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Shares of China's Luckin Coffee have fallen 7% since their initial offer last week, as investors worried about the company's expansion model that consumes money and the opportunity to build consumer loyalty without subsidy.
Luckin, positioning itself as a Starbucks rival in the world's second-largest economy, climbed 53 percent on its first day of trading in the US last week, thwarting a trend of weak initial offers in the United States.
The stock has since plunged 39% from this peak.
The company acquired a value of approximately $ 4 billion less than two years after the opening of its first store in Beijing, due to the rapid growth of its turnover, driven by the increase in the number of its shops in 2,370 in 28 cities in China.
It opens new outlets at a rate of 200 to 300 per month, which should allow it to exceed Starbucks, which has about 3,700 stores in the country after two decades of operation.
However, the company remains dependent on subsidies for the sale of coffee, with heavy discount expenses contributing to a net loss of 551.8 million rand ($ 80 million) in the first quarter.
Revenue growth slowed significantly in the quarter compared to the previous three months.
"Previously, groups of offices would buy coffee because of discounts," said Shaun Rein, founder of China Market Research Group, a research consultancy based in Shanghai. "But we saw consumers stop going from February when they were cutting subsidies. There is very little brand loyalty to Luckin. "
Other cafes open at similar prices in big cities, which means "they have more competition," he added.
Luckin focuses on delivery coffee and most of his stores do not have seats. Almost all his orders are placed via a mobile phone application.
Starbucks, which accounted for more than 50% of the specialty coffee market in China last year, was forced to accelerate the roll-out of delivery services in its Chinese stores and the use of the order via its mobile app. , that The week had a total of 8.3 million active users in China.
Scott Laprise, an independent badyst based in Beijing, said some investors were worried about the company's negative cash flow. "They are also worried about newcomers to the market and what Starbucks can wake up," he said.
Luckin's 7.1% decrease over the $ 17 per share offering price is still higher than other recent IPOs such as the Lyft mobile phone service, which is down 20% from the previous year's price. offer of $ 72 announced end of March.
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