Author: Zhang Kexin

Source: uncrowned Finance and Economics

In less than two years, he quickly won three rounds of US $550 million in financing, but he also relentlessly lost 2.2 billion yuan. for LUCKN COFFEE DRC, how much money is left and how many months does it last? Surprise listing, is it "either success or benevolence"?

Running wild for more than a year, LUCKN COFFEE DRC went straight to the capital market.

On April 22nd US Eastern time, LUCKN COFFEE DRC (hereinafter referred to as Rui Xing) submitted an application for IPO to the US Securities Regulatory Commission to be listed on NASDAQ with a maximum financing of US $100m.

Four days ago, Ruixing had just completed a new round of financing of US $150 million, led by Blackrock, Starbucks Corp's second largest shareholder and largest active investor, with a post-investment valuation of US $2.9 billion.

Since its establishment in October 2017, Ruixing has received three rounds of financing totaling $550 million in just one and a half years, while last year alone, it lost more than 1.6 billion yuan, or a total of 2.226 billion yuan, according to the prospectus.

Burning money to go public, coupled with the fact that the major shareholder behind it is Lu Zhengyao, who is at the helm of the Department of China, Lucky's listing is expected, but all kinds of doubts continue.

“Ruixing is sure to go public, because this year is the best time." Zhu Danpeng, a Chinese food industry analyst, told Wuming Finance that Lucky plans to expand its 4500 stores this year and will become the largest coffee chain in China. Coupled with the double benefits of cup sales, "the favor and pursuit from the capital market will undoubtedly be the biggest opportunity that Lucky can seize this year."

The question is, how long will Ruixing's "luck" last after its listing?

What does capital burn out?

Ruixing was born with a golden spoon of the Shenzhou system.

Founder Qian Zhiya, the former COO of Shenzhou excellent car, has been working hard with Lu Zhengyao, chairman and CEO of Shenzhou excellent car since 2004.

After Qian Zhiya started his own business, Lu Zhengyao not only led Ruixing's angel round investment with hundreds of millions of money, but also allocated some vacant office space from the headquarter in China to provide Ruixing with office space. and through the relationship for Ruixing invited two soul spokesmen Zhang Zhen and Tang Wei.

After Ruixing completed round A financing in July 2018, Lu Zhengyao was officially invited to become the non-executive chairman of Ruixing, responsible for the company's strategy and capital operation. It was under the operation of Lu Zhengyao that Ruixing announced another $200 million in round B financing in December last year.

According to public data, the investors attracted by Lucky in two consecutive rounds of financing are inextricably linked with the Department of China. For example, pleasure Capital, Junlian Capital and GIC (GIC) have all been "old faces" involved in investing in projects such as China car Rental and China excellent car, while Li Hui, founder of Dawei Capital, is the former vice chairman of China excellent Automobile, and Ding Wei, Managing Director of CICC Capital, is still an independent director of China car Rental.

As for the capital composition dominated by Lu Zhengyao, Qian Zhiya once said proudly, "now the market is also quite chaotic. We do not want to expose our business information prematurely. We chose them because of confidentiality and financing certainty." GIC was released in a hurry, and they are still very serious investment companies. ButEven if they are acquaintances, they are still blushing in order to compete for the share of investment.。”

It is questioned that there are obvious traces of capital between Lucky and China. In addition, the commercial play between the two is the same. As LUCKN COFFEE DRC CMO Yang Fei said publicly at a sharing meeting in September 2019, "Coffee is much easier to make money than the travel industry, and our team's experience in transforming traditional industries can be replicated by subsidizing 'destroying' an industry and then rebuilding it with Internet means."

Without breaking and standing, what is broken is that under the huge subsidies and convenient takeout services, the broad masses of consumers call themselves "shoulder to shoulder" Starbucks Corp coffee but can achieve "everyone can afford and drink it". What stands is the lucky petty bourgeoisie brand image under the social fission, such as the "temperament goddess" Tang Wei holding a small blue cup. Either way, it needs adequate capital support.

