Starbucks ramps up US delivery with UberEats as Chinese delivery booms

Business

As Starbucks ramps up its U.S. delivery program, the global coffee chain is looking to China, its second-largest market, as an example of how delivery could eventually contribute to its sales.

Shares popped 6% in morning trading Friday, hitting an all-time high of $97.22 per share. The Seattle-based company crushed earnings estimates and raised its fiscal 2019 outlook when it reported its third-quarter results after the bell Thursday.

Starbucks reported that sales at U.S. cafes open at least a year grew by 7% during the quarter, but delivery was not a major contributor.

“We’re optimistic about it in the long term, but this quarter it did not contribute meaningfully to our comp results, but we do think in the future it’s going to be a growing part of it — and that’s why we’re investing in it,” CEO Kevin Johnson said on CNBC’s “Squawk on the Street ” Friday.

As consumers look for more convenience, delivery from third-party providers like DoorDash and GrubHub has become a way for restaurants to reach new customers and boost sales. Americans spent $10.2 billion on third-party delivery services last year, according to Technomic. But drinks remain a small fraction of delivery orders for U.S. consumers.

Johnson said that delivery is still in the early days in the U.S. Earlier this week, the coffee chain announced plans to roll out delivery nationwide in the U.S. by early 2020 in partnership with UberEats. Currently, customers in only 11 U.S. markets order Starbucks for delivery.

In China, which he said had a more advanced delivery market, Starbucks has already seen results from its partnership with e-commerce giant Alibaba.

“In China, we saw roughly 6% of our total sales was driven by delivery in China,” Johnson said.

To deliver drinks without spillage in China, the global coffee chain has re-engineered packaging and created spill-proof lids.

Starbucks did not release the country’s net sales for the quarter but said that it saw same-store sales growth in the country of 6%, with 2% more foot traffic to its stores. The company has been facing increased competition from rival Luckin Coffee, a Chinese coffee chain that is trying to unseat Starbucks through fast drink delivery and convenient digital order pick-up.