Starbucks ties up with Alibaba for China coffee delivery to revive sales

Before the Alibaba deal, Starbucks had no formal online delivery in China where Ele.me, in blue, competes with Meituan-Dianping, in yellow, which is backed by gaming giant Tencent Holdings. (Reuters)
Updated 02 August 2018

Starbucks ties up with Alibaba for China coffee delivery to revive sales

  • Starbucks flagged in June that it was pursuing such a tie-up after reporting a sudden slowdown in China sales growth
  • China has offered Starbucks rich pickings in recent years, thanks to a burgeoning cafe culture

SHANGHAI: Starbucks Corp. is partnering with Alibaba to deliver its coffee in Chinese cities, betting the move will revive sales growth in its second-largest market that is witnessing aggressive competition from local coffee start-ups.
Starbucks flagged in June that it was pursuing such a tie-up after reporting a sudden slowdown in China sales growth, which it partly blamed on a government crackdown on third-party delivery firms that had previously helped drive orders at its cafes.
“We quickly saw that here is a world class technology company ... that’s focused on retail and modern-day retail,” Starbucks Chief Executive Kevin Johnson told reporters in Shanghai.
“I consider this strategic partnership to be one that ... will just be rocket fuel for Starbucks’ growth and continued expansion in China,” he said.
The Seattle-based company will begin delivery services in September from 150 Starbucks stores located in key trade zones in Beijing and Shanghai and plans to expand that to more than 2,000 stores across 30 cities by the end of 2018, Starbucks and Alibaba said in a joint statement on Thursday.
The companies will collaborate across businesses within the Alibaba group, including delivery platform Ele.me, supermarket chain Hema, online retailers Tmall and Taobao, and mobile and online payment platform Alipay.
The delivery program will leverage Ele.me’s 3 million registered riders, and Starbucks will establish “Starbucks Delivery Kitchens” inside Hema stores and use the supermarket’s delivery system to fulfil Starbucks delivery orders.
Johnson said that some parts of the agreement were exclusive, while others were not, but declined to give details. Starbucks China CEO Belinda Wong said later that the Ele.me tie-up was exclusive.
The tie-up had been discussed for more than a year, Starbucks and Alibaba said. They did not give any financial details of the partnership.
Alibaba Group CEO Daniel Zhang said there was a plan to set up Starbucks delivery kitchens in all Hema stores in the future, but he did not give a timeline.
China has offered Starbucks rich pickings in recent years, thanks to a burgeoning cafe culture which has helped offset growing saturation in the United States. It has 3,400 stores in the country and plans to almost double that number by 2022.
But it is coming under increasing pressure from local companies such as Luckin Coffee, which has expanded rapidly on the back of a supercharged growth plan based on cheap delivery, online ordering, big discounts and premium pay for its staff.
Starbucks’ shares fell steeply in June after the company said it expected slowing sales growth in China. Last week it announced a 2 percent slide in quarterly same-store sales for China, a steep fall versus 7 percent growth a year earlier.
Before the deal, Starbucks had no formal online delivery in China where Ele.me competes with Meituan-Dianping, which is backed by gaming giant Tencent Holdings Ltd.
Instead, unapproved third-party delivery services had filled that gap by placing large Starbucks orders for delivery to their own customers, often resulting in long store queues. Analysts have said that making a delivery arrangement official would likely push up costs for Starbucks.
Ele.me CEO Wang Lei said that the plan is to deliver Starbucks orders within half an hour.
Andrew Atkinson, marketing manager at Shanghai-based research and marketing consultancy China Skinny, told Reuters on Wednesday that such a partnership was a “natural response to one of (Starbucks’) first major challenges” in China.
“And it’s really becoming now that if you’re not on one of these apps you’re missing out a huge opportunity,” he said.
The partnership was also likely a win for Internet giant Alibaba which has been pushing hard to expand Ele.me since it fully acquired the company in April, he said.


HSBC reports lighter-than-expected third-quarter profit fall

Updated 27 October 2020

HSBC reports lighter-than-expected third-quarter profit fall

  • HSBC has a further headache – geopolitical tensions via its status as a major business conduit between China and the West

HONG KONG: HSBC said Tuesday its third-quarter post-tax profits fell 46 percent on-year as the Asia-focused banking giant continued to take a hammering from the coronavirus pandemic and spiraling China-US tensions.
However, the profit falls were not as bad as some analysts had predicted and HSBC said it expected credit losses to be at the lower end of a previously announced $8 billion to $13 billion range.
The global economic slowdown caused by the virus has hit financial giants hard and there is limited optimism on the horizon as Europe and the United States head into the winter with infections soaring once more.
HSBC has a further headache — geopolitical tensions via its status as a major business conduit between China and the West.
As a result, the lender is in the midst of a worldwide overhaul, aiming to slash some 35,000 jobs by 2022, primarily in its less profitable European and American divisions.
“We are accelerating the transformation of the Group, moving our focus from interest-rate sensitive business lines toward fee-generating businesses, and further reducing our operating costs,” chief executive Noel Quinn said in a statement accompanying the results.
Reported post-tax profit for the third quarter came in at $2 billion with revenue down 11 percent at $11.9 billion, the statement said.
Adjusted pre-tax profit slid 21 percent to $4.3 billion in the period, beating a $2.8 billion estimate by Bloomberg analysts.
Quinn described the latest figures as “promising results against a backdrop of the continuing impacts of Covid-19 on the global economy” as well as low interest rates.
In the first six months of 2020, HSBC’s post-tax profits were down 69 percent, meaning the third-quarter results were something of an improvement as some major economies relaxed some of their coronavirus restrictions.
The bank said its board would consider whether to pay “a conservative dividend” for 2020 based on final end of year results and how the global economy looks in early 2021.
Earlier this year, UK regulators called on British banks to scrap dividends for the year to preserve capital during the pandemic crisis.
HSBC makes 90 percent of its profit in Asia, with China and Hong Kong being the major drivers of growth.
As a result, it has found itself more vulnerable than most to the crossfire caused by the increasingly bellicose relationship between Beijing and Washington.
The bank has tried to stay in Beijing’s good graces.
It vocally backed a tough national security law that Beijing imposed on Hong Kong in June to end a year of unrest and pro-democracy protests.
The move sparked criticism in Washington and London but analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line.
“Geopolitical risk, particularly relating to trade and other tensions between the US and China, remains heightened,” HSBC said in Tuesday’s profit statement.
The US has sanctioned nearly a dozen key Hong Kong and Chinese officials over the national security law, telling international banks to stop doing business with them.
China’s national security law, however, forbids businesses in Hong Kong from adhering to foreign sanctions regimes, leaving many in an unclear regulatory tight spot.
“Investor and business sentiment in some sectors in Hong Kong remains dampened and ongoing tensions could result in an increasingly fragmented trade and regulatory environment,” HSBC said in its statement.
The bank also highlighted the uncertainty over Britain’s withdrawal from the European Union as another potential headwind.
Talks for a post-Brexit trade deal have made little headway with a 31 December deadline fast approaching.
“There is a risk of additional ECL (expected credit losses) charges, particularly in the UK in 4Q20, if the UK and the EU fail to reach a trade agreement,” the bank said.