Ousted Luckin Founder Charts Comeback With New Coffee Business

Lu Zhengyao is once again back in the coffee market after being removed following an accounting scandal.        

After exiting one of China’s biggest coffee shop chains, its founder pivoted to noodle restaurants and later a chain specializing in pre-cooked meals. Lu Zhengyao, the former chairman of Luckin Coffee, is now circling back to the coffee business.

Lu has launched a new coffee brand two years after departing Luckin following a financial scandal. Dubbed CottiCoffee, the brand is touted as a “pan-coffee lifestyle,” serving meals, snacks, and even alcohol in addition to tea and coffee.

“We, a team of coffee dreamers, have embarked on a new journey,” financial outlet National Business Daily reported Monday, citing the 53-year-old’s private WeChat post. He was said to be celebrating the opening of the first shop in the eastern city of Fuzhou over the weekend.      

Lu founded Luckin Coffee in 2017 to directly compete with American giant Starbucks and quickly rose to fame through an aggressive marketing strategy and discount coupons. By 2019, Luckin had surpassed Starbucks in becoming the largest coffee chain in China, with 4,507 stores nationwide.

But the brand soon became embroiled in financial turmoil after being called out for accounting fraud. Lu was then ousted in 2020 amid a reshuffle of the senior leadership after an investigation blamed several executives for faking more than 2.2 billion yuan ($303 million) of transactions the previous year.

Lu’s post-Luckin career has seen him jump from one business to another in the past two years. But none have been able to become a household name in the same way that his first venture did.

In August 2021, Lu launched his first noodle brand Quxiaomian, but its expansion lies in limbo, as one of its first shops in Beijing shut this year. His pre-cooked meal business also faced similar setbacks this year.

Now Lu has turned his sights back on the business he once helped nurture and enjoyed growth with over the last few years. China’s on-premise coffee industry was set to triple to 189 billion yuan by 2027, according to market research firm Mintel, despite some experts warning the market had saturated.

Meanwhile, Luckin has also managed to turn around its luck. After a major reshuffle and legal settlement following the accounting scandal, the company has seen a fast turnaround in its business, reporting positive net profits in the first half of this year and adding new stores — it had a total of 7,195 stores by June.

Zhou Chen, an analyst in the coffee industry, told The Beijing News that while there is still market potential, Lu needs to figure out a more innovative path for his new venture to survive the highly competitive market.

“Otherwise, it’s likely he will lose money,” Zhou said.

Editor: Bibek Bhandari.

(Header image: People pass by a Luckin Coffee store in Shenyang, Liaoning province, Feb. 1, 2022. VCG)