Starbucks Alibaba reaches comprehensive strategic cooperation: membership system opens up 30 cities for distribution

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On the morning of August 2, Starbucks and Alibaba announced today that they have reached an all-round deep strategic cooperation. The cooperation content involves Alibaba's hungry, box horse, Taobao, Alipay, Tmall, word-of-mouth and other business lines. Alibaba CEO Zhang Yong said that this cooperation is a milestone in the business development process of the two industries. The two sides will share resources and complement each other's advantages to create a new Starbucks experience for Chinese consumers anytime, anywhere.

"China has become Starbucks 'fastest-growing and most innovative market in the world thanks to unique experiences created by more than 45,000 partners," said Kevin Johnson, president and CEO of Starbucks Coffee. The future of Starbucks China is worth looking forward to, and I have full confidence in the Chinese management team that continues to innovate and continuously enhance the Starbucks experience."

Starbucks President and CEO Kevin Johnson

Zhang Yong, CEO of Alibaba Group, said,"Alibaba Group is very excited to launch a comprehensive strategic cooperation with Starbucks, hoping that Alibaba's new retail infrastructure capabilities and data technology can produce a 'chemical reaction' with Starbucks to provide consumers with a new experience and create a global new retail benchmark and sample."

Alibaba CEO Zhang Yong Alibaba CEO Zhang Yong

Alibaba said that relying on Alibaba's mature distribution system, Starbucks will test the delivery business in about 150 stores located in key business districts in Beijing and Shanghai, and then gradually extend to the whole country. It plans to cover more than 2000 stores in 30 major cities by the end of this year, in order to meet the needs of more customers in different markets as soon as possible.

At the same time, Starbucks will also cooperate deeply with Box Horse to jointly create the first brand delivery kitchen-Starbucks "Delivery Star Kitchen". Starbucks "Star Kitchen" will be located in Shanghai and Hangzhou as soon as September this year, and will continue to enter more cities in the future.

In addition, Starbucks and Alibaba will join forces to create Starbucks 'new retail smart stores. Consumers, whether at home, work and study places, Starbucks stores or online, can realize online shopping, mobile phone order delivery,"star talk" social gifts and customer service consultation anytime and anywhere, enjoying a personalized upgraded Starbucks experience.

"Worst financial report in 9 years"

Starbucks as the coffee industry leader, as of the end of 2017, more than 27,000 stores worldwide, 3200 stores in China, accounting for 51% of the Chinese chain coffee market share, but last week Starbucks announced FY2018Q3 earnings report, but called "the worst earnings report in 9 years."

Starbucks achieved global net revenue of $6.31 billion in Q3 of fiscal year 2018, up 11% year-on-year, but same-store sales grew only 1%, well below analysts 'growth expectations of 2.9%. Starbucks has shown signs of slowing same-store growth in the United States for two consecutive years, while the China/Asia-Pacific market, Starbucks 'second-largest market, is seen as a lifeline. However, operating margins in the China/Asia Pacific market declined 7.6 percentage points from 26.6% to 19%, while same-store sales fell 2% year-on-year. The eye-popping earnings data really poured cold water on Starbucks, which is bent on doing a big job in China.

Starbucks 'decline in China market data is related to the strong impact of Internet coffee, convenience store coffee and office coffee machines. In 2018, Ruixing Coffee, which focuses on take-out service, has become popular in the Chinese market, with more than 800 stores. CNBC TV station in the United States called Ruixing Coffee a "signpost" for new retail of coffee in China, and the "porcelain touch" marketing event in May made Ruixing brush its presence severely. Although Starbucks says on the surface that it "has no intention of participating in the market hype of other brands," there is no doubt that Starbucks cannot be indifferent to Ruixing's "sharpening knife".

Starbucks is moving towards "populism"?

In fact, for Starbucks, in addition to the strong impact on the Chinese market, its life in the U.S. market is not easy. Starbucks has missed Wall Street analysts 'expectations for revenue and profit in earnings reports over the past few quarters, and its stock price has been volatile.

Starbucks stores are saturated in the United States in an effort to boost revenue. Starbucks has made two moves, first, to lay out its food business, and second, to accelerate the opening of more stores in China, a "second market." Based on these two actions, Starbucks increased the variety of food in its stores from 19 to 42 in 2016; at the end of last year, it took back all its shares in Starbucks China, converted its stores in China into direct-sale stores, and plans to expand its stores in China from more than 3000 to 5000 by 2021.

Starbucks has only three and a half years left. If it wants to open more stores in China, it must sink to China's third-and fourth-tier cities, and Starbucks 'brand image may also be affected. Ruixing Coffee has 809 stores, and 1000 have signed lease contracts to be opened. The barbaric method of "discount, group, free freight" has disturbed Starbucks 'layout in the Chinese market to some extent, while Starbucks and hungry jointly launched take-out service, which may be another supplementary means for Starbucks to increase order volume, and has really begun to fight back against Ruixing.

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