The Starbucks experience in China is different. Perhaps the biggest difference: Chinese customers can get their Frappucinos delivered to their homes.
The delivery option is possible because of a partnership with e-commerce platform Alibaba that rolled out in August, connecting it with the company’s online marketplace, delivery and logistics networks and on-site mobile apps and mobile payment tools.
“This partnership is not just about delivery,” said John Culver, group president, Starbucks International, channel development and global coffee and tea, during the company’s fourth-quarter earnings call. “This partnership will be the rocket fuel for our holistic digital flywheel strategy in China.”
To scale in China, Starbucks is putting into practice Alibaba’s “new retail” concept, which combines e-commerce, digital-first touch points like mobile shopping and mobile payments with traditional storefronts. Starbucks is growing its store imprint in China; between September 2017 and September 2018, the company surpassed its plan to open 585 net new stores, and it entered 17 new cities during this period. In addition, in Alibaba’s Amazon Go-style cashier-less Hema supermarkets, Starbucks orders will be fulfilled in stores through on-site kitchens.
Starbucks’ China strategy mirrors the one large retailers are taking in other markets, through integration with third-party delivery platforms, mobile ordering platforms and digitally-enabled experiences in physical stores. Starbucks’ tie-up with Alibaba includes integrations with online food delivery platform Ele.me that Alibaba acquired in April. Customers who don’t want to go to stores can use online marketplaces like Tmall or peer-to-peer marketplace Taobao. The retailer is also using its 3,500 cafes as delivery hubs.
“Consumers in China are very big on mobile, and they’re further ahead on mobile shopping and mobile commerce compared to the U.S.; if you’re a U.S. brand and looking to expand to the Chinese market, it’s a huge growth opportunity,” said Corey Pierson, CEO of Custora, a predictive analytics platform for online retailers.
China is Starbucks’ second-largest market and fastest-growing market. Customers’ demand for delivery is growing, According to Cainiao (a logistics firm acquired by Alibaba in 2017) data cited by retail think tank Coresight Research, express package deliveries in China grew 42.1 percent between 2014 and 2017. Retailers are rushing to meet expectations, both for digitally-initiated transactions and those which start in physical stores.
“Surging online sales translate into soaring demand for deliveries, and Chinese consumers are expecting those deliveries faster than ever,” said Deborah Weinswig, CEO of Coresight Research.
Starbucks’ delivery push in China offers some hints for what may be on offer in the U.S. On the company’s fourth-quarter earnings call, chief operating officer Rosalind Brewer said the company has been testing delivery in the Miami area since the summer, the results from which have been “promising.”
Starbucks, like other retailers, is testing delivery with third-party providers to assess efficiency and cost-effectiveness, said Moody’s senior credit officer Bill Fahy. Risks include damage to the brand if external delivery providers don’t meet customer expectations and increasing competition from other Western brands and local competitors. Though the Chinese market has in recent years become more saturated with Western brands, Starbucks has maintained a cachet and a uniqueness that has staying power, he added. A physical store network will also be an important asset to compete with local players.
“They’re trying to be as convenient as possible for the consumer, whether it’s mobile pay, loyalty programs, order ahead, with the least level of friction,” said Fahy.
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