Starbucks enters strategic partnership with Alibaba to fend off Luckin rivalry

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China’s caffeine war is percolating. Starbucks announced today that it has entered a strategic “New Retail” partnership with Chinese tech giant Alibaba in a move to strengthen foothold in its second-largest market.

The rumor about a possible tie-up between Starbucks and Alibaba-backed delivery service Ele.me has been around for a while. But it turns out that the partnership is much larger in scale than previously thought. The partnership will cover nearly every key business within the Alibaba ecosystem, including Ele.me, Hema, Tmall, Taobao, and Alipay.

Under the deal, Starbucks plans to leverage Ele.me’s on-demand platform to pilot delivery services in Beijing and Shanghai in September 2018. The delivery program is expected to expand across 30 cities to more than 2,000 stores by end of 2018, the company disclosed.

Lack of reliable delivery service has long been a pain for Starbucks, especially in China where it’s so ubiquitous thanks to the boom of the food delivery industry. Previously, coffee delivery from Starbucks was only enabled through third-party firms. A recent government crackdown on this service has suspended the service and therefore put a dent in Starbucks’s sales in China.

On the other hand, homegrown coffee startup Luckin is using the feature as a big selling point against the Seattle-based coffee chain store. The current partnership with Ele.me, China’s leading on-demand food delivery platform with 3 million registered delivery riders, would guarantee reliable delivery service. The users will receive their coffee within 30 minutes after placing the order, according to Ele.me CEO Wang Lei.

How Luckin Coffee is reforming China’s coffee culture

The tie-up also expands to Alibaba’s flagship new retail business Hema Supermarket. “Starbucks Delivery Kitchens” will be established inside Hema stores and use the supermarket’s delivery system to fulfill Starbucks delivery orders.

“Thanks to the elevated customer experience delivered by our over 45,000 partners, Starbucks is growing and innovating faster in China than anywhere else in the world,” said Kevin Johnson, president and chief executive officer, Starbucks Coffee Company.

This digital partnership will see Alibaba develop a centralized online management hub, with the capabilities to integrate and deliver Starbucks Experience across multiple digital platforms from Starbucks app to Alibaba’s customer-facing mobile apps, including Taobao, Alipay, Tmall, and Koubei.

The tie-up comes at a time when the world’s top coffee chain store is facing increasing competition from Chinese competitor Luckin, which offers American-style coffee and snacks at a lower price. Over the past few months, we have seen tightening rivalry between the two companies in talents, commercial property and in marketing.

But now the competition is escalating and it’s not only about coffee anymore. Luckin announced on August 1 that it’s expanding business in light meals and snacks. Given the partnership with Ele.me, Starbucks may as well take a further step to add the service sometime in the future.