China’s largest coffee chain, Luckin Coffee (OTC:LKNCY), is preparing to enter the U.S. market, aiming to challenge rivals, including Starbucks Corp. (NASDAQ:SBUX), with its low-cost beverages. This move follows a fraud scandal that led to Luckin’s delisting from Nasdaq and a hefty fine.

What Happened: Luckin Coffee, which became China’s biggest coffee chain during the COVID-19 pandemic, is now looking to make a mark in the U.S. The company, which was delisted from Nasdaq and fined $180 million due to a fraud scandal, is planning to launch in the U.S. as early as next year, reported the Financial Times, citing two people familiar with the matter.

Luckin, which opened its 20,000th store in China in July, plans to target cities with large numbers of Chinese students and tourists, such as New York. The company has been running advertisements during NBA games to build name recognition ahead of its planned launch.

Luckin aims to leverage its experience selling affordable coffee in China and undercut U.S. incumbents by selling drinks priced around $2 or $3. The company is also preparing for an expansion in Southeast Asia.

Luckin Coffee did not immediately respond to Benzinga's request for comment.

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Why It Matters: The company, once considered China’s answer to Starbucks, has not only survived but also emerged as a fierce competitor to the Seattle-based coffee giant. Luckin Coffee’s low-cost lattes have attracted a growing customer base, propelling it to become China’s largest coffee retailer, surpassing Starbucks.

Starbucks, on the other hand, has been facing challenges in China, including competition from local brands like Luckin Coffee and Manner Coffee. The Seattle-based retailer’s recent moves in China, such as a significant increase in discounting strategies, have raised concerns about its long-term strategy and market position in China.

Starbucks’ former CEO, Howard Schultz, reportedly urged the coffee chain to acknowledge its faults and revamp operations following a significant sales decline.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote