Starbucks Embraces Digital Experience by Launching E-commerce Site on Alibaba's Tmall

Starbucks has recently announced the launch of its first online store on Tmall, China’s popular e-commerce site, with gross merchandise volume of $42 billion in Q3 2015, a 25% growth as compared to Q1 2015.

The new website sells unique and specially designed e-cards, Starbucks cards and coffee vouchers. The site is focused on connecting with customers through channels such as the Starbucks mobile app, social media tools and the My Starbucks Rewards program, as stated by the company.

Belinda Wong, President of Starbucks China, commented in the official statement, At Starbucks, we have always believed that a shared moment of genuine connection, over a quality cup of handcrafted coffee, is a simple act that helps provide an uplifting part of someone’s day. The Starbucks Tmall store is a unique Starbucks store that will create moments of human connection between people, and give our customers even more reasons to instantly share a gift of love and well-wishes for any occasion to those most important to them.

Tmall is part of the Alibaba Group, which in Q1 2015 reported a cumulative revenue of more than $12 billion (1042% growth in 5 years). As Mr. Jie Jing, VP of Alibaba Group, shared in the official statement, Tmall and Starbucks share the same vision and commitment to deliver the highest quality products and customer experience, through continuous innovation. We are thrilled to welcome Starbucks to the Tmall family. With the rapid development of e-commerce, more and more global renowned brands are partnering with Tmall to bring to their customers a seamless premium experience, anywhere, anytime.

The "Food & beverages" market segment in Chinese e-commerce is expected to show a revenue growth of 22.7% in 2016 reaching $10.5 billion. In fact, Starbucks reported in the most recent Earnings Release that China/Asia Pacific combined sales increased 9%, driven by an 8% increase in traffic. Even though China/Asia Pacific region sales are expected to be flat to slightly down in 2016 as compared to the prior year, China is still expected by Starbucks to continue to move towards being one of our largest international markets.

Starbucks’ journey towards e-commerce and new partnerships

In the past couple of years, Starbucks has been truly embracing digital experience and actively partnering with companies across industries.

In October 2015, Starbucks announced the selection of Chase Commerce Solutions, the global payment processing and merchant acquiring division of JPMorgan Chase & Co., to transition the processing of all non-mobile payments and U.S. retail card payment transactions in company-operated stores in addition to partnering on the rollout of chip-enabled payment terminals.

In December 2014, Starbucks Mobile Order & Pay was tested in Portland, Oregon. The feature is seamlessly integrated into the Starbucks Mobile App and the My Starbucks Rewards loyalty program. After a successful response in Portland, Mobile Order & Pay was expanded in June 2015 to 3,400 additional stores in the U.S. Customers nationwide began to use Mobile Order & Pay in September, and in October, the service was rolled out in UK.

Starbucks also piloted a delivery service. New York's Empire State Building is home to the first Starbucks Green Apron Delivery service where Starbucks baristas bring customers their favorite beverage or food item. Moreover, Starbucks also collaborated with leading on-demand delivery service Postmates for a pilot program, where customers can have Starbucks food or beverages delivered to them within designated areas in Seattle. Starbucks Delivery by Postmates, is an extension of the Starbucks Mobile Order & Pay feature.

With 16 million active users, the coffee chain is now clocking 9 million mobile payments per week. In terms of transaction value, it amounts to 20% of all transactions in US stores. Since December 2014, the number of active users has grown by 3 million and the number of weekly payments has grown by 2 million. The major driver in achieving the 9-million-transactions-per-week mark is the Mobile Order and Pay facility, which is responsible for 5 million transactions a month, as reported by Adam Brotman, Starbucks’ chief digital officer.

Source: Starbucks Now Clocking Nine Million Mobile Payments Per Week

Last year, to leverage the Android Wear technology, Vesh Ventures launched WearBucks, a dedicated Starbucks app for smartwatches, where users can set up their cards in the app and set the default one for payment. After this, simple voice commands can initiate the payment.

Choice of Tmall as a platform to launch an ecommerce site is based on outstanding growth trends at the virtual mall. As reported by Fortune, sales volume YoY growth in Q3 2015 on Tmall reached 56%. Starbucks is not the only one embracing enormous opportunities with Tmall. Other Western cross-industry giants have been tapping into the Asian market through Tmall. Among them are Macy’s, Unilever, Costco and Amazon.

As part of Alibaba Group, Tmall represents an opportunity for international brands to expand at a fast pace in the Chinese market, as e-commerce in China is owned by the group. Moreover, Tmall`s market share of China B2C websites by gross merchandise volume was at an outstanding level of 50.6% last year.

According to Bloomberg, Alibaba has almost single-handedly turned China into the world’s second-largest e-commerce market, after the U.S. The company accounts for about 80% of online sales in China. Many Chinese consumers make purchases on Tmall before ever setting foot in a department store. In part because of its vast size, China has few national chains. By partnering with Alibaba's Tmall, Starbucks ensures instant access to China's growing e-commerce market without the necessity to invest in proprietary platform and infrastructure. A powerful player like Alibaba, with its virtual mall Tmall, provides international brands an expansion opportunity into one of the largest e-commerce markets in the world.