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Alibaba

Starbucks, Alibaba's Ele.me forge coffee delivery tie-up in China to take on growing competition

PUBLISHED : Thursday, 02 August, 2018, 9:58am
UPDATED : Thursday, 02 August, 2018, 10:35am

Starbucks Corp on Thursday launched a partnership with Alibaba Group’s Chinese food delivery platform Ele.me, in a move to shore up sales in its second-largest market and to battle aggressive competition from local coffee start-ups.

Starbucks flagged in June that it was pursuing such a tie-up after reporting a sudden slowdown in China sales growth, which it partly blamed on a government crackdown on third-party delivery firms that had previously helped drive orders at its cafes.

The announcement confirms an earlier report about the proposed tie-up from the South China Morning Post.

The Seattle-based company will begin delivery services in September from 150 Starbucks stores located in key trade zones in Beijing and Shanghai and plans to expand that to more than 2,000 stores across 30 cities by the end of 2018, Starbucks and Alibaba said in a joint statement on Thursday.

The companies will collaborate across businesses within the Alibaba Group, including Ele.me, supermarket chain Hema, online retailers Tmall and Taobao, and mobile and online payment platform Alipay.

Alibaba is spending big to invest in its recently acquired meal delivery unit Ele.me

The delivery program will leverage Ele.me’s 3 million registered riders and Starbucks will establish “Starbucks Delivery Kitchens” inside Hema stores and use the supermarket’s delivery system to fulfil Starbucks delivery orders.

The partnership with Alibaba “will reshape modern retail, and represents a significant milestone in our efforts to exceed the expectations of Chinese consumers,” said Starbucks Chief Executive Kevin Johnson said in the statement.

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 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 delivery, online ordering, big discounts and premium pay for its staff.

Lining up for coffee? This barista took 34 orders in 49 seconds

Starbucks’ shares fell steeply in June after the company said it expected slowing sales growth in China. Last week it announced a 2 per cent slide in quarterly same-store sales for China, a steep fall versus 7 per cent growth a year earlier.

Before the deal, Starbucks had no formal online delivery in China where Ele.me competes with Meituan-Dianping, which is backed by gaming giant Tencent Holdings Ltd, as the country’s two biggest food delivery platforms.

Instead, unapproved third-party delivery services had filled that gap by placing large Starbucks orders for delivery to their own customers, often resulting in long store queues. Analysts have said that making a delivery arrangement official would likely push up costs for Starbucks.

Luckin Coffee has Seattle-based rival in its sights with China coffee plans

Andrew Atkinson, marketing manager at Shanghai-based research and marketing consultancy China Skinny, told Reuters on Wednesday that such a partnership was a “natural response to one of (Starbucks’) first major challenges” in China.

“And it’s really becoming now that if you’re not on one of these apps you’re missing out a huge opportunity,” he said.

The partnership was also likely a win for internet giant Alibaba which has been pushing hard to expand Ele.me since it fully acquired the company in April, he said.

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