A scrappy startup that aims to overtake Starbucks in the world’s second-largest economy has grown so much that an early investor is now a billionaire. Luckin Coffee, a fast-growing Chinese company with 2,370 stores in the country, has filed to go public on New York’s Nasdaq stock exchange. Charles Zhengyao Lu, who was one of its earliest backers and is now its chairman, has become billionaire thanks to his prescient investment in the Xiamen-based firm.
Luckin Coffee is burning through cash in its quest to become the top coffee chain in China, racking up a net loss of $241 million on $125 million in revenues in 2018, according to a filing with the U.S. Securities and Exchange Commission. The filing also revealed that Lu and his wife, Lichun Guo, own a 30.5% stake in the company, making them its largest shareholders. Forbes estimates that Lu’s stake is worth nearly $800 million.
Lu first made it big after founding car rental company Car Inc. in 2007. A former executive in the telecom industry, Lu guided Car Inc., which offers short-term and long-term rental cars to customers in over 300 Chinese cities, to an IPO in 2014, raising over $400 million on the Hong Kong Stock Exchange. Car Inc. soon launched a ride-hailing startup, UCar, in 2015.
UCar differentiated itself from its competitors by buying its own fleet and offering professional drivers. Lu, who stepped down as Car Inc.’s chief executive in 2016, now runs UCar as CEO and chairman, and has diversified the business to include car dealerships and car financing services. The startup is now listed on China’s over-the-counter stock exchange and has a valuation of over $6.5 billion. His stake in Car Inc. is worth nearly $500 million, making his total net worth an estimated $1.3 billion.
But it’s Lu’s investment in Luckin Coffee that is now his most valuable holding. Jenny Zhiya Qian, a former chief operating officer at both Car Inc. and UCar, launched the low-priced coffee chain in October 2017 after raising over $150 million from Lu and others. Luckin Coffee proceeded to open stores at breakneck speed, expanding from its first location in Beijing to its current total of 2,370 stores in just 18 months.
By January 2019, Luckin Coffee had served up some 90 million cups of coffee and announced plans to reach 4,500 stores by the end of the year, surpassing Starbucks as the largest coffee chain in China. The American icon, which opened its first store in Beijing in 1999, has 3,600 locations in the country; it plans to open 600 new stores annually through 2022 and has been expanding its delivery services.
Unlike Starbucks’ expansive cafes, which encourage lounging, over 90% of Luckin Coffee’s shops are pick-up stores located in high traffic areas like office buildings and college campuses. The cashless stores (customers pay using Luckin’s app) typically have limited seating and simple interiors, allowing Luckin Coffee to use the cost savings to undercut Starbucks on pricing. Its in-app orders also boast a delivery time of 18 minutes or less in major cities, and the company has partnered with China’s largest food delivery firm, Meituan Dianping, to offer its products on its app.
Luckin Coffee, which has raised $550 million its initial angel round, seems set on competing for market share rather than turning a profit just yet. Its latest funding round—which was led by BlackRock and closed on April 17—valued the firm at $2.9 billion. It has not yet disclosed a targeted IPO price range.
Luckin Coffee founder Jenny Zhiya Qian has amassed an impressive fortune as well. She owns a 20% stake in the company valued at over $500 million.