Category Archives: Current Affairs

Luckin Coffee: Legend or failing unicorn?

Luckin Coffee was founded in 2017, yet has already established more than 3000 wholly-owned shops in China. The coffee chain successfully completed its IPO in the US this March, only 18 months after the founding of the company, raising $561 million. You may have never heard the name, but it is quickly becoming a key competitor in the ~$10 billion Chinese Coffee retail industry, and threatens the current leading player, Starbucks.

   To differentiate themselves from Starbucks, Luckin Coffee self-describes as a Coffee-Network or Coffee Technology Corporation. In its prospectus, the word “technology” appears 88 times, followed by the third most used word “network”, which appears 79 times.

Technology is clearly the key to its operations. Luckin states that AI enables them to analyse their customers’ behaviour and select better services and products tailored for each individual based on big data. The Luckin Coffee app also plays a major part in their operations. In fact, all purchases of Luckin Coffee are made through its apps (iOS, Android and Wechat’s built-in-apps), and no cashier can be found in any of its shops.

   As opposed to the company itself, the founder of Luckin is probably more famous. Zhiya Qian, the former COO of CAR (China Auto Rental), is known for leading the “subsidy war” in China’s car rental industry and won a large market share for the company. She strongly believes that her success in the car rental industry can be replicated in the fast-growing Coffee retail industry.

   The inner logic of this marketing model is simple. The initial approach is characterised by the use of large amounts of subsidies to break into an industry, in order to build customer loyalty and seize market share with rapid expansion. Having achieved this, the company makes use of “internet thinking” and reduce subsidies to turn losses into gains when most of the other competitors are no longer competitive. Luckin is still in the first stage, as it is still quickly opening more shops and offering huge discounts such as 81%-offs, and pricing the cost of a cup at around 1 euro to attract customers (while the general price per cup is between €4 and €6). The money burning strategy is no doubt doing its job, but the problem is how long can it last?

   In the financial statements from the prospectus, for the three months ended 1st March 2019, Luckin’s total revenue reached $713 million. However, the net loss is $110 million higher. This financial data is a dangerous signal that the speed of growth of the company might not be able to justify the money they have been burning in a foreseeable period of time. Data shows that if Luckin continues losing money at this rate, the company’s cash flow will be in severe danger and may not survive for another two quarters. This may be one of the reasons driving this start-up to rush to hold an IPO. Despite its financial state, Luckin still holds a positive attitude towards its strategy, claiming they will not slow down the rapid chain growth and will continue subsidising its products.

Last month, reporters found some Luckin Coffee shops have started to sell “convenience store food”. Meanwhile the company updated its business scope, adding clothes, shoes, hats etc to its product line. Is this a sign that Luckin Coffee is transforming into a comprehensive new retail chain to save its cash flow? The answer will be seen in no time.

Facebook’s New Global Cryptocurrency, Libra, Hits a Regulatory Roadblock

  • In June Facebook unveiled its plans to launch a new cryptocurrency named Libra, planned to be rolled out in the first half of 2020.
  • Despite efforts to soothe privacy and antitrust anxiety, backlash to the proposal is relentless.
  • A recent Financial Times report suggests that some of its backers are due to cut ties in the wake of severe regulatory scrutiny.

Facebook have announced plans to roll out a new cryptocurrency, called Libra, in the first half of the coming year. The new digital currency can be conceived as a sort of fusion between Bitcoin and fintech services such as Revolut – users will be able to exchange their money for Libra coin and send and receive funds instantly via Facebook’s messenger services, Messenger and Whatsapp. But its ambitions are massive. The long-term aim of Facebook is to build a global digital currency and render worldwide transactions fee-free, instantaneous, and unrestricted.

Libra is an effort by the social media company to build a payments system in the west akin to Tencent and Alibaba’s success in China. There the proliferation of mobile payments – facilitated by Tencent’s WeChat and Alibaba’s Alipay (together accounting for 93% of Chinese mobile payments) – are bringing the country ever-closer to complete cashlessness. WeChat itself originated in 2011 primarily as an instant messaging app, and only integrated a digital wallet in 2014 to compete with Alipay. In this sense Facebook appears to be following a similar route in its quest to dominate the payments industry and quash cryptocurrency and fintech rivals alike – by offering Libra to the 2.4 billion users it already has on its platform.

Facebook seeks to win users over and capture a huge share of the financial payments industry by solving the flaws inherent in Bitcoin – the decade-old and ceaselessly volatile cryptocurrency suffers from long waits for transactions to complete, huge energy costs in said transactions, and an erratic and unpredictable price. The sending and receiving of Libra coin is to be near-instant, intended to consume as little energy as standard debit card transactions, and will be tied to several global currencies in order that its price remain stable.

