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Luckin Coffee Is Going to Drink Starbucks’ Lunch

The Luckin Coffee IPO could have a decidedly different trajectory than the recent tech IPOs

Investors may be feeling wary of the Luckin Coffee Inc IPO, given how recent unicorns Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER) have had rocky starts to their lives as public companies.

Luckin’s status as a China-based  company could also weigh on Luckin IPO. However,Luckin is worth paying attention to.

The Luckin IPO is set to take place on the Nasdaq Exchange, and the stock is slated to trade under the ticker LK. In light of Luckin’s differentiated business model and stellar growth statistics, the stock could take a decidedly different trajectory than the recent IPO duds.

The Luckin IPO Backstory

Even as U.S. private companies have been staying private for longer amounts of time, Luckin Coffee has grown so rapidly that it has gone from pilot project to IPO in just two years.

It’s  become China’s second largest coffee retailer, in terms of number of stores and cups of coffee sold. That is a statement. It’s got about two-thirds of the total stores  that the standard bearer of the coffee business, Starbucks Corporation (NASDAQ:SBUX),  has in China, and it looks like Luckin could very well eat Starbucks’ lunch. It’s true that Starbucks has made an indelible mark on the coffee culture and physical landscape of China, especially in the country’s tier 1 and tier 2 cities. But it’s taken SBUX the better part of two decades to get to that point.

Now Luckin Coffee is riding China’s love of coffee and its consumerism all the way to the public markets.

The Detractors of the Luckin  IPO Will be Proven Wrong

Now there is understandable skepticism when a company describes itself in its prospectus as “China’s second largest and fastest-growing coffee network.” The use of the term network has inspired ridicule by those claiming that Luckin Coffee is a “wannabe” tech company.

Let’s not squabble over semantics. SBUX may not call itself a coffee network or an F&B (food and beverage)  network, but that’s precisely what SBUX is. It’s a vast network underpinned by an extremely versatile digital app, which successfully enhances its customers’  experience at the company’s brick-and-mortar stores.

Luckin’s loyalty program and well-designed app keep it ahead of its peers. Let’s just say that Starbucks has a savvier marketing content team than Luckin’s, since SBUX is better at coining media-friendly phrases like “the third place.”

Make no mistake though, Luckin’s emphasis on technology is not misplaced. Luckin runs a 100% cashless business. It’s also cashier-less. It’s not hard to see the operational benefits of these decisions. Not only does the strategy improve operating efficiency (and margins), but it also allows Luckin to stay connected with its customers and harness data on a constant basis.

And given the youth of the company, in contrast to the unicorns, Luckin IPO will give investors an opportunity to invest in a much earlier stage of a company’s growth cycle. For all its success in the past two years, Luckin is no where near done.

It has plans to open a store every four hours in the country, whereas Starbucks has said it would open up a store every 15 hours. You want growth? You got it.

Last Note on Luckin

Many will be dismissive and assert that there is no way a homegrown Chinese company could serve good coffee, but its coffee has won numerous awards, including the Gold Medal in the 2018 IIAC International Coffee Tasting competition.

Luckin has combined high-quality products, affordability and convenience to create a brand and presence that has lasting power.  Last year’s customer repurchase rate of over 54% highlights Luckin’s strength.

The fact is that China’s coffee market still remains highly underpenetrated. Luckin has the benefit of not having to educate the consumer. Starbucks has toiled long and hard on that front, and that has allowed Luckin to sweep into the largest consumer market in the world with a differentiated business proposition. As long as it keeps on executing well, as it has since the company’s inception, it’s going to do just fine.

Luckin Coffee’s goal is to “become the largest coffee network in China, in terms of number of stores, by the end of 2019.” I wouldn’t bet against the Luckin Coffee IPO.

 As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/05/luckin-coffee-is-going-to-drink-starbucks-lunch/.

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