On Monday, Starbucks announced that it has entered a strategic partnership with investment firm Sequoia Capital China to make co-investments and tap into China’s growing technology sector.
Starbucks said in a statement that along with making co-investments with Sequoia Capital China, it will also look to form “commercial partnerships with next-generation food and retail technology companies to propel Starbucks digital innovation in China.”
“Starbucks has an insatiable appetite for innovative ideas that augment the Starbucks Experience and keep it at the forefront of China’s retail landscape,” said Belinda Wong, the chairman and CEO of Starbucks China.
“The partnership enables Starbucks to tap into the most dynamic Chinese technology entrepreneurs in order to delight our customers with meaningful innovations created in China, for China,” Wong added.
As Starbucks tries to evolve its business in China, the coffee chain said that the collaboration will provide “early access to ideas in the retail marketplace, creating opportunities for strategic investment.”
Last year, Starbucks committed a US$100 million anchor investment into Valor Siren Ventures, a US-based food technology-focused investment firm, and according to Kevin Johnson, president and CEO of Starbucks, the company hopes to tap into the “tremendous energy of technology entrepreneurs from two of the world’s largest and most dynamic markets, to pioneer innovative solutions that could reimagine the global retail landscape.”
The company will also look to “explore opportunities to embed digital technologies across all dimensions of its retail business” and use data-driven analytics for modeling and decision making. Starbucks hopes to use technology such as machine learning and predictive intelligence to help manage its growing retail operations in China and optimize its supply chain through inventory management.
“The partnership presents an exciting platform for our portfolio companies to test, commercialize and scale new innovations for China,” said Neil Shen, Steward of Sequoia Capital, and the Founding and Managing Partner of Sequoia Capital China. “Together with Starbucks, we look forward to bringing the digital transformation of consumer retail industry in China to the next level.”
Growing the coffee and retail industry in China
Starbucks says that the collaboration with Sequoia Ventures China is the latest move in its long-term commitment to growing the coffee and retail industry in China, a traditionally tea-drinking country that is now one of its leading growth markets as the consumption of coffee there increases.
Last month, Starbucks announced that it would invest US$130 million to build a Coffee Innovation Park in the Chinese city of Kunshan, located about one hour from Shanghai, to further extend its global roasting network.
Starbucks hopes that the Chinese facility, which is set to handle the coffee chain’s largest roasting capacity outside the US, will be complete by 2022. The facility will also serve as a training ground for coffee roasters and will play a role across Starbucks’ coffee supply chain in China.
Some of Starbucks’ recent aggressive expansion in China can be attributed to the rapid rise of Luckin Coffee, founded in late 2017. The Chinese startup has been enticing the country’s growing coffee-drinking customer base by offering convenience and inexpensive coffee.
Luckin operates by letting customers browse and select their beverage or food, such as noodles and wraps, for takeout or delivery via a smartphone app. This has proven particularly popular in a country where people like to order meals on their smartphones.
Starbucks has traditionally offered roomy stores that provide comfortable hangouts and only introduced delivery in China last year when it launched its voice ordering and delivery with Alibaba’s smart speaker, Tmall Genie, as part of the 2018 wide ranging partnership with Chinese e-commerce giant Alibaba. The voice ordering feature uses Alibaba’s ELe.me food delivery platform.
Luckin lures customers in by offering discounts and promotions, such as giving new subscribers their first coffee for free and giving away more free coffee if subscribers refer their friends to the app. However, this business model means the company has been operating at a loss.
Luckin’s rise is evident in the number of stores they have opened since they opened in 2017.
Last year, Starbucks had over 3,700 branches in China since first opening in the country two decades ago. The company has plans to have around 6,000 stores operating in China by 2022.
In comparison, Luckin now has 6,500 stores throughout the country, many just small counters in office buildings. Last year, Luckin announced plans to expand to 10,000 stores in China by 2021.