Starbucks Inks Alibaba Partnership to Drive China Deliveries

(Bloomberg) -- Starbucks Corp. is joining forces with Alibaba Group Holding Ltd. to begin delivering its drinks and baked goods in China, rolling out an effort to stave off competitors and turn around sales in the country.

Starbucks will test the service at 150 stores in Beijing and Shanghai in September using Alibaba's Ele.me on-demand food delivery service. Starbucks plans to expand the program to more than 2,000 locations by the end of the year, according to a statement.

Starbucks is coming to the delivery game in China as it faces a rare sales decline in the world's second-biggest economy. With slowing sales at home and the departure of longtime leader Howard Schultz, Starbucks is under pressure to show it can ignite growth in China, which it sees eventually surpassing the U.S. as its biggest market.

“This partnership is going to be rocket fuel for Starbucks' growth and expansion in China," Starbucks Chief Executive Officer Kevin Johnson said in an interview in Shanghai.

He dismissed the notion that Starbucks is coming late to the delivery business in a country where tech-savvy consumers are used to same-day shipments, and where local competitors such as Luckin Coffee have sprung up in urban areas.

“One of things important to us before we launched delivery was that the experience was integrated with stores, and a premium experience,” Johnson said.

Both Starbucks and Alibaba said they will be investing in the new partnership, but didn't disclose financial terms. Johnson said the effort with Alibaba has significance for the company's worldwide operations.

“This partnership sets the stage not just in China, but for what we will see globally, because the pace of innovation is more rapid here," he said. “If we look to a decade from now, this will be our definitive relationship on all things new retail.”

Starbucks has been betting big on China, attempting to triple its revenue there over the next five years. Johnson said in the interview that Starbucks' total transactions in China are growing at a double-digit pace. Yet same-store sales in the latest quarter fell 2 percent, prompting concerns that Chinese consumers could be souring on American brands amid rising trade tensions.

The American giant has said it aims to establish itself as a daily routine for consumers in China. Starbucks and Alibaba said Ele.me will have proper preparation methods and packaging specially designed to keep hot and cold fresh during delivery.

“You can always do delivery very quickly but we need to do it right,” said Belinda Wong, CEO of Starbucks' Chinese business. “When we can deliver the same quality of coffee that you can get in stores is when we feel we have earned the right to do delivery.”

Starbucks will also create so-called “delivery kitchens” inside of Alibaba's Hema supermarkets to make the service available to more customers.

Starbucks gains a valuable ally in Ele.me, which commands hundreds of thousands of delivery personnel on a daily basis across China and is syncing that logistics network with its e-commerce parent to enhance efficiency. Alibaba co-founder Jack Ma's Ant Financial is another of the startup's backers, granting Starbucks access to the country's leading mobile payments network and -- potentially -- a rich source of consumer data.

“This is an important validation of Alibaba's ecosystem," said Alibaba CEO Daniel Zhang. He said the partnership is not just about delivery but also the fulfillment of orders, as Starbucks kitchens are built in Hema and become part of the supermarkets' delivery system.

Starbucks also partners with Alibaba's arch-rival, Tencent Holdings Ltd., in mobile payment and social gifting on its Wechat app.

To contact Bloomberg News staff for this story: Rachel Chang in Shanghai at wchang98@bloomberg.net;Craig Giammona in New York at cgiammona@bloomberg.net

To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Jeff Sutherland, Subramaniam Sharma

With assistance from Editorial Board