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Tencent

Tencent signs partnership deal with coffee startup Luckin in challenge to Alibaba-Starbucks tie-up

The market for on-demand local services has become a hotly contested field among China’s internet giants because it serves as an entry point to other services, such as mobile payments, and also provides further insight into consumer spending patterns

PUBLISHED : Friday, 07 September, 2018, 7:02am
UPDATED : Saturday, 08 September, 2018, 7:20am

China’s two biggest technology companies are extending their competition to coffee.
Tencent Holdings, the social media and payments giant, announced a partnership with Chinese coffee start-up Luckin on Thursday. The tie-up comes a month after Alibaba Group Holding’s Ele.me unit signed a partnership with Starbucks.
Luckin Coffee confirms US$200m in new funding as it aims for even faster delivery

“We hope the cooperation with Luckin coffee will create a new lifestyle of ‘smart retail’ through tie-up on user traffic, technology exploration, application scenarios and management abilities,” said Lei Maofeng, deputy general manager of Tencent's payment platform WeChat Pay. “Coffee has become a popular drink for young people nowadays and there are more coffee industry practitioners.”

The market for on-demand local services has become a hotly contested field among China’s internet giants because it serves as an entry point to other services, such as mobile payments, and also provides further insight into consumer spending patterns.

Alibaba’s Ele.me unit last month teamed up with Starbucks to do deliveries in China. The delivery service will start this fall in the key cities of Beijing and Shanghai and will expand to cover 2,000 Starbucks outlets by year’s end.

Starbucks set to partner with Ele.me to deliver coffee in China

For Luckin, the cooperation with Tencent would potentially make it more prominent in the ecosystem of services offered by WeChat.

Luckin, a coffee-and-bakery chain, began operations in November 2017. It operates 1,003 physical stores in 13 Chinese cities including Beijing and Shanghai and has sold 26 million cups of coffee as of September 3. The start-up expects to operate 2000 stores nationwide by the end of this year.

“The cooperation also comes to smart stores operation, self-help ordering, delivery service and big data application,” Luckin's co-founder Yang Fei said. “The collaboration will improve our customers’ stickiness, cultivate their habits, and increase Luckin’s popularity, as well as help Luckin to update its current ‘smart operation system.’”

The global market for coffee products, including freshly brewed, instant and packaged coffee drinks, is worth 12 trillion yuan (US$1.75 trillion), according to a July report by research provider JingData. The US leads this market, accounting for one-fourth of coffee consumption worldwide.

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

The market in China is worth about 100 billion yuan per year, with instant coffee accounting for 72 per cent of the domestic market and freshly brewed coffee making up 18 per cent, JingData said. It found each US consumer drinks an average of 269 cups of coffee per year, while the average in China was 4.5 cups.
Alibaba is the parent company of the South China Morning Post .