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Burning Cash Is Strategy of Choice for China's Starbucks Rival

  • Luckin Coffee’s plan may be risky approach for selling java
  • IPO raised $561 million; shares surge in first day of trading
A customer enters a Luckin Coffee outlet in Beijing.

A customer enters a Luckin Coffee outlet in Beijing.

Photographer: Gilles Sabrie/Bloomberg
Updated on

The team behind Luckin Coffee Inc. is betting that what worked for them in car rentals will prove a success with java. Their $130 million annual cash burn -- and rival Starbucks Corp.’s dominance in the Chinese coffee market -- makes it a risky proposition.

For now, American investors seem impressed enough by Luckin’s aggressive expansion plan for the Xiamen-based company to raise a higher-than-expected $561 million in its initial public offering Thursday. The stock jumped 20% to $20.38 in New York on Friday, compared with a decline in the S&P 500 Index.