Text/Li Huilin Editor/Tan Wei
Twelve months after listing, Luckin Coffee ended up being ordered to withdraw from the market.
On the evening of May 19th, Luckin Coffee announced that it had received a notice from NASDAQ Exchange on May 15th, requesting delisting. Ruixing plans to hold a hearing and will continue to list on Nasdaq before the results come out.
Lu Zhengyao, chairman of Ruixing, is not satisfied with this result. In the early morning of May 20th, Lu Zhengyao said in a statement that the company had dealt with the relevant responsible persons, reorganized the board of directors, updated the management and actively carried out rectification as soon as possible according to the results of the phased investigation. Nasdaq asked the company to withdraw from the market without waiting for the final investigation results. Unexpectedly, he was deeply disappointed and regretted.
Lu Zhengyao believes that Luckin Coffee’s business model and business logic are valid, and its revenue keeps increasing every year. At present, despite the double blow of epidemic and fraud, thousands of stores in Ruixing are still trying to keep operating. If we withdraw from the market, the difficulties and pressures faced by Ruixing will continue to increase. "But no matter what, I will do my best to maintain the operation of the store and try my best to recover the losses of shareholders so that the brand of Ruixing can go on."
From the 18-month-old listing to the scandal, Rui Xing, who was in turmoil, chose to break his arm to survive. Earlier, some media reported that Ruixing planned to abolish 80 stores in Beijing, equivalent to one-fifth of the stores in Beijing.
A former manager of Luckin Coffee in Ningbo told the reporter of 21st 21CBR that since the exposure of financial fraud, Ruixing’s office in Ningbo has laid off nearly one fifth of its staff, and its direct-operated stores are also shrinking, resulting in a serious problem of lax management.
Using expired materials, lax quality control management.
Su Kai (pseudonym) joined Ruixing in March 2019, and served as deputy store manager and store manager before and after. He was recently dismissed because he complained about the internal use of expired materials.
On May 8th this year, Su Kai bought a cup of "Little Deer with a lot of ingredients" in Ruixing’s Yintai store in Beilun, Ningbo. After drinking it, he had loose bowels that night and went to the hospital for treatment the next day. Su Kai suspected that the store used expired materials, so he called Ruixing’s customer service phone to complain, and the feedback was that the store did have the problem of expired materials. Su Kai asked for reimbursement of medical expenses, but Ruixing customer service refused to reimburse medical expenses on the grounds that Su Kai was an internal staff and needed internal solution, and only compensated three drink coupons. At Su Kai’s insistence, Ruixing compensated 200 yuan JD.COM.
Su Kaiben thought that this matter had ended. Unexpectedly, on May 19th, a regional manager of Ruixing took a warning notice, saying that Su Kai had made mistakes in his work and asked him to leave his job on his own. According to the regional manager, employees need to leave their jobs when they receive two warning notices in 12 months.
Another "mistake" made by Su Kai before was also related to expired materials. Since the store he was in charge of has not resumed business, he was assigned to another direct store in early May by the company to help. On the day of taking up his post, the materials in this store were found to have exceeded the shelf life, and this material has been used for more than a week. Even so, Su Kai, who is not the first responsible person, was given a warning sheet.
In Su Kai’s view, the expired materials were still used to make drinks, which only happened after Ruixing was exposed to financial fraud. "Before the financial fraud storm, the company’s control was very strict, and the materials had to be discarded when they arrived. After the incident, the policies conveyed above have completely changed, and everything is for profit. " He estimated that all these phenomena are to make the next quarter’s financial report look better and prove that the store can really make a profit.
In the direction of taking profit as the goal, Ruixing’s cost control has become stricter. Su Kai, for example, said that pearl raw materials with a lot of deer materials should be used for two hours according to the regulations, and they need to be scrapped if they exceed the time limit. Previously, if the store’s raw materials were scrapped too much, it would let the store manager report and analyze the reasons. Now, once the raw materials are scrapped too much, the store manager will be downgraded or fired. Previously, only when serious food problems were detected by the headquarters could the store manager be dismissed.
In addition to material management issues, some stores in Ningbo have also seen cases where filter elements have expired and not been replaced. "The function of the filter element is to filter the water quality, such as the ice cubes in the ice machine and the iced American coffee we drink, all of which need to be made with filtered water." Su Kai introduced that the filter elements of the original stores were replaced by the personnel who were responsible for the ice machine, usually once every three months. At present, the filter elements of several stores have not been replaced after the expiration date.
