The Rise of a Speedster: Luckin Coffee's Founding and Pre-IPO Expansion

In October 2017, a small 20-square-meter pick-up store opened its doors at Galaxy SOHO in central Beijing, just a stone’s throw from the Forbidden City. Its sign featured a simple blue siren logo, and its only marketing gimmick was a “free first cup” offer for new users who downloaded its app. No one at the time could have predicted that this unassuming outlet would grow into the world’s fastest-listed company just 18 months later, nor that its meteoric rise would be followed by one of the most shocking corporate fraud scandals in global market history. This store was the first physical footprint of Luckin Coffee Inc. (hereinafter referred to as “Luckin” or “the Company”), a brand that would redefine China’s coffee market and become a textbook case of both modern brand resilience and corporate governance failure.

To understand Luckin’s birth, one must first situate it within the context of China’s upgraded coffee consumption market in the mid-2010s. For decades, coffee in China had been a niche product, associated almost exclusively with high-end business meetings or Western expatriate communities. Per capita annual coffee consumption in China stood at just 4.5 cups in 2017, a fraction of Japan’s 280 cups, South Korea’s 350 cups, and the United States’ 400 cups, according to data from the China Coffee Association (CCA). The market was dominated by Starbucks, which had entered China in 1999 and by 2017 operated more than 3,000 stores across the country, controlling an estimated 70% of the high-end coffee segment. Starbucks’ business model was built on the “third space” concept: customers paid not just for the coffee itself, but for the comfortable, consistent environment where they could work, socialize, or relax. A standard grande latte at Starbucks cost around 27 yuan (roughly $4 at the time), a price point that was unaffordable for most ordinary Chinese consumers, who were more accustomed to buying premium tea for 5-10 yuan per cup.

The mid-2010s, however, saw a rapid acceleration of consumption upgrade trends in China, driven by rising disposable incomes among urban middle-class households and the widespread adoption of mobile internet. The “new retail” concept, championed by Alibaba founder Jack Ma, was reshaping consumer goods sectors from grocery retail to catering, with digital tools used to optimize supply chains, reduce operational costs, and deliver personalized customer experiences. At the same time, the mass consumer entrepreneurship wave that followed the 2015 stock market crash had produced a generation of founders with experience in capital operations and rapid scaling, many of whom had built successful companies in the mobility and sharing economy sectors. It was against this backdrop that Lu Zhengyao (also known as Charles Lu), the founder of China’s largest car rental company UCar and an early investor in ride-hailing giant Didi, decided to enter the coffee market.

Lu, who would later become Luckin’s chairman, had a proven track record of building and scaling consumer-facing platforms using aggressive capital-backed expansion strategies. He was joined by Qian Zhiya, who served as Luckin’s CEO and had previously served as the chief operating officer of UCar, as well as a team of senior executives with experience in technology, supply chain management, and marketing. Unlike traditional coffee entrepreneurs who were often passionate coffee connoisseurs, Lu and his team viewed coffee as a mass-market consumer product with huge untapped potential, rather than a specialty good for a small niche of customers. Their core insight was simple: most Chinese consumers avoided coffee not because they disliked the taste, but because the existing options were too expensive and inconvenient to buy. If they could offer high-quality coffee at a price point close to that of premium tea (around 15 yuan per cup) and make it as easy to buy as ordering takeout via a mobile app, they could unlock a market of hundreds of millions of potential customers.

This insight formed the core of Luckin’s “internet coffee” business model, a radical departure from the traditional coffee shop model that had dominated the market for decades. Unlike Starbucks, which derived most of its revenue from in-store consumption of the “third space” experience, Luckin’s model was built around three pillars: 1) digital-first customer acquisition and retention, via a proprietary mobile app that allowed users to order ahead, pay electronically, and collect personalized discounts; 2) a lightweight store footprint focused on high-traffic locations such as office buildings, university campuses, and subway stations, rather than large, expensive retail spaces in high-end shopping malls; and 3) aggressive user subsidies funded by venture capital, to drive rapid user growth and market share acquisition. The model’s underlying economic logic was based on the assumption that once it reached a critical mass of users and stores, it could achieve economies of scale, reduce per-unit costs, and eventually turn profitable without relying on subsidies. For context, the unit economics of Luckin’s pre-IPO operations can be expressed as: $$ \pi = (P - VC) \times Q - S - FC $$ Where $\pi$ represents the per-store operating profit, $P$ is the average selling price per cup, $VC$ is the variable cost per cup (including raw materials, packaging, and subsidies), $Q$ is the average number of cups sold per store per month, $S$ is the monthly sales and marketing subsidy per store, and $FC$ is the monthly fixed cost per store (including rent, labor, and equipment depreciation). The core design goal of the model was to reduce $S$ to zero over time, while increasing $Q$ and reducing $VC$ via scale, to achieve positive $\pi$.

The first test of this model came with the opening of the Galaxy SOHO store in October 2017. The store was only 20 square meters, with no seating for customers, designed exclusively for takeaway and app-based pre-orders. Its initial menu featured just a handful of core coffee drinks, including lattes, americanos, and signature drinks such as the meteorite latte, which used brown sugar boba pearls as a unique selling point tailored to local consumer tastes. The “free first cup” offer for new app users was an instant hit: within the first month of operation, the store had attracted more than 50,000 registered users, far exceeding initial projections. Encouraged by this success, Luckin quickly rolled out its expansion plan, opening 25 stores in Beijing by the end of 2017, and expanding to Shanghai, Guangzhou, and Shenzhen in the first quarter of 2018.

The pace of expansion accelerated rapidly in 2018. According to Luckin’s pre-IPO prospectus filed with the U.S. Securities and Exchange Commission (SEC) in 2019, the company opened 1,807 stores in 2018, bringing its total store count to 2,370 by the end of the year. By the time of its IPO on the NASDAQ in May 2019, Luckin had opened more than 2,900 stores, surpassing Starbucks to become the largest coffee chain in China by store count. This expansion speed was unprecedented in the global coffee industry: it took Starbucks 22 years to reach 2,000 stores in China, while Luckin achieved the same milestone in just 18 months. The company’s user growth was equally explosive: as of March 31, 2019, Luckin had accumulated 16.87 million cumulative paying users, with 4.18 million monthly active users (MAU) in the first quarter of 2019, a year-over-year growth rate of more than 900%. Its revenue grew from 8.4 million yuan in 2017 to 4.78 billion yuan in 2018, and 4.91 billion yuan in the first quarter of 2019 alone, a year-over-year growth of more than 1800% in Q1 2019.

This rapid growth was driven in large part by Luckin’s aggressive subsidy strategy, which was designed to lower the barrier to trial for new users and drive repeat purchases. New users who downloaded the Luckin app could receive a 100% discount coupon for their first drink, effectively get