Data show that Lucky's losses mainly come from rental operations and advertising and marketing expenses. Among them, Lucky had only 290 offline stores at the end of March 2018, and increased to 2370 by March 2019, achieving a growth rate of more than 700% in one year, especially in the fourth quarter of 2018, with an increase of 884 stores in three months, equivalent to nearly 10 stores opening in one day.

The opening of ▲ LUCKN COFFEE DRC's shop.

In the first quarter of 2019, Ruixing generated 560 million yuan in costs in terms of store rent and other operating expenses (mainly the salaries of shop assistants and delivery personnel) and materials, exceeding the operating income of the same period. In addition, since the beginning of 2018, advertisements and various fancy subsidies sweeping office elevators have also become the bulk of Lucky's losses.

According to the prospectus, Ruixing conducted at least three credit activities between May 2018 and March 2019 alone, not including several related transactions between Ruixing and different senior executives and related parties of the company since 2017.

In early April this year, Ruixing added a chattel mortgage information, showing that it pledged coffee machines, milk boxes, powder warehouses, and other stores in Beijing, Shanghai, Shenzhen, Guangzhou and other places as collateral to Zhongguancun Technology Leasing Co., Ltd., signed a financial lease contract, and recovered 45 million yuan. In this regard, outsiders have speculated that lucky capital chain may be broken.

▲ LUCKN COFFEE DRC continues to lose money.

Lucky can only find "renewal money". On April 18, Ruixing announced that it had received an additional $150 million in new investment on the basis of the previous round B financing, of which the private equity fund managed by Blackrock invested $125 million.

However, capital has always been a double-edged sword, behind hundreds of millions of financing, the profit-seeking capital may not put forward requirements to Lucky.Since Ruixing completed round B financing in December 2018, there has been news from time to time that it is going to be listed in Hong Kong or the United States.。

However, compared with the payment, group buying, online car-hailing and bike-sharing projects that have grown up relying on the Internet money-burning model in the past two years, Ruixing's own investment value is still doubted by many investors. Zhu Xiaohu, managing director of GSR Ventures, once said, "good demand depends entirely on spontaneity, on word-of-mouth to produce a viral spread, and on money to burn, and it is basically bogus demand."

However, Zhu Danpeng believes that, "with reference to the global coffee market in the Fortune 500, such as Coca-Cola Company's large-scale acquisition of Costa, instant coffee giant Nestle Coffee to increase its investment in high-end capsule coffee, and so on, consumer coffee demand is not a problem."

Taking advantage of the uncertainty of the market for overall demand, it is undoubtedly the best policy for Lucky to quickly use capital snowballs to build scale barriers and finally achieve profit harvest. if not, Lucky's ability to repay debtors will be dealt a heavy blow, and companies are more likely to be unable to maintain healthy growth rates. As a result, listing for Ruixing at this stage is a matter of benevolence without success.

As of March 31, 2019, the cash and cash equivalents in Lucky's account were 1.159 billion yuan, but the short-term debt to be paid in the past year was as high as 812 million yuan. However, the new round of financing and listing has obviously relieved Lucky's thirst for capital. Taking into account the new round of financing of US $150 million, US $100m raised from secondary listings, and potential US $200m in bank loans, it is expected to receive a total of about 3 billion yuan. At the previous rate of burning money, we may be able to burn money for another year.

How strong is the opponent?

Rui Xing, who continues to run wild with losses, what kind of competition does she face?

Since Nestl é launched "1-2" instant coffee in China in 1989, instant coffee is still dominant in China's coffee market share. Instant coffee accounted for 72 per cent of China's coffee market share in 2018, while freshly ground coffee and ready-to-drink coffee dominated by Starbucks Corp accounted for 18 per cent and 10 per cent, respectively, according to China Coffee Network.

At the same time, in the Chinese coffee consumption market, which is expected to grow to a trillion yuan in the next few years, the demand for ground coffee is booming when the growth rate of the instant coffee market is almost stagnant.

▲ Ruixing's coffee and beverage revenue is on the rise.

