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Alibaba Pursuing Coffee Delivery Business from Starbucks Rival

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Alibaba seeking coffee delivery business from Luckin

Alibaba (BABA) is in talks for a contract to deliver coffee products for Luckin Coffee (LK) customers in China, according to a report by TechNode. Luckin is a fast-growing coffee chain in China and a rival to Starbucks (SBUX), which last year signed Alibaba’s food delivery unit Ele.me to deliver coffee products for its customers across China. Luckin is seeking a similar arrangement with Alibaba’s Ele.me.

Luckin went public in the United States just this month in an initial public offering that valued it at more than $4.0 billion and saw it raise more than $560 million in additional cash, which it wants to spend toward expanding its business.

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Luckin wants to diversify its delivery network

Ahead of its IPO, Luckin disclosed in documents submitted to American regulators that one of the major risks to its business is that it relies on one delivery company to ship its products to customers. Therefore, Luckin may be looking to Alibaba’s Ele.me to diversify its delivery network to reduce risk to its business.

Luckin’s revenue soared to $70 million in the first quarter from just $1.9 million a year earlier. Although winning a contract from Luckin could be a huge boost to Alibaba’s delivery business, it could also strain its relationship with Starbucks, which is under threat from start-ups like Luckin in China’s coffee market.

Alibaba leads with cash reserve

Alibaba, which last year launched a $6.0 billion share repurchase program, finished the March quarter with $28.8 billion of cash reserves. Amazon (AMZN), eBay (EBAY), and JD.com (JD) finished the March quarter with $23.5 billion, $7.3 billion, and $6.1 billion in cash reserves, respectively.

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