Luckin Coffee fined CNY 61 mil for unfair competition

As declared by the State Administration for Market Regulation (SAMR) of China, Luckin Coffee (a Chinese coffeehouse chain) was accused of false publicity that misled the public.

As found out during the investigation, initiated this April, Luckin Coffee inflated its key business figures for 2019, such as annual sales, costs and profit rate, in order to obtain competitive advantage and new trading opportunities. By doing so, the company violated the 8th article of China’s Anti-Unfair Competition Law, which explicitly states:
A business shall not conduct any false or misleading commercial publicity in respect of the performance, functions, quality, sales, user reviews, and honors received of its commodities, in order to defraud or mislead consumers.

In the course of investigation forty three other companies were associated with the case as they had provided Luckin Coffee with substantial assistance in its false advertising. On September 18, market regulation authorities imposed a penalty on the entire group, with combined amount of CNY 61 million.

Luckin Coffee is a Chinese coffee company, founded in 2017. It has developed rapidly and now is often considered a “local rival of Starbucks”, with more than 4,500 stores spread all over the country by the end of 2019. Last year the company faked and released to public some performance indicators to influence customers and create more powerful image for itself. The Ministry of Finance of China, for example, announced that the inflated revenue amounted to CNY 900 million from April to December 2019. Luckin Coffee first started with internal probe and found its Chief Operating Officer and several employees engaged in misconduct, having fabricated sales by 2.2 billion yuan. Then the official investigation of relevant authorities was launched.

After the announcement of SAMR’s official decision, Luckin Coffee provided its official response on the company’s social media account: “We respect and will resolutely implement the decision of penalty, made by state authorities in respect to this investigation. We have already rectified the related issues and will further improve our business and ensure stable operations in accordance with relevant laws and regulations.”