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Starbucks ties up with Meituan to bolster presence in crucial China market

EconomyJan 18, 2022 02:07AM ET
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2/2 © Reuters. FILE PHOTO: People sit in a Starbucks cafe in a mall in Beijing, China, January 29, 2019. REUTERS/Thomas Peter 2/2

By Sophie Yu and Brenda Goh

BEIJING (Reuters) -Starbucks, which has seen sales slow in China due to COVID-19's fallout, is attempting to widen its reach in its second-biggest market globally by distributing its coffees through the country's dominant food delivery firm, Meituan.

The U.S. coffee chain said on Tuesday it has entered into a partnership with Meituan that will allow its Chinese customers to order coffee delivery and make reservations at its stores via the super-app's platforms.

The move comes as competition in the Chinese coffee market is intensifying, and is aimed at expanding the availability of Starbucks (NASDAQ:SBUX), which first begun food delivery services in the country in 2018 through an exclusive partnership with Alibaba (NYSE:BABA) Group's arm, Meituan's main rival.

"Exclusive cooperations have a time frame," said Liu Xingliang, president of tech consultancy China Internet Data Center. "Starbucks will expand service with more partners, I believe this is not a surprise."

Alibaba, whose partnership with Starbucks will continue, did not immediately respond to a request for comment.

Shares in Meituan, whose main app also offers services such as restaurant and hotel bookings, rose as much as 5.3% in morning trading before paring back gains.

Starbucks' business in China has been hit by a resurgence of the coronavirus in the country that forced it to close stores in several major cities and led it to report a 7% fall in comparable China fourth-quarter sales.

It also faces rising competition from other coffee chains such as Italy's Lavazza, backed by restaurant chain Yum China, and Canada's Tim Horton, which have been expanding in China.

China Market Research Group Director Ben Cavender said that given concerns around COVID-19 and store traffic it made sense for Starbucks to be aggressive in promoting delivery.

"Part of that means being available on both major aggregators," he said, referring to Meituan and "Starbucks now has enough competition from other coffee players that if a consumer doesn't see their stores available in a chosen app that they will simply defect to another brand."

The expansion in China comes amid a safety cloud for Starbucks. The U.S. firm carried out food safety inspections and staff training across its 5,000-plus China stores in December after a newspaper reported that two of its outlets in Wuxi had used expired ingredients in their drinks, prompting multiple local governments to launch checks on its stores.

Meituan had about 668 million paying users in China as of end-September and held an estimated 68.2% of China's food delivery market in the second quarter of 2020, according to the latest available figures from Trustdata.

Starbucks has 5,360 stores in more than 200 Chinese cities, according to the company's most recent earnings report.

Starbucks also said the two companies will launch a service that will allow Meituan users to make private bookings to taste and learn to make coffees at Starbucks stores. The so-called 1971 Salon service is exclusive to Meituan's platform, it added.

It also plans to utilise Meituan's "super store" feature under the partnership which will see each of its stores have their own unique page on Meituan's platforms by the end of this year, from which customers can book food delivery services or check local events.

Starbucks ties up with Meituan to bolster presence in crucial China market

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