This situation is more likely to happen in franchise stores. Ruixing has more than 100 stores in Ningbo, of which nearly 30% are franchise stores. Compared with direct stores, regional managers need to communicate with the store manager through the boss when controlling franchise stores, and the management effect is not as good as that of direct stores. Moreover, raw materials need to be submitted for approval by stores themselves. In order to reduce losses, franchised stores may not strictly abide by the operating specifications.
"The boss may say yes to his face, but as soon as the regional manager leaves, he (the boss) says what you should do, because the cost of scrapping is borne by him, not the company." Su Kai said that after the outbreak of the fraud incident, Ruixing’s tolerance for franchise stores was increasing, and in the stores he complained about, employees did not wear aprons and hats when making drinks.
In order to improve profitability, since April 27th, Ruixing has carried out a new round of price increase in the whole country, in which the increase of beverage line is generally in 3 yuan, for example, Xiaolu tea rose from 25 yuan to 28 yuan, and Luckin Coffee rose from 28 yuan to 31 yuan. As early as the end of February, Ruixing had increased the price of its products in 1 yuan.
In some cities, Ruixing has also adjusted the original take-away relief policy: free delivery from 35 yuan/55 yuan to 35 yuan/55 yuan minus 3 yuan.
After Ruixing was exposed to the fraud incident, the volume did explode, but recently, due to price increases and other reasons, the volume dropped very seriously. Su Kai revealed that many store managers complained that the number of customers in the store has decreased by nearly 30%.
Shrink direct stores and continue to open franchise stores.
Perhaps, the management omission of Ruixing’s stores in Ningbo can’t represent the national situation, but it can’t be ignored that Ruixing, once proud of digital system management, has gone downhill. On the one hand, this is the negligence of management, on the other hand, it is also due to the shortage of personnel.
After the financial fraud incident, employees in Ruixing felt expect the unexpected. In the past month or so, Ruixing held several video conferences to stabilize employees’ emotions, emphasizing that the nature of the incident was negative news at the management level, which had no impact on the store operation and required employees to do their jobs well. Su Kai said, "Our salary was originally paid on the 10th of each month. The month when it was exposed for fraud was two days ahead of schedule. It should be to show employees that there will be no problem of not paying wages."
Even so, many employees left voluntarily. According to Su Kai’s understanding, Ruixun’s Ningbo office staff has shrunk by nearly one fifth, including many employees at the level of regional manager and director. Originally, Ruixing had five regional managers in Ningbo, one of whom went to study abroad and the other left. The remaining three regional managers needed to manage more than 100 stores, and the workload increased greatly, so it was inevitable that the control was not in place.
In the past, there were many part-time employees in Ruixing Store. After the epidemic, the working hours and the number of part-time employees were restricted, and the staff of the store was generally tight. Some idle employees were transferred to other stores to help. At present, there has been no large-scale layoffs in the store.
Su Kai thinks that Ruixing may use management problems as an excuse to lay off employees. "I don’t know how many stores are closed now. At that time, there will still be more positions of store manager and deputy store manager. Without so many people, he will find a way to lay you off, because he may have to pay compensation for taking the normal route."
According to the statistics of American data company Thinknum Alternative Data, as of May 12th, Luckin Coffee opened an average of 10 new stores every day in China in the second quarter of this year, and now the total number of stores has reached 6,912.
As far as Su Kai knows, more than 99% of these new stores are franchise stores. After paying the franchise fee to Ruixing, franchisees need to go through a training period and a three-month site selection period. Previously, these franchisees were attracted by Ruixing’s marketing and star traffic. After Ruixing was caught in a fraud storm, they could not get a refund and could only continue to open stores in order to reduce losses.
In Ningbo, Su Kai heard that Ruixing Club will continue to close some direct-operated stores with poor efficiency or duplication in the business circle, but it has not yet been implemented due to factors such as the rent has not expired.
The storm of Ruixing is still spreading. On May 12th, the board of directors of Luckin Coffee terminated the positions of CEO Qian Zhiya and COO Liu Jian, and JINYI GUO (Guo Jinyi) was appointed as the acting CEO.
Luckin Coffee’s shares resumed trading on the Nasdaq Stock Exchange at 7: 00 am EDT on May 20th (7: 00 pm Beijing time on the 20th). As of press time, Ruixun reported $2.92 per share, compared with $51.38 at the peak of Ruixun’s share price, the current market value has evaporated by over $10 billion.
