Wake up and smell the coffee delivery

Thursday 02 August 2018

Article

Who would have predicted a few years ago that eCommerce would stretch into the coffee market. Well, today, Starbucks has announced a venture with Alibaba to offer coffee delivery across China. 

Why is this significant? 

Firstly, it is yet another indicator that the Chinese market is the most progressive digital eCommerce market in the world, driven by a consumer that increasingly expects all products and experiences to be digitised. Whilst in Alibaba, it contains a business that is building the most advanced eCommerce platform in the world, able to support a delivery multichannel ecosystem that is hyper responsive and (it thinks!) can deliver sustainable economics at remarkably low item values.

Secondly, it more generally points to how consumer businesses are looking to partnerships to drive growth and access new channels and customers that they do not have the capability or funds to access in isolation. It feels a safe bet that we will continue to be surprised and excited by new partnerships between platforms and consumer brands that emerge over the coming months and years.

Thirdly, it points to the importance of customer lifetime value. It is undoubtedly less profitable for Starbucks to deliver a $4 coffee to the door of its customers, but if this is a necessary investment on some transactions to maintain customer loyalty and all of their other spend, then the economics will stack up. This is a good example of how retailers and consumer brands need to fundamentally change how they think about their operating and customer economics if they are going to thrive in a world of channel change and disruption.

Stepping back, this represents a great deal for consumers, who can increasingly get whatever they want, however they want it. However, for retailers and brands, it poses a challenge to both their operating model and their profitability. Starbucks’ announcement today is yet another sign that to protect and grow, businesses need to wake up, smell the coffee and embrace new models and channels.