Starbucks Corp. has entered in cooperation with Alibaba-backed food delivery service provider Ele.me to deliver beverages and snacks, as it seeks to reverse the declining sales in China, according to people with direct knowledge of the tie-up.
The delivery service will pilot this autumn in Beijing and Shanghai, and expand across the country in 2019, Belinda Wong, chief executive of Starbucks China, told analysts during a company’s conference.
Starbucks said last week its sales in China has significantly slowed down, hurt by the authorities’ crackdown on third-party delivery service that helped to crimp the business in one of its used-to-be high-growth markets. The sales fell 2 percent for the quarter ended June, compared with a 7 percent growth for the same period last year.
The seattle-based company has long dominated China’s coffee chain market, with a bite of more than 80 percent, where the consumer sentiment on this imported beverage has been growing up among the country’s new generation and enlarging middle-class just over the past half decade, according to the latest estimate by the research institute Euromonitor.
Starbucks has announced in May that it will pace up to open 600 new stores each year in China, up around 70 percent above the current base of 3,300 sites by the end of 2022 fiscal year.
“China will emerge as the largest market in the world of Starbucks,” said Howard Schultz, former executive chairman of the coffee giant.
The burgeoning coffee market of the world’s second largest economy has attracted many of Starbucks’ rivals. British coffee chain Costa Coffee operates 459 stores in China, and eyes to triple the number in the coming four years.
Intensifying competition also see the aggressive expansion of homegrown brands, including the newly emerging Luckin Coffee.
The start-up sprawls with its blue-backed white elk, echoing Starbucks’ iconic green-and-white logo and prices its products at a discount of nearly 20 percent compared to its foreign rivals. The company has dipped in high subsidies and celebrity ads strategy to step into the market. It was among the first coffee shops to introduce online order and delivery service that quickly boost up its sales but with ultra-low margin.
Luckin Coffee sold its first cup of coffee in January and currently operates around 500 stores in the major Chinese metropolis. It has raised $200 million in a funding round this month, adding its valuation to around $1 billion to become the first Chinese unicorn in beverage.
The young bull sued the Starbucks for being a suspected monopoly in this May, accusing the veteran of signing agreements with property management firms for exclusive use, in order to prevent other coffee vendors from opening stores nearby, which Starbucks described as a “marketing hype”.
“We have reserved adequate ammunition to fight back,” said Lu Zhengyao, chairman of Ucar Inc and former colleague of Luckin’s founder Qian Zhiya. “The market value of Starbucks has declined by $10 billion. If Starbucks could give us shares worth $10 billion, we won’t bother to fuel the fire.”
The coffee giant is under pressure also in the U.S., struggling to gain earnings from both high-end and cheap coffee. But thanks to the price rise and sales increase of bagged coffee and food, sales in U.S. stores climbed up 1 percent in the third quarter compared to the previous period, despite the traffic fell 2 percent.
Ele.me said last week it will pour one billion yuan each month from July to September on subsidies and marketing, in a bid to lift the market share to over 50 percent, as the competition reaches fever pitch and with steep cost of winning customers.