A screenshot from Luckin Coffee's website. [Photo/luckincoffee.com]
Beijing-based Luckin Coffee, which has positioned itself as a rival to Starbucks Corp, particularly on delivery services, said Wednesday it raised $200 million in a fundraising round that values the on-demand coffee delivery startup at $1 billion.
Investors in the fundraising round included Singapore sovereign wealth fund GIC and Legend Capital under Legend Holdings, Luckin Coffee said.
Luckin, which started operations just this year, has opened 525 stores in 13 cities across China as of May, and has been pushing hard to lure customers to its stores and online delivery services with low prices and fast delivery times.
"The funds we raise will be used for product research, technology innovation and business development," Luckin CEO Qian Zhiya said in the statement. Qian said they are confident to improve product quality, price and shopping experiences through internet resources including big data.
The Chinese coffee startup -- which does brisk business selling and delivering coffee online -- has been training its sights on far larger rival Starbucks, even as the US chain has seen a sudden slowdown in its China growth.
"Luckin Coffee should focus its resources on delivery kitchen outlets and pickup spots instead of large-sized flagship stores, which will only cost more labor," said Wang Zhendong, an analyst at Shanghai Feiyue Investment Management Co Ltd, a consultant to the coffee industry.
The newcomer in the coffee chain industry should also build up its own management system to cultivate talent for sustainable development, he said. Wang also advised Luckin Coffee to invest in its own social network to enhance consumer loyalty. "A strong fan effect is never based merely on coupons and subsidy," Wang said.
Starbucks said last month that same-store sales in China would be flat to slightly negative in its second-biggest market in April-June, versus 7 percent growth a year earlier, triggering a sharp drop in the chain's share price.
According to Euromonitor International, in terms of chained specialist coffee shops, which focus on serving coffee, Starbucks has reached a market share of 80.7 percent in 2017, up from 65.7 percent in 2013. But the more saturated and fragmented market has put pressure on the chain.