NEW YORK, May 20 (Xinhua) -- Chinese coffee retailer Luckin Coffee has ascribed its upbeat debut in the U.S. equity market to high investor sentiment based on the startup's tech-driven new retail mode and speedy expansion in less than two years.
Before its listing on the Nasdaq, the company upsized the IPO deal by increasing its American Depositary Shares (ADSs) to 33 million, which brought them 561 million dollars before fees.
Together with concurrent private placement to Louis Dreyfus Company B.V., Luckin has raised approximately 571 million dollars in aggregate after fees to fuel its growth.
Reinout Schakel, chief financial officer (CFO) of the company, said they decided to enlarge the IPO deal based on broad support across several wealth funds, long-only funds and hedge funds, and would use the IPO proceeds to promote Luckin's store footprint and marketing with long-term plans.
Shares of Luckin Coffee surged nearly 20 percent around market close on its first trading day on May 17, with its gains registering a double-digit percentage growth throughout the day. The share gains once skyrocketed over 47 percent at its highs, and later gradually narrowed down to over 20 percent until the closing bell.
Founded in 2017, the company has become China's second largest and fastest-growing coffee network, in terms of store count and cups of coffee sold, according to U.S. business consulting firm Frost & Sullivan.
As of March 31, Luckin has set up 2,370 stores in 28 cities in China within 18 months, and witnessed over 16.8 million cumulative transacting consumers.
-- Speedy expansion, new retail
The coffee retailer credited its blistering expansion pace to a technology-driven and differentiated retail model built upon mobile apps and store network, which highlights cost advantages, proximity to target customers and convenience in making orders.
"By using a lot of technology and also having a differentiated approach on our footprint, we've got very small stores. We can actually bring down the cost significantly compared to some of our competitors," Schakel told Xinhua in a recent interview.
"What then allows us to do is really provide a high-quality product at a very affordable price and at a very convenient location," he said.
The company has placed its center of gravity on pick-up stores, which accounts for 91.3 percent of its total stores as of March 31, according to its latest prospectus disclosed on May 17.
With limited seating, the pick-up stores are located in areas with high demand for coffee, such as office buildings, commercial areas and university campus.
"We're slightly different from traditional retailers. We first look at what is the demand. And then we supplement that with our store footprint by finding the right locations by using data," Schakel told Xinhua.
The company has leveraged big data analytics and artificial intelligence to analyze customer behavior and transaction data, select new stores, as well as manage inventory and workforce.
-- Fierce competition, startup's profitability
Widely viewed as Starbucks' biggest rival in China, Luckin saw its strength in a focus on the 70 percent of China's "heavily underpenetrated" freshly brewed coffee market and has aimed to drive "mass market consumption."
"We're very focused on that 70 percent of the market, which is more focused on takeaway. People that sit in the office want to go grab a quick cup of coffee. I think that's where we have real strength of our model," the CFO noted. "It's very difficult to compete with us."
"When you think about the other 30 percent of the market, may be the in-store experience. That's really where the likes of Starbucks are performing really well. We are actually very focused on the 70 percent market."
Yet Luckin's generous discounts at its products have raised doubts over the company's profitability.
"As a result, the key controversy is whether Luckin can generate sales in the absence of discounts," Sara Senatore, a senior analyst at AllianceBernstein, said in a research note recently.
In this aspect, Schakel said the company has been "very focused on" bringing down the cost of perks and would continue to capture the huge demand in the Chinese market by expanding their business going forward.
He also mentioned Luckin's strong connection with customers. In 2018, the company's customer repurchase rate reached 54 percent, as shown in the prospectus.
"Over time, that retention rate is continuously increasing. And you also see that the number of items per active customer is continually increasing," he said. "So that is evidence in itself that the longer people are with us, the more they start ordering with us." (Contributed by Luo Jingjing, edited by Hu Pingchao, hupingchao@xinhua.org)
A single purchase
