Starbucks and Alibaba’s food delivery service, Ele.me, have reached a partnership. Alibaba is a Chinese international e-commerce company worth around $40 billion USD. Starbucks first opened in China in 1999, and especially in the recent years, has always dominated the coffee market in China. In 2017, Starbucks took 80% of the market share for coffee in China. In second place was McDonald’s at 8.4%, according to the Euromonitor International, reported the Wall Street Journal.
Despite Starbuck’s continued success in China, this summer has seen different results. Sales have been steadily declining. Last month, Starbucks believed that “a government crackdown on third-party delivery services was taking a toll on sales.” However, many analysts say that Starbucks decline in China is also because their “brand image” has changed. managing director of Shanghai-based China Market Research Group, Shaun Rein, said that “the problem is Starbucks is no longer viewed as an aspirational brand.” When Starbucks first opened in China, people viewed the coffee and the brand as real, genuine, high quality coffee. Unfortunately this view has been somewhat diminished, but it might be all Starbuck’s fault.
Startup coffee shop, Luckin Coffee, now valued at $1 billion, has been competing with Starbucks. They opened up 660 stores since January. The coffee is brewed in the store and then will be delivered to customers by scooter-driving delivery employees. Customers order the coffee on their mobile phone and will get a free cup of joe if their coffee doesn’t come within 30 minutes.
There are many things drawing the Chinese to Luckin Coffee over Starbucks coffee. The guaranteed 30 minute delivery (or else free cup of joe) is one draw. A second draw is the price. A medium cup of Luckin Coffee costs around $3, while Starbucks is $4. Many people in China think “Luckin tastes good and is cheaper” than Starbucks.
For Starbucks, delivery is going to be the determining factor as to whether they will have more success in China’s market or not. Partnering with Alibaba’s delivery service is definitely a step in the right direction.