Shares of Alibaba (BABA - Free Report) were down as much as 2% in early morning trading Thursday, despite the Chinese technology behemoth inking a deal with Starbucks (SBUX - Free Report) which will see both companies work together to “transform the coffee industry in China.”
To accomplish this, Starbucks will leverage Alibaba properties, such as delivery platform Ele.me and supermarket chain Hema, to expand its delivery options throughout China.
“We're going to integrate a Starbucks virtual store into all of the Alibaba Group properties,” said Starbucks CEO Kevin Johnson on CNBC’s “Mad Money.”
“This means that a customer that uses Alipay or Taobao or Tmall or Hema has an integrated Starbucks virtual store similar to the mobile app embedded right into that experience. That opens up 500 million or more active users of those apps that will have access to Starbucks.”
Starbucks and Ele.me, which Alibaba acquired this year, will also work to open 150 stores in Shanghai and Beijing, with the ultimate goal being to bring delivery to 2,000 stores across 30 cites by the end of 2018.
Meanwhile, Starbucks hopes to build up to 600 of its “Starbucks Delivery Kitchens”—small stations which fulfill delivery orders from nearby—within Hema’s supermarkets.
The partnership creates a massive opportunity for Starbucks, which has targeted China as a key market in its latest long-term strategy. In the coffee giant’s most recent quarter, same-store sales growth in China fell 2%, while overall revenue managed to surge about 17%.
On the other side of the deal, Alibaba will be able to bolster its non-internet properties with a recognizable global brand. This could inspire people to participate more actively in the overarching Alibaba ecosystem, which also includes key growth drivers like Alipay and Taobao.
Nevertheless, shares of both Alibaba and Starbucks slumped in morning trading amid market-wide volatility inspired by renewed trade war fears.
U.S. Trade Representative Robert Lighthizer said President Trump directed him to increase proposed tariffs on $200 billion worth of Chinese imports to 25% from 10%. The move comes after China refused to be the White House’s demands and instead imposed retaliatory tariffs.
Chinese officials responded to the latest escalation by saying that they were prepared to raise the stakes even further.
Alibaba shares slumped to an intraday low of $180.36 shortly after the open Thursday. Starbucks opened higher but quickly fell into the red in morning trading.
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