Opinion: Starbucks teams up with Alibaba, and it’s bad news for Luckin Coffee

Jeffrey is a TIA Star Contributor and publishes high-value content that serves the Asian tech community. Read more from TIA Star Contributors here.

Starbucks has launched a “new retail” strategic partnership with Alibaba, and in doing so, they are leapfrogging to the front of digital and consumer China.

Kudos. That’s impressive. And it’s pretty bad news for Luckin Coffee.

The Alibaba-Starbucks deal

As announced, the deal has three components.

1. A tie-in with Ele.me for delivery

Starbucks adding delivery is important, but not a game changer. Delivery is an operational requirement for food and most other things in China today. For example, last week I ordered Luckin Coffee on my phone at Peking University, and it arrived in 12 minutes.

Starbucks was behind in offering delivery, so the tie-in with Ele.me fills an operational gap. But you don’t win with delivery, and it’s not a huge deal.

2. Integrating Starbucks into Alibaba’s Hema supermarkets

This is a more significant component that will likely happen fast.

Alibaba’s Hema supermarkets are a combination of a supermarket and retail services, and logistics/delivery hubs. These stores are as likely to sell fresh fruit as they are to cook your dinner and offer beauty salon services while you wait to coordinate rapid home delivery. A lot of the coolest innovations happening in new retail is happening in these Hema supermarkets.

So, putting Starbucks counters and delivery kitchens into these stores (and in the 3km delivery radius each serves) could significantly increase the Starbucks footprint for service, delivery, and pick-up. This rapidly integrates the coffee chain into the cool stuff Alibaba is doing.

3. Co-development of a virtual Starbucks store

When I first heard rumors of this deal a couple of weeks ago, I thought it was mostly on delivery, which was not exciting.

So what should Luckin Coffee do?