Best Coffee Inc. is a Chinese company that offers lower-priced coffee, primarily for takeout and delivery. In the fall of 2019, Best Coffee reported an almost six-fold increase in quarterly sales. In January 2020, BESt Coffee '5 stock reached $50 a share, almost triple its offer price in May 2019- HOWEVEI', SPECUlaOHS arose that the company was inating the number of items sold per day by 69% in the third quarter of 2019 and 88% in the fourth. As stated in its [90 report, Best Coffee's goal is to sell lots of coffee in China, a nation of resolute and happy tea drinkers, and the competitor it promises to defeat is Starbucks Corp. Read the following paragraphs from Bloomberg Newsweek: Persuading Chinese consumers to drink more coffeeor any at allhas proved a frustrating pursuit. Starbucks has been trying ever since it opened its first cafe in Beijing in 1999. Now it operates more than 4,000. But in 2018 annual per capita coffee consumption in China had reached just about six cups, compared with 388 cups in the U.S. Plenty of people would regard those numbers as proof there would be no easy or fast way to change Chinese preferences. Best Coffee regarded those numbers as evidence that there was plenty of opportunity for growth, citing them in its own prospectus ahead of its initial public offering. Starbucks had prospered in China by selling much more than just coffee and offering a comfortable place outside the home or office to meet friends or study. Best Coffee did the opposite: Most of its locations are more like kiosks, with little or no seating. Orders have to be placed and paid for with Best Coffee's app. That was supposed to allow the company to save on rent and minimize labor costs. It even announced plans for a "smart vending machine" that would eliminate the need for stores or staff altogether. BESt COffEE's real advantage, though, was supposed to be affordability. Its app COHStaY P1151195 freebies and discounts to customers, making it difcult to know exactly what it charges. But it's definitely far cheaper than Starbucks, where a grande latte goes for about 32 yuan ($4.57). That kind of discounting requires a lot of cashmore than what Best Coffee was saving on headcount and real estate. In 2018, Best Coffee disclosures show, its operating expenses were almost triple its sales. Requirement: Given information provided, clearly identify and explain Best Coffee's key risks and strengths (i.e., key risk and prot drivers) in its business. Hint: Identify and explain two key risks and two key strengths, respectively. (12 marks)
