Luckin Coffee, associated firms fined $9 mn over scandal

Beijing (AFP) – Embattled Chinese chain Luckin Coffee is among a raft of 45 companies hit with a combined fine of nearly $9 million over a scandal involving false sales figures, China’s market regulator said Tuesday.

Luckin — Starbucks’ rival in China — had boosted transactions last year through fake coupons by 2.25 billion yuan ($330 million) and inflated its revenue by some 2.12 billion yuan, according to an earlier probe by the finance ministry.

The scandal led to the company being delisted from New York’s Nasdaq and the removal of top executives.

On Tuesday, China’s State Administration for Market Regulation said investigations found that Luckin, with the help of other companies, had falsely increased its 2019 sales revenue, costs and profit margins, and imposed a combined fine of 61 million yuan.

The coffee chain launched in 2017 and aimed to dethrone Starbucks in China via an aggressive growth strategy, enticing customers with an app-based purchasing model that prioritised takeaway and delivery options, as well as generous mobile coupons.

But its shares went into freefall after the company revealed in April that a top executive had cooked the books.

From August last year to April, it also used false marketing data to “deceive and mislead the public”, going against Chinese unfair competition laws, the market regulator said Tuesday.

More than 40 third-party companies, including Beijing Auto World Consulting Service and Beijing Shenzhou Youtong Technology Development, were found to have given “substantive assistance” for the false advertising.

Luckin said Tuesday that it “respects and will resolutely implement” the decision after the investigation.

It also said it had carried out “comprehensive rectification” on the relevant issues, adding that it will regulate business activities in line with laws and regulations to ensure stable operations.