Starbucks CEO confirms Alibaba partnership, plans to expand delivery to 2,000 stores in China

  • Starbucks and Alibaba are partnering to expand the coffeemaker's delivery and digital presence in China, Starbucks CEO Kevin Johnson tells CNBC.
  • The strategy "will be an accelerator for our business, no doubt," Johnson tells "Mad Money" host Jim Cramer.

Starbucks has officially struck a partnership with Alibaba Group with a multipronged plan to boost the beverage company's digital and physical presence in China, Starbucks President and CEO Kevin Johnson told CNBC on Wednesday.

In the exclusive agreement, the global fast-casual chain will leverage all of Alibaba's properties, including delivery platform Ele.me and supermarket chain Hema, to expand delivery services throughout China.

"We're going to integrate a Starbucks virtual store into all of the Alibaba Group properties," Johnson told "Mad Money" host Jim Cramer in an interview.

"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," the CEO said. "That opens up 500 million or more active users of those apps that will have access to Starbucks."

Starbucks will also partner with Ele.me, a food delivery platform that Alibaba acquired this year. The partnership will help Starbucks make deliveries from 150 stores in Shanghai and Beijing and then broaden delivery to 2,000 stores in 30 cities "before the end of the calendar year," Johnson said.

Kevin Johnson, chief executive officer of Starbucks Corp., speaks during a Bloomberg Television interview in Shanghai, China, on Thursday, Aug. 2, 2018. Starbucks is joining forces with Alibaba Group Holding Ltd. to begin delivering its drinks and baked goods in China, rolling out an effort to stave off competitors and turn around sales in the country. 
Qilai Shen | Bloomberg | Getty Images
Kevin Johnson, chief executive officer of Starbucks Corp., speaks during a Bloomberg Television interview in Shanghai, China, on Thursday, Aug. 2, 2018. Starbucks is joining forces with Alibaba Group Holding Ltd. to begin delivering its drinks and baked goods in China, rolling out an effort to stave off competitors and turn around sales in the country. 

In Hema's small-scale supermarkets, Starbucks plans to build up to 600 of what the company calls "Starbucks Delivery Kitchens" — stations that will service delivery orders for surrounding areas — over the next several years.

While the partnership was previously reported by the Wall Street Journal, Johnson's comments marked the first official confirmation by the coffeemaker about its specific plan with Alibaba.

Calling the initiative "a transformative strategic partnership around modern retail," Johnson said the combination of Alibaba's top-tier technology capabilities and Starbucks' retail prowess "will be an accelerator for our business, no doubt."

In Starbucks' fiscal third quarter, its China business — which has historically been a growth driver for the company — weakened slightly. While Starbucks' revenues in the Chinese market grew 17 percent, its same-store sales, a key metric for retailers, fell 2 percent.

"Most of the growth of transactions in China is coming from our new store growth," Johnson told Cramer on Wednesday. "Now, yes, we did have a negative 2 percent same-store sales comp last quarter, but, you know, if ... I look at what we're doing here with Alibaba and the digital flywheel and enabling delivery, this is like rocket fuel for the digital flywheel in China."

Coffee consumption in China has nearly tripled in the past four years, according to the International Coffee Organization and the U.S. Department of Agriculture.

On Starbucks' third-quarter conference call, Starbucks China CEO Belinda Wong told investors that "our new delivery service will adhere to the high standards our customers in China have come to expect ... as we expand our business [there]."

Shares of Starbucks closed down 0.88 percent on Wednesday at $51.93. The stock ticked up slightly in after-hours trading to $52 a share.

WATCH: Starbucks CEO talks China, geopolitics and donning the green apron

Correction: This story has been revised to correct that Starbucks' Ele.me delivery partnership will be implemented in 150 Starbucks stores that are already open.

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