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Starbucks Expands Delivery Service in China

The company announced a deal with Meituan, China’s largest food delivery company, to broaden Starbucks offerings there.
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Starbucks  (SBUX) - Get Starbucks Corporation Report Tuesday announced a deal with Meituan, China’s largest food delivery company, to broaden the coffee-shop titan’s offerings in its second biggest market.

The persistence of the Covid virus in China has hurt Starbucks, forcing it to close stores in some big cities and sparking a 7% drop in same-store China sales for the quarter ended Oct. 3, Reuters reports. To be sure, Starbucks’ overall China revenue climbed 18% to $964 million in the quarter from a year earlier.

Under the tie-up with Meituan, the app’s 668 million users will be able to place orders for Starbucks. That includes the delivery debut of Starbucks premium Reserve coffees.

Meituan users also can reserve space in some stores for private events or register for activities conducted by local shops. These services are now available at 60 stores in Beijing, Shanghai, Shenzhen and Chengdu, and Starbucks said it will expand.

It also plans to create a unique tab for each of its 5,360 China stores on Meituan's platform by year-end. Customers can learn from the tabs about the stores and events being held there.

The deal will give Starbucks Rewards members the same benefits on Meituan that they have on the Starbucks China app.

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Starbuck’s started its delivery option in China four years ago, teaming up with e-commerce giant Alibaba’s Ele.me unit, which is Meituan's principal competitor. Two years ago, Starbucks began a partnership with Tencent’s WeChat social networking service to provide delivery service for users.

Analysts say that given the limits Covid is imposing on in-store sales, it makes sense for Starbucks to emphasize delivery.

"Part of that means being available on both major aggregators," China Market Research Group Director Ben Cavender told Reuters, referring to Meituan and Ele.me.

"Starbucks now has enough competition from other coffee players that if a consumer doesn't see their stores available in a chosen app, they will simply defect to another brand." Starbucks will continue its partnership with Ele.me.

In China, smart-phone users gravitate toward “super apps” like Meituan, which include multiple offerings on their platform.

As for the rising competition Starbucks faces in China, some of it comes from foreign companies, such as Italy's Lavazza and Illycaffe and Canada's Tim Horton, Reuters reports. And there are domestic competitors such as Manner and tea company Hey Tea, CNBC reports.

Starbucks faced some unwanted attention in China last month, when an investigation by a state-backed newspaper said two Starbucks stores had used expired ingredients in their drinks. Chinese social media was agog. Starbucks issued an apology, performed inspections and retrained staff at all of its Chinese stores.