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Judul : analysis of the Crisis (A case study of Luckin Coffe’s Financial Fraud Issue)

Nama Kelompok

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Table of content

1. Introduction
2. Impact on Stakeholders
3. Evaluation of Public Relation Strategy
4. Suggestion and Conclussion
5. References

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1 . Introduction

Luckin Coffee is a Chinese coffe company and coffeehouse chain. It was founded in Beijing in 2017. As of
January 2020, it managed 4,507 stores and exceeded the number of Starbucks stores in China. Most of
its stores are small “Pick up” locations in office building or collage campuses that serve for online order
pick up and delivery

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Discount

Promotion of Luckin

Adverstisments for Luckin can be seen everywhere, hitting the eye all the time. Everyone knows from
the advertisement. The way Luckin Coffee attracts customers is discount. Many people who have never
been in contact with coffee, and because of Luckin’s large discount began to drink coffee.

Business expansion

Luckin VS Starbucks

Luckin Coffee. Nicknamed “Little Blue Cup”, claims to defeat Starbucks within two years. By the end of
2019. Luckin had opened 4,500 stores in mainland China, suprassing Starbucks’ 4,300. The company also
went public on NASDAQ just 20 months after its founding.
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What happen about Luckin Coffee:

Jan 31 : A well-known short-selling agency Muddy Waters Claimed to have received an anonymous 89-
page shorting report that directly accused Luckin of falsifying data.

Feb 03 : Luckin denied all the allegations of Muddy Water.

Apr 02 : Under pressure from all sides, Luckin Coffee admitted to falsification. Admitting to 2.2 billion
RMB in fraudulent transactions, the share price plummeted by 80% and trading was suspended several
times during the day.

Apr 03 : The CSRC made it clear that it condemns Luckin’s falsification and will investigate it to the end.

Apr 04 : Luckin Coffee exposed itself to falsification The 2.2 billion RMB incident continued to ferment,
and Luckin’s share price plunged again, reaching 15.94 %

Apr 05 : Luckin Coffe issued an apology statement and stated that it would accept a thorough
investigation by a third-party agency.

Apr 27 : Luckin Coffee official said that the company is actively cooperating with market regulators to
understand the work related to the operation of Luckin Coffee, the company and shops nationwide are
operating normally.

May 12 : Luckin Coffee released an internal letter announcing changes to its board of directors and
senior management.

Jun 27 : Luckin Coffee issued a suspension and delisting statement.

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2. Impact on stakeholders

1. Internal stakeholders
 Directors
 Shareholders
 Management
  Employees
 Trustees
 Volunteers
2. External stakeholders
 Customers
 Suppliers
 Distributors
 Competitors
 Host communities
 The general public
 Creditors
 The government
 Banks
 The media
 Unions
 Trade associations
 Regulatory agencies

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Internal:

 Directors
Job exemption or may lose control of luckin coffee
 Shareholders
158 institutional investors and retail investors lost a lot of money
 Management
Suspension of chief executive officer (CEO) Zhiya Qian and Chief Operating Officer (COO)
Jian Liu. Requiring them to resign from the Board and CFO facing imprisonment
 Company Employees
dismissal

external:

stakeholder impact
Supply chain companies Sidnificant disruption to business and uncertainty
for employee jobs and lives
creditors Unable to repay its debts
customers Shop closures, creating a corporate credit crisis
Insurance company Facing payouts
Third party service providers Reputational crisis, which may have an impact on
some existing and potential customers
State administration of market regulation, Penalization and regulation
finance bureau, tax bureau
U.S. Securities and exchange commission (SEC) Penalties imposed on luckin
Investment banking Share price plunge, loss of share value
 Domestic U.S listed companies Shares not purchased

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This falsification of transaction amount deceives consumers and investors, breaks market rules and faces
a credibility crisis for the company.

Lackin’s behavior has largely affected other Chinese companies listed and about to be listed in the US.
Seriously damaging the international image of Chinese companies.

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3. The evaluation of Public Relation Strategy

 Image repair theory (IRT)
Sometimes referred to as “image Restoration Theory”, developed by William Benoit (1995,2005)
1.An offensive act
2.An accusation of responbility for the act.
 Assessing Crisis type
We believe that this financial fraud should belong to Crisis of deception, but from the
announcement of Luckin Coffee, which showed that they prefer to stereotype the crisis as human
arror accidents in order to reduce the impact of the crisis on the brand.

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1). The response to the late statement violated the principle of speed first

For the crisis that involving public interest and sentiment. Immediately response is very important.

Luckin Coffe issued a long overdue letter of apology on the third day after the financial fraud
disclosuring. During these three days, Luckin has been slammed by state media and various self media.

 Athough from the prespecive of Situational Crisis Communicaton Theory (SCCT), Luckin has sent
instructing information to all victims or potential victims (as an apology email).
 But when look at this statement carfully, here was no substantive information and was difficult
to answer the argument of customer.

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2). Shift the blame whitout sincerity

 In the pre-market announcement on April 2, Luckin used “preliminary investigation

findings” in their response.
 From the company’s internal letter that night, it threw the “crise” to COO Liu Jian, and
also expressed “shock” from the perspective of IRT crisis response, Luckin adopted the
simple denial and shift the blame strategy
 Deny the fraud
 Self-exposed
  Threw the “crise” to COO Liu Jian,
 This strategy does not have to be skillful, but it must be sincere to the customer and it
self. Luckin is so opportunistic that in the end it only lifts a rock and hits itself in the foot.

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3). Utilization of national sentiments – a staged victory in PR terms

o Untilizing the national sentiment has become Luckin’ s life-saving straw.

o Luckin’s PR have described Luckin as a “national hero” and “national ligt” who
“take the capitalist’s wool away and offer to Chinese” plus with its brand
mission of “creating a world-class coffe brand originating from China”, public
opnion on the internet has become like this:
o Temporarily conceal the vicious impact of Luckin’ s fraud, as the public may not
understand the financial industry so that it is easy to ignore the essential of
crise.
o It avoids the problem of values, that is, the problem of fraud.

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