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Luckin seeks China leadership with vending machines business, to raise $821M

Luckin Coffee Inc. said Jan. 7 it is expanding into vending machines business to get "closer" to the customer as it looks to strengthen its lead over rival Starbucks Corp. in China and launched a share placement and a convertible bond worth a combined $821.3 million to fund the expansion.

Luckin Coffee also said it had 4,507 self-operated stores by the end of 2019, making it the largest coffee chain in the country by the number of stores. According to Starbucks China website, it operates 4,100 stores in Mainland China.

"Luckin Coffee is on track to realize our mission of being part of everyone's life," said CEO Jenny Zhiya Qian.

"Luckin Coffee is dedicated to building a closed-loop smart retail platform with our own customer traffic and our own products. We will continue to grow both own traffic and products, improve brand value, expand the scale of our platform, and create more value for our customers."

The Chinese coffee chain launched a smart unmanned coffee machine and smart vending machine as part of its entry into the unmanned retail market.

The company said the Luckin Coffee Express unmanned coffee machine offers brewed drinks with the same quality as the drinks that Luckin sells at its stores. The company has partnered with SEB SA-owned Schaerer AG to produce the coffee machines.

The Luckin Pop smart vending machines will occupy spaces in office buildings, campuses, airports, bus terminals, gas stations, highway service stations and residential communities, the company said. Luckin customers said products sold at the vending machines will have the same prices as those sold online.

Luckin also teamed up with other suppliers for its unmanned retail projects including PepsiCo Inc., Nestlé SA, Fonterra Co-operative Group Ltd., LDC, Olam International Ltd., COFCO Corp., CJ Cheiljedang Corp., Inner Mongolia Yili Industrial Group Co. Ltd., China Mengniu Dairy Co. Ltd., ORION Corp. and Calbee Inc.

The three-year-old company, which is listed on Nasdaq, announced a follow-on public offering of 12 million American depository shares, including 7.2 million ADSs offered by the company and 4.8 million ADSs offered by a selling shareholder. Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, China International Capital Corp. Hong Kong Securities Ltd. and Haitong International Securities Co. Ltd. are the joint book-running managers, while KeyBanc Capital Markets Inc. and Needham & Co. LLC are co-managers. The company will grant underwriters to purchase up to an additional 1.8 million ADSs in aggregate.

Luckin announced $400 million of convertible senior notes due 2025, subject to market and other conditions. The initial purchasers will be granted an option to purchase up to an additional $60 million of the notes.

The proceeds from the capital and debt offerings will be used for store network expansion, unmanned retail initiative, international expansion and for other general corporate purposes.