Daily Management Review

Chinese Coffee Market To Hot Up With Tencent Entering It’ Alibaba Entered It Last Month


China coffee market is set to witness a fight of the titans because tow of the country’s largest tech firms is entering the fray to take advantage of the growing Chinese appetite for coffee. 
The setting up of a partnership between Chinese coffee start-up Luckin and the Chinese social media and payments giant Tencent Holdings was announced by the two companies on Thursday. And about a month ago a similar partnership was announced by Alibaba Group’s Ele.me and the global coffee chain giant Starbucks.

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“We hope the cooperation with Luckin coffee will create a new lifestyle of ‘smart retail’ through tie-up on user traffic, technology exploration, application scenarios and management abilities,” said Lei Maofeng, deputy general manager of Tencent's payment platform WeChat Pay.
“Coffee has become a popular drink for young people nowadays and there are more coffee industry practitioners.”
There is intense competition between China’s internet giants in the market for on-demand local services primarily due to the fact that the industry segment acts as a point of entry of such companies into a host of other services which include ones like mobile payments. The industry segment also gives companies a detailed glimpse into the consumer spending patterns of Chinese consumers.
Alibaba – the largest Chinese e-commerce firm, decided to make use of its subsidiary firm Ele.me for doing deliveries in China in partnership with Starbucks, the company announced last month. The delivery business in China would begin with the important cities of Beijing and Shanghai this fall and would later be expanded to other cities of the country as well according to the plans of the companies. The companies aim to include another 2000 Chinese cities by the end of the current year.
Luckin expects to potentially become prominent in the ecosystem of services offered by WeChat with the cooperation with Tencent, believes the company.
Luckin was set up and started operations in November of 2017 and is a chain selling coffee and bakery products. the company is operational in 13 cities through 1,003 company operated physical stores. The cities include key ones such as Beijing and Shanghai. As of September 3, the company has already sold more than 26 million cups of coffee. By the end of the current year, the company firm has plans to open and operate over 2000 stores across the country.
“The cooperation also comes to smart stores operation, self-help ordering, delivery service and big data application,” Luckin's co-founder Yang Fei said. “The collaboration will improve our customers’ stickiness, cultivate their habits, and increase Luckin’s popularity, as well as help Luckin to update its current ‘smart operation system.’”
A July report by research provider JingData pegs the global market for coffee products  - which includes freshly brewed, instant and packaged coffee drinks, at 12 trillion yuan (US$1.75 trillion). JingData claims that this market is worth about 100 billion yuan a year in China where instant coffee makes up about 72 per cent of the revenues generated in the domestic market and the rest is accounted for by freshly brewed coffee.