It’s no secret that coffee is a big part of consumer culture in North America and Starbucks is a well-known coffee chain. However, the chain is not only popular in North America but has established itself in several countries across the globe. Starbucks China might be looking forward to a new partnership as it is reported to be partnering with e-commerce company Alibaba’s food delivery unit.
The unit, called Ele.me, might soon be providing the delivery of coffee and snacks to Chinese consumers. This new partnership could possibly be motivated by Starbucks’ fiscal third-quarter revenue and profit report. China was one of the company’s biggest successes but the report showed a two percent fall of same-store sales in the country. This partnership has the potential to increase sales.
The partnership was first hinted at by the former executive chairman of Starbucks, Howard Schultz. Earlier in the month, Schultz suggested that a team-up with Alibaba’s founder Jack Ma might be coming soon. However, the company has yet to officially declare the deal. According to the Wall Street Journal , a formal announcement will be made later in the week.
However, Starbucks did mention it would be testing a new delivery option in Shanghai and Beijing in fiscal 2019 in attempts to increase their sales.
“Let me assure you that our new delivery service will adhere to the high standards our customers in China have come to expect … as we expand our business [there],” CEO of Starbucks China, Belinda Wong said during an earnings call.
In addition to helping Starbucks recover from their two percent fall, this deal could help fight their increasing competition in China. Earlier this year, a home-grown start-up called Luckin Coffee became Starbucks’ lead competition in China. Luckin had raised $200 million from investors and began its operations earlier this year. The start-up is known for its on-demand coffee that is sold through its app and then delivered to consumers within 30 minutes or the order is free.
The fact Luckin has managed to be competition is surprising considering Starbucks has more than 3,300 stores in Chinese cities as opposed to Luckin’s 660 outlets in only 13 cities. It’s evident that the fast-pace delivery service is making an impact on consumer choices. The Wall Street Journal reported a hope for this partnership to help Starbucks’ growth – the company aims to double its number of stores in the country by 2022.
“An imminent announcement of a delivery solution is an important first step, as is a roll out of mobile ordering… while the margin implications of a third-party delivery are unclear, no margin is worse than that of a lost sale,” analyst for William Blair, Sharon Zacfia stated in a research note.