Rui Xing Coffee Suspension Delisting: How Does The Operation Of 4000 Stores Continue?

On the evening of June 29th in Beijing, NASDAQ:LK officially stopped trading on the NASDAQ Exchange, pending the delisting of the market, and ended the more than 400 day listing tour.

In June 26th, Rui Xing decided to withdraw the hearing application, gave up the last chance and accepted the fate of the delisting. On this day, Rui luck opened up quickly, fell four times in the intraday market, and finally closed at $1.38 / share, with a market value of only $349 million.

At the most brilliant time, Rui Xing coffee was once considered by everyone to be the most powerful competitor of Starbucks in the Chinese market. Especially at the beginning of this year, Rui Xing announced that the number of stores was more than Starbucks became China's first, and its share price rose and its market value was close to $13 billion.

After that, the fate of Rui Xing was changed by two announcements.

The first is an internal investigation announcement in April this year, which ripped the corner of Rui Xing's fairy tales. In the process of audit, the company found that during the two quarter to fourth quarter of 2019, forged 2 billion 200 million yuan trading volume, and the related costs and expenses also increased accordingly.

The second announcement was announced in June 19th and 26th on the adjustment of Rui Xing board of directors. In this series of announcements, the hidden contradictions in the board of directors of Rui Xing have been uncovered.

However, under the premise that Rui Xing delisting has been confirmed, what progress will be made before the fraud incident is disclosed? How will the more than 4000 store operations of Rui Xing coffee continue?

Board of directors suspicion

In fact, the delisting is not surprising for Rui, who is currently in crisis.

In May 15th, Rui first received the notice of delisting on Nasdaq for two reasons: first, the false transaction disclosed in April 2nd caused public concern; secondly, the company did not disclose important information publicly in the past, but also made false exchange through this mode.

Lu Zhengyao then openly challenged the decision of the NASDAQ in his circle of friends. He said that Rui Xing had already dealt with the responsible persons, reorganized the board of directors, updated the management level, and actively carried out rectification at the first time according to the results of the phased investigation. However, the final investigation result of the NASDAQ failed to require the company to withdraw from the market.

Therefore, Rui Xing plans to hold hearings in this regard, and in accordance with relevant laws, hearings are normally scheduled to be held 30 to 45 days after the hearing request date. However, in the evening of June 23rd, Rui Xing coffee announced that the company received the notice of delisting on NASDAQ again in June 17th, because the company failed to disclose its annual report in fiscal 2019 in time, and it would be delisted by Nasdaq.

In accordance with the relevant legal requirements, even if the two time is received the delisting notice, the hearing is still held according to the deadline of the first application. Until now, if Rui Xing does not cancel the hearing request, it will clarify the contents of false transactions and postponed annual reports at the latest hearing in June 30th.

"The results of the fraud investigation will not be discussed first. It is very difficult for the light year newspaper to release this clarification." A person who knows the securities laws of the United States told the twenty-first Century economic news reporter, "even if we insist on holding hearings again, it will be very difficult for us to withdraw from the market."

The board of directors of Rui Xing coffee is also in the uncertain future. The two other announcements issued by Rui Xing in June 26th seem to confirm previous speculation about the internal disagreement within the board.

Prior to June 19th, Rui Xing coffee has announced that the company will convene a board of directors in July 5th to discuss the lifting of the appointment of independent directors Shao Xiaoheng, Li Hui, Liu Erhai and chairman Lu Zhengyao himself. But on the evening of 26, two announcements first brought the board forward to July 2nd, and the same will be discussed whether Lu Zhengyao resigned from the chairman, but opposed the lifting of the independent director Shao Xiaoheng.

In the announcement issued on the 26 day, the first reason to recall Lu Zhengyao was revealed: the decision of the special investigation committee is based on other evidence found in the investigation and assessment of Lu Zhengyao's coordination in the internal investigation.

But the difference between the two days before and after the announcement was that Lu Zhengyao was out of office at the same time, while Li Hui, Liu Erhai, the old friend of the current special investigation committee, Shao Xiao Heng and Lu Zhengyao, came out, and arranged for two new directors nominated by Lu Zhengyao. The other was Lu Zhengyao's position as an independent director while leaving office.

It is known that according to the latest shareholding information, the Lu Zhengyao family and Qian Zhi ya have more than 52% shares and 61% of the voting rights. Even if Lu Zhengyao himself leaves the board of directors, he can still influence the company through voting rights.

But if there are no directors in the final board of directors without Lu Zhengyao himself, the control of the company will be greatly reduced. Moreover, Shao Xiaoheng is also the head of the special investigation committee. If one of the Committee resigns, his stay will largely affect the investigation results of the fraud.

Can business model continue?

Some recent news shows a more realistic adjustment of Rui Xing's management strategy, and also gives people some expectation of its follow-up normal operation.

First is the personnel structure adjustment, Rui Xing official told reporters that with the company's business strategy adjustment, individual departments involved in the transfer and optimization of personnel, some of the staff turnover is a normal flow of personnel, mainly in the implementation of the 2019 performance appraisal at the end of the elimination mechanism; for the resignation staff, Rui Xing coffee in accordance with relevant state laws for compensation.

The second is the opening up strategy adjustment. Rui Xing coffee plan closes up to 80 stores in Beijing, occupying 1/5 of the total stores in Rui Xing. Rui Xing side responded that, affected by the epidemic and other related factors, the company is indeed carrying out normal stores optimization, and "closing down" and "continuing to open and close" the shops which are not good in efficiency or customers overlap, and this is also the direction of strategic adjustment of the company's stores.

All the market logic of Rui Xing coffee is all built on a fairy tale ideal. China's coffee market will continue to expand rapidly.

In the prospectus of Rui Xing coffee, they describe the Chinese coffee market in this way: "China's rising urbanization and disposable income have been and are expected to continue to be the main engine of growth in its coffee industry, and more and more Chinese people begin to consume more coffee in their daily lives."

This argument has also been supported by the analytical institutions. According to the Frost&Sullivan report, the number of coffee cups consumed in China has increased from 4 billion 400 million cups in 2013 (3.2 per capita) to 8 billion 700 million cups in 2018 (6.2 per capita), and is expected to increase further to 15 billion 500 million cups (10.8 per capita) in 2023.

In the Rui Xing prospectus, institutional research shows that only 26% of people are willing to purchase more than 30 yuan of coffee. That is to say, there is a fertile market that can be built in the middle and lower price range of Starbucks.

In short, the market saturation is low and the room for growth is large, which makes everyone think that this is a blue ocean that will emerge the next draught. But from the fact that the final lucky money fraud can be seen, the fairy tale of "coffee market" may not be so reliable.

"According to the sales volume in the announcement of Rui Xing coffee, the consumption per capita of Chinese coffee will not be 4 cups / year." A coffee market practitioner pointed out to reporters: "if they are as good as they say, China's per capita coffee consumption is almost 20 cups or so, so the market is really huge."

And in the exploration process of Rui Xing coffee expansion, it is not without merit.

In Rui Xing's business mode, whether it is order, takeaway, discount and so on, it is digitalized. By mastering the APP entry and digitization system of Rui Xing coffee, consumers can place orders, take out or grab coupons through the APP at the marketing port. In the background, they collect large volumes of past traffic and coffee consumer behavior or consumption, and make some accurate recommendations.

Even in the supply chain management, it can be fully digitalized. Such retail enterprises are very rare before this year. But after this year, especially under the influence of the new crown pneumonia epidemic, more and more retail enterprises are aware of the importance of data. This new retail mode with all channels is bound to become one of the future trends.

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