Starbucks to launch virtual stores, coffee delivery service to combat sales slump in China

PUBLISHED : Thursday, 02 August, 2018, 8:00pm
UPDATED : Thursday, 02 August, 2018, 11:12pm

Starbucks has formed a partnership with Alibaba Group Holding to deliver coffee and open virtual stores, a move designed to help the US coffee chain stay ahead of competition after same-store sales unexpectedly dropped in China last quarter.

Starbucks will provide coffee delivery services in Beijing and Shanghai from September, capitalising on the three million registered riders of, Alibaba’s food delivery platform.

“The pace of innovation is far more rapid in China than any other market,” Starbucks chief executive Kevin Johnson told reporters on Thursday. “This partnership will enable a new retail experience for our customers.”

Initially, 150 Starbucks stores will offer delivery services and the number will be expanded to more than 2,000 across 30 cities by the end of 2018, Starbucks said.

Aside from, Starbucks will also leverage Alibaba’s other businesses and platforms including supermarket chain Hema, online retailers Tmall and Taobao, and mobile and online payment platform Alipay.

Alibaba, which is the owner of the Post, will also support a virtual Starbucks store and a centralised online management hub to help the coffee company deliver “a consistent Starbucks experience,” the companies said in a joint announcement.

Starbucks and Alibaba began discussions about a potential tie-up a year ago as the Seattle coffee company sought to explore the digitalisation of its businesses in China, according to Johnson.

New retail is defined by Alibaba as a strategy that taps online sales data and the digital profile of consumers to market products and create new demand.

Alibaba chief executive Daniel Zhang Yong said the partnership represented a new chapter in retailing.

Starbucks gains traction in bid to make China its largest market

Starbucks reported that its same-store sales in China fell 2 per cent in the April to June period versus the prior quarter. The decline is a trend reversal following rising same store sales of 4 per cent and 6 per cent in the preceding quarters.

A government crackdown on third-party delivery services was cited as a reason for the slowing quarterly sales.

Johnson said last year that the mainland would become Starbucks’ biggest market within a decade.

Starbucks opened its first China branch in Beijing in 1999 and now operates 3,400 stores in the country.

Johnson said that Starbucks is facing “a lot of competition” in China, but added that the partnership with Alibaba will help the company to exceed consumer expectations.

Chinese media reported that a new Starbucks outlet on the mainland could expect to see annual sales of US$670,000, with the rate of return on investment hitting 73 per cent after one year of operation.

Starbucks declined to comment on the figures.

Analysts say that international coffee brands are adept at promoting the cafe culture to Chinese customers as a status symbol.