47BloombergBusinessweek August 3, 2020Luckin became a $4 billion business by
promising that Chinese would drink more
coffee if they could buy it more easily
and cheaply than at Starbucks. Then it
faked hundreds of millions in sales
By Selina Wang and Matthew Campbell
Photograph by Steven John Miner
S
aya new company promises to achievea goal so
ambitiousit’seludeda moreestablishedcompetitorfor
twodecades.Saythatgoalis toselllotsofcoffeeinChina,a
nationofresolute and happy tea drinkers, andthecompeti-
torit promisestodefeatis StarbucksCorp.Thewayit’sgoing
todosois byofferinglower-pricedcoffee,primarilyfortake-
outanddelivery. Because there will be an app, thestartupcan
call itself a tech company and boast about beinga disruptive
force. And because investors like apps and disruption,some
won’t even notice that the coffee isn’t great.
Some venture capitalists lost interest aftertheysampled
what the company, Luckin Coffee Inc., was selling.Butwithin
a year of its founding in 2017, one of the biggestVCfirmsin
China, Joy Capital, as well as the Singapore sovereignwealth
fund GIC, had put serious money behind Luckin,valuingit at
$1billion.Luckinopened5,000locationsinBeijing,Shanghai,
andothercitiesacrossChinaandlastyearreportedsalesofas
muchas$200million a quarter. Its success drewinbiginter-
national investors such as BlackRock Inc. andsupportfrom
banks including Credit Suisse Group AG. Luckin wentpublicin
the U.S. in May 2019, raising $561 million. Companyexecutives
flooded the Nasdaq stock exchange stage on thebigday;some
worebaristaaprons.Confettiflutteredpasttheirsmilingfaces.
Last July, JoyCapital’smanaging partner,LiuErhai,
walkedontoanotherstage,thistimeata techconferencein
Hong Kong. In New York, Luckin was valuedatmore than$4billion.Liucamewiththerequisitetriumphalmarketing
videoandslidedeckhighlightingthecompany’splantooper-
ate10,000locations by the end of 2021. Then he looked up
from his tablet. “It’s unbelievable,” he said in heavily accented
English. “So how can they achieve astonishing performance
within a short period?”
Turnsoutthatwasn’tjusta rhetoricalquestion.Some
six monthslater, Luckinwouldbe caughtengaging in
massive fraud.T
hemostprominentmanbehindtheplantobeatStarbucks
inChina wasLuZhengyao, Luckin’s chairmanand
co-founder.He’sabout 51 years old and stout, with a buzz
cut and gap-toothed smile. Like many entrepreneurs of his
generation, he’s an opportunist, moving from one industry
to the next. He started, as many did, as a bureaucrat (in a
municipal government in Hebei province, outside Beijing),
then joined the booming private sector in the 1990s. First he
traded gear in the expanding telecommunications industry.
Then he sold insurance in the expanding auto industry. In
2007 he founded Car Inc. to provide rentals to the increasing
number of Chinese drivers.
Lu became known for blitzscaling companies. At Car, he
raised hundreds of millions of dollars from international inves-
tors, then used the money to undercut the competition and
PROP STYLIST: LIZ MYDLOWSKI grab market share. With that kind of strategy it didn’t take