Starbucks has inked a partnership with China's e-commerce giant company Alibaba Group to increase Starbucks' presence in China's vibrant consumer market, following Starbucks declining sales growth in the last two quarters of 2018.
The Starbucks business in China has been dwindling due to stiff competition with Chinese local brands selling cheaper coffee drinks than Starbucks. The Chinese-brand Luckin Coffee, for one, has affordable coffee in the Chinese market.
"The problem is Starbucks is no longer viewed as an aspirational brand," said Shanghai-based China Market Research Group Managing Director Shaun Rein.
The Starbucks-Alibaba Partnership encompasses a wide scope. This includes putting a Starbucks virtual store to all digital properties of Alibaba such as Tmall, Alipay, and Taobao. With this integration, Starbucks will be face-to-face with at least 500 million active users of these Alibaba famous apps.
Starbucks is optimistic that its partnership with Alibaba will give a huge boost to Starbucks' operations in China.
In its 2017 fiscal year, Starbucks' business in China was with full vibrancy. Its comp sales have reached to seven percent with an eight percent surge in the fourth quarter of 2017. The hype continued until the first quarter of 2018 fiscal year. This prompted Starbucks to take full ownership of its China operations and terminated joint venture operations. The company is targeting an expansion of 600 stores in China every year for the next succeeding fiscal years.
Starbucks, however, suffered a setback in its operation in China when it entered the second quarter of 2018 fiscal year with only four percent sales growth. It further declined to two percent in the recent quarter. Because of this decline, many of its investors expressed their worries.
According to Starbucks top officers, the decline in sales in the third quarter could be attributed to its lack of delivery services compared to its local competitors that have its own delivery services.
Starbucks, however, was quick to dismiss any worry and said that their investors should have nothing to be concerned about. It even averred that Starbucks will continue to expand its operations to various cities in China.
With Alibaba's partnership, Starbucks is more confident that its operations in China will grow further. Using Alibaba's Ele.me platform, Starbucks will start its delivery services in Shanghai and Beijing next month. By end of 2018, Starbuck projected delivery services among its 2,000 outlets in 30 different Chinese cities.
Starbucks will also establish delivery kitchens by September at Alibaba's Hema supermarkets. This will further boost the delivery services of Starbucks coffee to its customers.
