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China technology

Meituan to team up with China Starbucks challenger Luckin Coffee on delivery services

  • If the collaboration between Luckin and Meituan goes ahead, users will be able to order Luckin Coffee’s products on Meituan’s delivery app Meituan Waimai
PUBLISHED : Tuesday, 18 December, 2018, 4:25pm
UPDATED : Tuesday, 18 December, 2018, 9:51pm

Chinese coffee start-up Luckin Coffee is planning a tie-up with Meituan Dianping to deliver coffee and other food products through the on-demand giant’s delivery network in China, according to people familiar with the situation.

The planned tie-up comes after global coffee giant Starbucks announced a partnership with Alibaba’s food delivery arm Ele.me in August to carry out deliveries in China. Before partnering with Alibaba, Starbucks had faced a sales slowdown and had no official delivery channel in the country.

If the collaboration between Luckin and Meituan goes ahead, users will be able to order Luckin Coffee’s products on Meituan’s delivery app Meituan Waimai in more than 20 cities in China, one of the people said, asking not to be named because the information is private.

A Meituan spokesman declined to comment and a Luckin Coffee spokeswoman did not immediately respond to a request for comment.

Currently Luckin takeaway orders can only be placed through Luckin’s own app and the delivery service is provided by Chinese logistics firm SF-Express. The partnership with Meituan would add more delivery capacity to Luckin Coffee and at the same time increase fierce competition in China’s food delivery market.

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“For Luckin, [the deal means] it can expand further from offline to online in the coffee retail business,” said Zhang Yi, CEO of mobile internet consultancy iiMedia Research Institute. “For Meituan, it might not be aiming for more orders from Luckin … but it wants to send a signal to other warm food providers that it can deliver a cup of warm coffee in a timely manner.”

Luckin, which offers American-style coffee and a range of bakery items, began soft operations in Beijing and Shanghai at the start of the year. Of the shops opened so far, almost half are effectively “takeaway kitchens”, according to the company, where coffee is delivered mainly by courier.

Meituan reported a wider loss of 83.3 billion yuan (US$12.1 billion) for the third quarter ended September reflecting the high costs involved in fighting it out with Ele.me and others in China’s hotly-contested food delivery industry.

Meituan, which raised US$4.2 billion in its Hong Kong IPO in September, and Ele.me are engaged in a subsidy war in China’s on-demand market, which comprises everything from food deliveries to restaurant reviews and even massage services, with profitability relegated to the back seat in the short term in favour of winning market share.

Beijing-based Luckin recently doubled its valuation to US$2 billion by raising a new round of financing of US$200 million last week. Luckin has set up more than 1,700 stores in 21 cities so far. The coffee start-up said it can deliver orders in each of China’s major cities [Beijing and Shanghai] in around 18 minutes.

Luckin Coffee confirms US$200m in new funding as it aims for even faster delivery

Luckin is disrupting China’s coffee business with heavy subsidies, handing out 50 per cent off coupons every week, charging only 6 yuan as a delivery fee per order and launching ‘buy one, get two free’ offers during Singles’ Day.

China has offered Starbucks rich pickings in recent years, thanks to a burgeoning cafe culture which has helped offset growing saturation in the United States. It has about 3,400 stores in the country and plans to almost double that number by 2022.

But it is coming under increasing pressure from local companies such as Luckin Coffee, which has expanded rapidly on the back of a supercharged growth plan based on cheap deliveries, online ordering, big discounts and premium pay for its staff.

Alibaba is the parent company of the South China Morning Post.