Ruixing took advantage of the two major pain points of "expensive" and "inconvenient to buy" freshly ground coffee in China, and proposed to "make good coffee that everyone can afford and drink." Lucky sold a total of 90 million cups of coffee and other products in 2018, with a customer repurchase rate of more than 54 per cent, according to the prospectus.

Although the slogan of catching up with and surpassing Starbucks Corp has been high-profile since its inception, Ruixing has never been on the same track as Zhu Danpeng said, "I don't think there is a comparability between Starbucks Corp and LUCKN COFFEE DRC." in my opinion, Starbucks Corp occupies the top of the pyramid of the freshly ground coffee market, and Lucky mainly occupies the waist of the tower. "

In fact, from the point of view of operation alone, there is also a big gap between Lucky and Lucky. According to the estimation of the media, the fixed cost of each cup of coffee is about 10 yuan, and on average, every cup of coffee will lose 23 yuan. But Starbucks Corp, by contrast, his profits in China, although declining, will be close to about 16% in 2018.

In fact, in terms of target audience, product pricing and consumption scenarios,Lucky all more accurately put convenience stores such as 7-11, the whole family and convenience bee on the opposite side of the competition.。

According to Aurora Mobile Limited and big data, since the launch of LUCKN COFFEE DRC APP in January 2018, consumers have been significantly concentrated in the age range of 26-35, accounting for 71.16%, of which the proportion of male users is slightly higher than that of women, reaching 53.79%. It highly coincides with young consumers in the convenience store field who pay attention to convenience, personality and high-quality shopping experience.

In addition, the price of coffee cups offered by 7-11 and the whole family convenience store ranges from 5 yuan to 14 yuan, which is similar to that of Lucky Coffee after discount.

Since the launch of light food series and boss lunch in August last year, and new products such as milk cover tea series this year, Ruixing is trying to cut into the consumption scene of brunch and afternoon tea, which is also considered by the market to be on a par with convenience stores.

In addition, Lucky stores are mostly located near the consumption scene, mainly for takeout and pick-up demand that can cover crowded areas such as offices, business circles and communities, and the peak hours of orders are mostly concentrated in the morning and afternoon of working days, which is highly in line with consumers' usual spending habits in convenience stores.

In the competition with convenience storesThe biggest impact on Lucky is the large-scale chain of convenience stores and solid supply chain support.。

Due to the "convenient" nature of convenience stores and the rapid expansion in recent years, well-known brand chains of convenience stores have long been all over the streets. According to public reports, Lawson convenience store plans to operate a total of 3000 stores in China by 2020, the whole family plans to reach 10, 000 stores by 2024, while Meiyijia has opened 15000 stores by the end of December 2018.

By contrast, although Ruixing claims to be the second largest coffee chain brand in the country, it still needs to make efforts in stores. As of March 31, 2019, Lucky had a total of 2370 direct coffee stores in 28 cities across the country, according to the prospectus.

In addition, as a new SKU to attract customer flow in convenience stores, coffee does not need to hire additional staff and has sufficient bargaining power in the supply chain. Based on the marginal effect of the convenience store itself, the increase of coffee category is better than Ruixing in terms of operational risk, investment and customer acquisition costs.

As a result, for Ruixing, convenience store coffee is a business that can be "attacked and retreated".

But Zhu Danpeng said that convenience store coffee only serves as a rich menu category in convenience stores, providing customers with a variety of choices to increase customer orders. "convenience stores will not build coffee into a mature brand, and it is naturally difficult to have a brand effect like Starbucks Corp, Costa and Ruixing."

As a subsidiary product, convenience stores are naturally difficult to have the motivation to make relevant publicity and marketing, can not form brand awareness in the hearts of consumers, and naturally it is difficult to have deep customer stickiness. This may also be the reason why Coffee first launched freshly ground coffee in Chinese convenience stores since 2010, but it is still a "niche consumption" with a very low sense of existence.

With the former capital chasing profits and the convenience store coffee encircling and suppressing, can Rui Xing, who is "crazy to attack", be able to educate the market and build up a strong brand awareness, and finally make a profit? Going public may not give the answer yet.