Coffee Shop Chains and ‘New Retail’ in China: Starbucks, Luckin Coffee, apps and delivery

China continues to be one of the largest growing markets for the coffee shop industry, with estimates of market growth ranging between 5-9% year according to different consultancy reports. Such growth is an attractive prospect for large international coffee shop chains, as well as other competitors, keen to capitalise on the interest in coffee and coffee shops. The global coffee shop chain Starbucks, recently announced that it was entering a partnership with Alibaba to introduce a delivery service in China.  It explained that it was going to be using the Alibaba platform Ele.me to begin piloting delivery services in Beijing and Shanghai in September 2018, with plans to expand this to 30 cities and over 2,000 stores by the end of the year. It will also leverage the Alibaba ‘Hema’ supermarkets to create further Starbucks delivery kitchens.

Source: Starbucks

China is currently the second largest market in the world for Starbucks behind the US, with around 3400 stores across the country, and plans to have around 6000 as part of its organic growth strategy. This announcement from Starbucks comes at a time when the company has recently reported falling sales growth, and is facing increased competition from other international brands such as Costa Coffee or Tim Hortons, as well as the recent player in the market Chinese based Luckin Coffee.

Luckin Coffee, a Chinese start-up only emerged on to the coffee shop market in China at the end of 2017 demonstrating rapid growth to become the country’s second largest coffee shop chain with ambitious future growth plans. By August in 2018 it had already opened 660 outlets in 13 cities across China. Luckin Coffee uses an app for ordering coffee which can either be delivered or consumed in/collected from one its outlets. The business has mainly targeted offices and malls for its stores and ‘delivery kitchens’.  It is ahead of Starbucks in the delivery game, and also prices its coffee slightly cheaper, which in a country where coffee is a premium product, may have an impact on consumer choice. According to Reuters in Luckin Coffee ‘a regular latte, roughly the size of a Starbucks grande, costs 24 yuan plus 6 yuan for delivery (free delivery for orders of more than 35 yuan), but can be half price after promotions. A grande latte at Starbucks costs 31 yuan.’

While China is traditionally a country associated with tea drinking, this is changing with increased coffee consumption and demand for coffee shops, driven by a range of factors. The growth and development of the coffee shop industry in China is the focus of a new article I’ve published along with Dr Carlos Ferreira in the journal Business Horizons. The article ‘Challenges and opportunities of new retail horizons in emerging markets: the case of rising coffee culture in China’ explores how the rising middle class in China has fuelled the growth of coffee consumption and the coffee shop industry. In particular, it presents a timeline of Chinese coffee and coffee shop culture, and examines some key players that have been a part of this development, including international and domestic coffee shop chains, as well as independents. The article concludes by discussing series of opportunities and challenges for coffee shops in China. One opportunity highlighted was around how chains could utilise local partnerships – something which Starbucks has already recognised and acted upon.

This partnership and the activities it will involve are all part of the ‘new retail’ strategy. The term ‘New Retail’ appears to have been created by Alibaba to describe this merge between online and offline consumer activity. It is seen as the complete digitisation of all commerce, which according to the company is the key to saving traditional retail by adapting to the new digital world. Alibaba has produced a short video which explains the concept and demonstrates how this has been taking place in China in areas such as food shopping and car shopping.

The concept of ‘new retail’ seems to be pitched as the solution to some of the challenges of the high street and shopping malls which have over recent years struggled to get the footfall they need to remain viable. This concept, and how it plays out in different cities and sectors, will need further study as it develops. Do consumers prefer this blended model of offline and online purchasing? What impact does this ‘new retail’ have on physical shopping locations, on consumer behaviour, and on business activity? To what extent will this ‘new retail’ strategy affect the coffee shop as a ‘third place’?

Both Starbucks through their new partnership, and Luckin, have adopted this ‘new retail’ strategy utilising technology to ‘transform the customer experience’ of the brand. It will be interesting to see if we see such strategies being adopted in other markets too. We have already seen the rise of restaurant delivery through apps such as Deliveroo and Uber Eats in the UK. Will this extend to coffee shops en masse outside of China soon? Costa Coffee appear to already offer delivery in the UAE, only time will tell how popular these services are and how much this ‘new retail’ strategy will become part of the everyday consumer experience. As with many blog posts that discuss current events I have ended up raising lots of questions, but interesting ones that hopefully in the future I will get to explore a little more.

 

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This entry was posted in Cafe Culture, Cafe types, China, Coffee, coffee culture, Costa Coffee, Economic Impact, Global Chains, Innovation, Starbucks and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

One Response to Coffee Shop Chains and ‘New Retail’ in China: Starbucks, Luckin Coffee, apps and delivery

  1. Pingback: Coffee in China | Constructing the Economic

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