Delivery

Starbucks-Alibaba Deal Does Coffee Runs In Reverse

Talk about interesting delivery mashups: Starbucks and Alibaba partner to enable the delivery of Starbucks products to Chinese consumers as part of a deal that includes such Alibaba properties as Taobao, Alipay, Tmall, Hema and Ele.me.

The deal, announced earlier this week, is not just a partnership between two companies with heft in the digital economy — Alibaba is among the main symbols of Chinese eCommerce, and Starbucks is a leader in mobile ordering and payments — but also represents the latest development for online food and beverage delivery. The largest food brands in the world, along with heavyweight eCommerce operators, continue to expand their delivery options and seek deals with delivery providers in order to keep an edge in this area of retail.

Does the Starbucks-Alibaba offering signal a new phase of that game?

Starbucks and Alibaba

In case you missed the Wednesday (August 1) announcement, here are the plans that Starbucks and Alibaba have in mind:

Ele.me, a China-based on-demand food delivery platform, will begin testing  what the companies call “key trade zones” in Beijing and Shanghai. The testing will start in September and be present in 150 stores. Delivery providers with Ele.me will bring Starbucks products to consumers who order them online, with the program scheduled to expand to more than 2,000 Starbucks locations across China by year’s end.

“Both Starbucks and Ele.me collaborated to develop a unique, customized delivery infrastructure that has been meticulously determined, each step along the way, including dedicated Ele.me delivery riders, precise delivery time, and custom carriers,” Starbucks and Alibaba said in a press release.

The deal also calls for Hema supermarkets in China to become the first retail brand to open “Starbucks Delivery Kitchens.” They will employ “Hema’s distinct fulfillment and delivery capabilities to complement the delivery of handcrafted Starbucks coffee and tea beverages offered through existing Starbucks stores,” the statement said. “Starbucks will also leverage Hema’s highly effective consumer insights and unique fulfillment expertise to further penetrate and better serve the needs of individuals and families in communities across China.”

Starbucks will also gain a more efficient and consistent digital presence across Alibaba properties, and be able to extend its Starbucks Rewards loyalty program to consumers using those digital consumer apps.

The deal is yet another signal of how Chinese eCommerce and mobile payments continue to grow.

Additionally, Starbucks wants to move past a sales slump in China. The chain’s quarterly sales in China declined 2 percent in the period ending on July 1, down from the 7 percent growth in the same period a year earlier.

Pancake Deliveries

But the deal also fits into the trends of restaurants and fast-food joints seeking to appeal to more consumers — and keep existing ones happy — by making delivery more convenient. A good recent example of that comes from IHOP, the breakfast chain that spent part of the year pretending to be a burger joint as part of a marketing push.

When the restaurant reaffirmed its allegiance to pancakes last month, it also said it would rollout delivery via a partnership with DoorDash. The DoorDash delivery addition will include 300 IHOP restaurants across the nation.

Fast food providers such as KFC, White Castle, Chipotle, Jack in the Box and Wendy’s are also teaming up with DoorDash, Postmates or other third-party delivery providers to bring food to hungry people at home.

The motivation is pretty clear: Revenue from food deliveries increased 20 percent in the past five years, while the number of deliveries in that time has only increased by 8 percent, according to the NPD Group.

“Consumers are so accustomed to ordering delivery that they are ordering it at breakfast and lunch in addition to dinner, which historically has been the most popular [part of the day] to order it,” NPD said. That said, hungry consumers are not always cutting-edge consumers. “Although digital ordering is a major contributor to the growth of foodservice delivery, using the phone to order still represents 49 percent of delivery visits.”

The McD’s Delivery Game

McDonald’s offers a good view of the appeal of delivery.

The chain’s annual McDelivery Day — think of it as the Amazon Prime Day for fast food fans, perhaps, complete with brand swag — tends to contribute to profit because, for one thing, delivery orders tend to be group orders, according to the chain’s executives.

Bills for deliveries tend to run twice as high as in-store receipts, CEO Steve Easterbrook said during the chain’s Q2 post-earnings conference call. Delivery accounts for as much as 10 percent of sales for restaurants that offer the service. “Delivery’s becoming a meaningful contributor to our sales.”

Of course, the chain, which works with UberEats, must give up a percentage of the sale to fund deliveries, but executives said that’s a pragmatic trade-off. Those remarks came as McDonald’s reported U.S. same-store Q2 sales that grew 2.6 percent year over year, below analyst expectations. Earnings increased 15 percent, though, and beat expectations.

Food via Amazon

The food-delivery sector has won the participation of other major companies, of course. Take Amazon, which offers food delivery to Prime members in such cities as Atlanta, New York, Los Angeles, Las Vegas, Chicago and Miami.

Amazon hopes to keep customers loyal by making sure they don’t feel cheated on price. If a customer finds a restaurant item on Amazon Restaurants that is priced higher than the regularly priced item on the restaurant’s current online menu within 24 hours of placing the order, Amazon will refund that customer the price of the item.

For now, the story in food delivery, at least in the United States, seems to revolve around established players teaming up with delivery providers in deals that are narrower in scope than the Starbucks-Alibaba partnership. That does not mean change won’t come. Grocery is an area where retailers are beefing up their delivery offerings, and there is even talk about employing robots to bring food — even burgers and fries — to hungry consumers.

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