Starbucks and Alibaba join forces as China coffee war brews

SHANGHAI, China – Starbucks coffees will be delivered to Chinese consumers with the help of e-commerce giant Alibaba, the companies said on Thursday, August 2, as two of the world’s biggest names in retail join forces in a China coffee war that is rapidly heating up.

The partnership comes with Starbucks facing an aggressive challenge from Chinese upstart Luckin Coffee, which has grown rapidly on a business model of delivering beverages ordered via mobile apps.

“We truly believe that this enduring partnership will elevate the coffee culture in China,” Starbucks president and CEO Kevin Johnson said at a Shanghai news conference.

Starbucks products ordered by mobile apps will be brought to customers by Ele.me, Alibaba’s food-delivery unit.

Johnson called the tie-up “rocket fuel” for the US company’s emerging digital strategy.

But Luckin, which has spiced the brewing rivalry by accusing Seattle-based Starbucks of “monopolistic” practices in China, tartly dismissed the Alibaba alliance.

In a statement, co-founder and Senior Vice President Guo Jinyi labelled Starbucks a “latecomer” that was “imitating others and losing its own individuality.”

Traditionally tea-drinking China is seeing an explosion in coffee consumption, becoming Starbucks’ key market after the United States and its main source of new growth.

Seattle-based Starbucks has more than 3,400 cafes in more than 140 Chinese cities and plans to double its stores by 2022. It has said a new Starbucks opens every 15 hours in China.

Starbucks officials stressed that its existing growth thrust would continue, but that the Alibaba tie-up would add “Starbucks delivery kitchens” to supermarkets run by Alibaba.

Battle of the beans

Deliveries begin in September from 150 Starbucks in Beijing and Shanghai, expanding to more than 2,000 outlets nationwide by year-end.

China’s meal-delivery sector has skyrocketed, fuelled by eager adoption of digital commerce and the rise of start-ups that employ millions of low-wage, scooter-mounted couriers and promise to whisk edibles to their buyers in under 30 minutes.

Until now, Starbucks lacked a comprehensive delivery strategy. But Luckin appears to have changed that.

Launching about a year ago, Beijing-based Luckin has grown rapidly by offering cheap delivery and steep drink discounts. It has hundreds of outlets now and plans to grow to more than 2,000 by year-end.

Starbucks is banking on China for revenue growth amid market saturation in the US, and last year opened its largest outlet in the world in Shanghai, a two-story “roastery” spanning nearly half the area of a soccer field.

But it said recently that same-store sales in China declined two percent in the second quarter, raising questions about its Chinese strategy.

Johnson declined to specifically address the Luckin challenge when asked, saying the Alibaba partnership was part of a broader global evolution in retail and that Starbucks “has always had a lot of competition”.

No financial terms of the partnership were disclosed.

Analysts, however, have warned to be careful betting on unproven Luckin and against Starbucks, which has brand recognition and decades of success in a range of markets worldwide.

Hangzhou-based Alibaba, founded by entrepreneur Jack Ma, pioneered the Chinese retail sector’s transformation toward digitally placed orders and delivery.

Earlier this year, it acquired full ownership of Ele.me, China’s leading delivery start-up, as it squares off in e-commerce against Chinese tech giant Tencent. – Rappler.com