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As China Sales Decline, Starbucks Joins Forces With Alibaba

As its sales decline in the once-booming China market, the U.S. coffee retail chain Starbucks Corp is now said to have joined forces with the Chinese eCommerce company, Alibaba Group.

Seattle-based Starbucks is expected to make the official announcement about its partnership with Alibaba Group later this week.

However, reports have revealed that Starbucks, which is hoping to rebound from the recent sales slump in China, has tied up with Alibaba for a coffee delivery service.

Starbucks admitted to an “underperformance” in China in its third-quarter earnings call.

The coffee giant has argued that a crackdown on unapproved third-party delivery services caused a large part of the slowdown.

Further, Starbucks is facing intense competition from fast-growing rivals like China’s Luckin, further pressuring the U.S. coffee chain’s growth figures.

Luckin, which officially launched in January, has already opened more than 660 outlets in 13 Chinese cities.

Meanwhile, Starbucks said in its earnings call that starting this fall in Beijing and Shanghai, it was making progress on plans for delivery.

Starbucks, which is aiming to almost double its number of stores in China by 2022, is believed to have gone ahead with a tie up with Alibaba after former Starbucks Executive Chairman Howard Schultz suggested that a tie-up with Alibaba’s billionaire founder Jack Ma could be on the horizon.

Wall Street is hoping a partnership with Alibaba’s food delivery arm, Ele.me, will help fuel Starbucks’ growth plans in the country.

Commenting on Starbucks’ reported plans, Sharon Zackfia, an analyst for William Blair, wrote in a research note, “An imminent announcement of a delivery solution is an important first step, as is a roll out of mobile ordering,” which is not yet in China. While the margin implications of third-party delivery are unclear, no margin is worse than that of a lost sale.”

 

 

 

 

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