Starbucks teams with Alibaba to stay up in China
SHANGHAI — For years, Starbucks was the undisputed king of coffee in China.
It single-handedly created a market of coffee drinkers in a nation of tea lovers, cashing in on a wave of affluent Chinese who looked to Starbucks as an aspirational brand.
But Starbucks’ dominance in China is increasingly under attack, as growth begins to slow and competitors aggressively target coffee drinkers. Starbucks executives have come under scrutiny for being slow to adapt to technological shifts and retail trends in the country, namely delivery.
On Thursday, in a bid to revitalize its China operation, the company announced what it called a “new retail” partnership with the Chinese tech giant Alibaba. It will allow Starbucks to pilot delivery services next month with an Alibaba subsidiary, Ele.me, and establish what it called delivery kitchens in Alibaba’s Hema supermarkets.
Starbucks will also integrate across Alibaba’s platforms to create a virtual Starbucks store so Chinese customers can have more personalized experiences, the two companies said. A couple discuss recent purchases outside a Starbucks under construction in Beijing. Starbucks and Chinese e-commerce giant Alibaba Group announced a coffee delivery venture on Thursday.
“This is rocket fuel for our digital flywheel strategy in China,” Kevin Johnson, chief executive of Starbucks, said Thursday at a news briefing in Shanghai.
China is one of Starbucks’ most important markets, especially as the company’s domestic one cools. It has raised prices to offset decreasing foot traffic in U.S. stores.
But the company has also recently seen sales in China drop.
Same-store sales in the most recent quarter fell by 2 percent, compared with increases in the previous two quarters.
For Starbucks, analysts say the “new retail” is partly an attempt to fend off competition from Luckin Coffee, a Chinese startup. The company, which was started in Beijing in January with two stores, has since opened more than 800 branches in 13 cities around the country.
Jeffrey Towson, a privateequity investor and a professor of investment at Peking University who has been vocal about Starbucks’ failure to adopt digital strategies, said Thursday’s announcement could help Starbucks move beyond its traditional reliance on brick-and-mortar sales.