growth." Ruixing said.

As soon as the news came out, Luckin rose over 49% in the US stock pink sheet market that day, and its market value soared over 700 million US dollars overnight.

Luckin's roller coaster drove to the bottom of the valley from last year. First, "Muddy Waters" went short. In April, Ruixing issued an announcement that it blew 2.2 billion in counterfeiting, which shocked the entire industry. In June, Ruixing fell sharply and suffered multiple intraday fusing. By June 29, Luckin was suspended on Nasdaq and then officially entered the OTC (over-the-counter market) for trading. After the opening of OTC, Luckin once plunged 30.07%, quoting 0.965 US dollars. The market value has fallen from the highest 10 billion US dollars to 300 million US dollars, and Ruixing has experienced a roller coaster.

TWO

And this capital injection

Did you get some blood back?

On the whole, Ruixing received 250 million US dollars of investment this time, but the fraud incident still has a very large impact. In addition to the 1.175 billion yuan settlement amount, Ruixing Coffee will also face investor claims for sky-high prices. For the follow-up, we can only look at Luckin's development and obtaining more capital to complete self-rescue.

But what does capital really value Ruixing? It is the coffee market and model.

Can Luckin's model help it get rid of the shadows? Let's also talk about Ruixing's model. Ruixing has been playing Internet coffee from the beginning. Online order, offline quick match or self-pickup mode. While offline stores are front-end outlets, scale expansion requires speed to grab the market, and second, a single store is required to make a profit. The fraudulent controversy also directly exposed Luckin's previous focus on speed and data in pursuit of capital. The actual single-store operation capability is actually not strong.

After the fraud incident was exposed, instead of focusing on the capital market, the focus was placed on store operations.

According to Luckin, Luckin has achieved overall store profitability for the first time in August 2020. In addition, among the 3898 stores, more than 60% achieved store profitability in November 2020. Over 70% of franchised stores are close to the gross profit level required by Luckin Coffee. The report predicts that the revenue scale in 2020 will be between 3.8 billion yuan and 4.2 billion yuan.

At the end of 2020, from the financial data released by Ruixing, the report shows that Ruixing Coffee's revenue in the first three quarters of 2020 was 565 million yuan, 980 million yuan, and 1.145 billion yuan, and the growth rate was still significant.

From the perspective of the number of stores, according to an internal letter sent by Ruixing Coffee Chairman and CEO Guo Jinyi to employees in February 2021, the total number of stores in 2020 will be nearly 4,800 (including franchise stores), and the sales of existing beverages will exceed 3 Billion cups.

In order to relieve financial pressure, Luckin's follow-up focus should be on franchise store expansion. The goal in 2023 is to achieve nearly 7,000 stores, which is still comparable to Starbucks in terms of number.

Beginning in March, Luckin not only announced the actor Tan Songyun as its brand ambassador, but also announced that the unmanned coffee machine "Swiss Buy" business, which had been suspended for 10 months, had once again started to attract investment.

This is also the bright spot that capital can still see Ruixing. Dazheng Capital still expressed its optimism about the growth model and long-term development prospects of Ruixing Coffee's business.

THREE

The domestic coffee market still lacks local players

Let me focus on the domestic coffee market. There is also a very big reason why Luckin can still gain the trust of capital, that is, it is still difficult for the domestic market to find local brands that directly confront international coffee brands.

In fact, the domestic coffee market is surging.

Especially international giants are still increasing, Starbucks and McDonald's are accelerating their deployment in the Chinese market.

In the previous Starbucks "Investor Day" conference, John Culver, President of Starbucks International Business, Channel Development, and Global Coffee and Tea Group, said: 2021 fiscal year plans to open 600 new stores in China; and in 2022 Before the end of the fiscal year, the company entered 230 cities in China, and the total number of stores reached 6,000.

Not long ago, McCafé, a specialty coffee brand under McDonald’s, announced that it will invest 2.5 billion yuan in the next three years to accelerate its deployment in the mainland coffee market. It is estimated that by 2023, there will be more than 4,000 wheat coffees nationwide.

In February of this year, Tim Hortons Coffee, known as Canadian National Coffee, announced that it has completed a new round of financing, continues to increase investment in the Chinese market, and plans to add more than 200 cafes in 2021. It also planned to expand in the next ten years. There are 1,500 stores, and the momentum is fierce.

But it does confirm the fact that the potential of the domestic coffee market is too great.

According to the "Analysis of China's Coffee Industry Market Demand and Investment Planning Report 2020-2025" released by the Prospective Industry Research Institute, the average annual growth rate of coffee consumption in China has reached 15%, which is much higher than the world's 2% growth rate. It is estimated that China's coffee market will reach 217.1 billion yuan in 2025.

Just look at Starbucks. Starbucks has made great strides in the Chinese market. Physical retail stores are still assuming extremely important core engine functions in Starbucks China's future growth plans. On January 26, Starbucks announced the first quarter of fiscal 2021 (October 2020 to November 2020). Net revenue in the first quarter was US$6.75 billion, and the market was estimated to be US$6.92 billion; same-store sales fell 5% in the first quarter, and the market expected a 4.2% decline. However, China’s same-store sales have shown positive growth for the first time since the epidemic. Same-store sales in the quarter increased by 5%.

Starbucks' previous goal in the Chinese market was to enter 230 cities by the end of fiscal year 2022, with a total number of 6,000 stores (currently 4800+). Starbucks said it was full of confidence.

At the same time, Starbucks is also active in new retail. Earlier, Alibaba announced that the Starbucks "Brown Express" service will be launched on four applications: Alipay, Taobao, Word of Mouth, and Gaode. Users can place orders through these applications and pick up goods in stores. This has brought a very large incremental market for Starbucks.

Since the epidemic, Starbucks' delivery and "coffee fast" products have achieved rapid growth. By the end of the fourth quarter of fiscal year 2020, Starbucks China's digital business (including special delivery services, coffee and mobile phone ordering services) accounted for more than 26% of revenue, and continued to grow rapidly.

The domestic coffee market still lacks local players. Although some domestic brands are also cross-border, such as the new tea drinks, Xicha, Naxue have launched coffee drinks, and even giants such as Nongfu Spring, which were not originally part of the coffee track, have also grabbed the coffee market, but after all, the model is different.

For Luckin, there is still a long way to go if you want to truly compete as a local brand with an international brand, and the more difficult thing is to go steady.

Whether Rui Xing is truly reborn after the catastrophe, first of all depends on how the storm passes.