In order to mitigate privacy concerns or uneasiness that signing up to Libra grants Facebook a disconcerting amount of access to peoples’ financial activity, Facebook says it will decentralise all decision-making related to its currency. A diverse group of 28 firms is to form the Libra Association (including Mastercard, Visa, Spotify, and Uber) responsible for monitoring Libra’s blockchain – that is, the database which keeps track of who owns which Libra coin. Facebook claims that relinquishing exclusive control of access to peoples’ financial data to this group of firms ought to soothe privacy-conscious users’ fears. It’s an uphill battle though, particularly given sustained criticism of its handling of users’ data following the Cambridge Analytica scandal last year. This is partly responsible for the decline Facebook is seeing in usership. In Ireland, the last nine months has seen a drop of 300,000 users – mostly young people. “[Facebook] have twice as many over 50s than they do people under 18,” according to Newstalk’s Jess Kelly.

This trend away from the social network does not bode well for ambitious business ventures on Facebook’s part. But it’s the red tape associated with establishing a new currency that presents the biggest obstacle to the firm’s success. An official investigation into Libra has been opened by EU antitrust agents, and a backlash from data-protection officials across the globe fuelled by privacy- and competition-concerns is raging.

The sting of such regulatory opposition is beginning to be felt at Facebook. In a Financial Times report last week entitled Facebook’s Libra backers look to distance themselves from project, FT claimed that three of Libra’s founding backers professed apprehension about the intense scrutiny of regulators, and a desire to cut off ties with the project altogether. Worsening tension between Facebook (who have “become exasperated by the [project’s] members, according to two people close to the project,”) and the Libra Association may herald a delay in Libra’s arrival, particularly if others in the Libra group share their more vocal colleagues’ dismay. If the tension devolves into outright enmity, perhaps Libra will be shelved altogether, with an augmented form of a mobile payments system to be developed in its place.

Whether Facebook surmounts the tide of regulatory hostility or not, its drive to diversify away from advertising revenue into the global payments system is clear. If this ambition is to successfully take shape in the form of Libra in the next nine months, or some other mutation of same further down the line remains to be seen.

Seanad Calls for Irish Government to Offer More Support for Irish SMEs

Paddy Ryder

The Seanad in recent days has called upon the Irish government to introduce additional supports for Irish SME’s. There are three classifications that compromise the SME sector: micro enterprises, small enterprises and medium enterprises.

A micro enterprise is an enterprise that has fewer than 10 employees and has either an annual turnover and/or annual balance sheet not exceeding €2 million; a small enterprise is an enterprise that has fewer than 50 employees and has either annual turnover and/or an annual balance sheet total not exceeding  €10 million and a medium enterprise is defined as an enterprise that has between 50 employees and 249 employees and has either an annual turnover not exceeding  €50 million or an annual balance sheet total not exceeding €43 million.

The supports recommended by the Seanad will impact all of the aforementioned enterprises. Such supports include further entrepreneurial education in primary schools, specific supports for female entrepreneurs and the introduction of a new junior ministerial role to represent SME’s. The new ministerial position will enable the shaping of SME policy and help to foster the growth of small businesses in traditional sectors. It is hoped that exposing primary school students to entrepreneurship will lead to more economic activity and similarly, that new supports for female entrepreneurs boosts female leadership.

The Seanad found that typical SME concerns included rising business costs most notably the costs of rent, insurance and rates, competitive recruitment, Brexit uncertainty and continuous delays in the roll out of the national broadband plan. Ireland’s tax system was also highlighted as a difficulty with CGT rates significantly higher for SMEs in Ireland than in the UK and other jurisdictions. The EIS scheme for investment into early stage business is also less attractive in Ireland than the UK equivalent.

The EU and US rarely see eye to eye on matters of trade and commerce, but both see SME’s as the backbone of their respective economies, meaning SME’s are the cornerstone of commerce across the globe not just Ireland. Having said this however, the role of SME’s in Ireland is particularly important given that 99.8% of business activities in Ireland are represented by SME’s. This translates to 238,000 businesses, employing more than 1.3 million workers in Ireland, almost half of the entire Irish workforce. SME’s are therefore the main source of jobs in the Irish economy, thus, the new Seanad recommendations are a welcomed proposition and it is hoped that the recommendations can positively impact the Irish business landscape creating conditions that allow Irish SME’s to flourish.

Read the full report at –https://data.oireachtas.ie/ie/oireachtas/committee/dail/32/seanad_public_consultation_committee/reports/2019/2019-05-16_small-and-medium-sized-businesses-in-ireland_en.pdf

Making 2019 Their Own: 4 Irish Start-ups Headed For Success

Malcom Sheil

As the year progresses, many Irish start-ups have kept busy securing investments and spreading their ideas throughout the world. Innovative concepts as well as scalability potential have allowed four start-ups in specific to take the main stage of Irish entrepreneurship. While only time will tell, these four firms have proven to have what it takes to achieve greatness.

Read more

Brexit: Where We Now Stand

Jack Manning
  • Yesterday the UK parliament voted down Theresa May’s revised Brexit deal.
  • Today MPs will be asked whether or not to rule out a No Deal Brexit.
  • If no deal is ruled out, as is likely to occur, MPs will be asked on Thursday whether to extend Article 50 – meaning the UK will not leave the EU on the previously established March 29 date.

Read more

« Older Entries