Former disgraced coffee chain entrepreneur tries his hand at noodles

If at first you don’t succeed, try a timeless Chinese cuisine instead.

Charles Lu (Lù Zhèngyào 陆正耀), the ousted chairman of the Nasdaq-delisted Luckin Coffee, is preparing to launch a new noodle restaurant chain a year after his coffee empire fell into disarray over a widely publicized fraud scandal, reports Tech Planet (in Chinese).

Many former Luckin executives have been recruited for a fresh start with noodles, including former CEO Jenny Qian (钱治亚 Qián Zhìyà) and former vice presidents Lǐ Jūn 李军 and Zhōu Bīn 周斌. Lu has also invited staff members from other businesses he has founded, including car rental companies Car Auto Rental (CAR) and UCAR.

On social media today, the Weibo hashtag (in Chinese) “Ex-Luckin Coffee Chairman Charles Lu is back in business” was trending with 190 million views. Netizens were overwhelmingly skeptical of his expedient return. “For rich people, swindling money is just too easy,” said one top commenter (in Chinese).

Lu’s superpower: Rapid retail expansion

Though Lu has no experience in catering, he has an undeniably useful talent: opening stores at breakneck pace. As the chairman of Beijing-based CAR network, Lu successfully expanded the car-rental company to 3,000 stores nationwide. He then brought his skills to Luckin, opening 2,000 stores in its first year and reaching a total of 4,910 in two years. He now plans to try the same thing again, this time with Noodle Diary, which aims to launch by opening 500 stores nationwide.

Last year, Luckin Coffee — the country’s largest homegrown coffee chain, which was once considered the key rival of Starbucks in China — admitted to inflating its 2019 revenues by as much as $340 million after short sellers caught sight of the company’s antics. The coffee retailer was delisted from the Nasdaq on June 29, and Lu, CEO Qian, and COO Liu Jian were fired or forced to resign shortly after.

Nonetheless, Luckin Coffee is not out yet. It is still China’s biggest coffee chain brand, with over 4,000 stores nationwide. Last month, the chain received a $250 million lifeline from former investors Centurium and Joy Capital.

In his dizzyingly fast comeback attempt, Lu may be seeking to disrupt the entire restaurant sector. He sees Noodle Diary, according to some sources, as just a launchpad for something bigger: large, open-floor “food sanctuaries” hosting a smorgasbord of snacks and food brands backed by its own mobile app.

“Lu Zhengyao has a sharp business acumen,” said a tech blog (in Chinese). “From car rentals to ride-hailing to takeout coffee, Lu has been on the receiving end of ‘the wind tunnel’” — a Chinese idiom referring to hot business trends — “at every step, and he has made a lot of money from each.”

And China’s restaurant sector looks like the calm before a hurricane. Today, very few of the 10 million restaurants and shops in China are branded chains. From 2018 to 2020, the sector received around 20 billion yuan ($3 billion) in new investments, but since the explosion of tea beverage giants — HeyTea and Nayuki — investors are eyeing the food sector with renewed interest. Sequoia China, a weather vane of Chinese trends, just announced its intention to invest over $153 million (in Chinese) in Lanzhou ramen chain Ma Jiyong (in Chinese).

For tech-savvy tycoons like Lu, the restaurant scene — highly diffuse and unstandardized — is indistinguishable from a cash machine. At Luckin Coffee, he mastered the art of retail disruption: integrating software and hardware, collecting enormous volumes of online orders, expanding offline distribution networks, and analyzing the data those efforts collected.

Now Lu plans to apply the “Luckin Model” to his new noodle venture. But one undeniable question remains — the answer to which says as much about China as it does about Lu. Can he overcome his image as an accomplice in one of the biggest fraud scandals of the decade?