File photo/Lan Suying (NBD)

May 18 (NBD) -- Chinese coffee startup Luckin Coffee (NYSE: LK), once a formidable rival of Starbucks, is now struggling to get back on track after trading of its stock paused, COO and CEO leaving over the fraud scandal. 

Over the weekend, reports emerged that the coffee maker is, on the one hand, opening 10 new stores a day on average nationwide during the second quarter ended on May 12, and on the other hand, to close 80 outlets in Beijing. 

In response, the coffee maker says it is a normal optimization strategy. The company will close stores with lousy performance and overlapped target customers, but in the meantime, it will open new ones, said person-in-charge of related business of Luckin Coffee when reached by Beijing Business Today.

"The newly-opened stores may be scheduled beforehand as it takes time to sign contracts and decorate before a store is finally in business," said Wang Zhendong, chairman of a Shanghai-based coffee investment and management company, "for a majority of restaurants, store adjustment within a reasonable proportion will be helpful."

In addition, the coffee maker hasn't completely stopped providing subsidies. Currently, orders have stabilized from the peak period when people rushed to have a free or discounted drink with coupons after the fraud scandal was firstly disclosed, learned Beijing Business Today upon visiting some stores.

It can be noticed on its App, foods and drinks are sold with around a 50 percent discount. For example, a Latte, which is priced at 25 yuan, sells at 13.75 yuan.

The high subsidy of Luckin Coffee is a step to stabilize orders and maintain normal operation of its stores so as to land a "buyer" which can take over, added Wang.

However, the company's cash-burning model is hard to sustain as the fraud scandal has greatly tarnished its image. Due to high legal and debt risks, investors may not continue to plough money into the company, noted Ding Jihua, an expert of the China Enterprise Compliance Promotion Alliance.

Luckin Coffee may land a buyer or change a brand, which is all based on the premise that the fraud case is closed, Ding added.

Email: gaohan@nbd.com.cn