Recently Starbucks‘ announced a partnership with Tencent Holdings in China to co-create a new social gifting feature on WeChat, China’s leading social media platform. This feature will allow WeChat’s users in China to instantly gift Starbucks to a friend or family member and use WeChat Pay to make purchases at the nearly 2,500 Starbucks stores in Mainland China. At the end of Q3 2016, WeChat had 846 million global monthly active users and, through this partnership, Starbucks can tap into this consumer base. Digital innovation is a key revenue driver for Starbucks in China, as consumers in the region are more technology savvy and prefer digital modes of commerce and gifting such as e-wallets and social e-commerce. We believe this initiative should enable Starbucks to build its brand in the country and target the younger consumers (18-35 years old) who are the main users of WeChat.
WeChat Is A Key Social Commerce Platform
While WeChat was launched primarily as a mobile only messaging app, it has evolved in the last five years of its existence and is now being used by Chinese consumers for ordering food, booking movie tickets and taxis, paying utilities and sending money to friends. Giving its ubiquity, large user base and immense popularity with the young Chinese population, WeChat is a crucial medium for any brand to grow in China. With its current partnership, Starbucks has ensured that it has a presence on WeChat, which will foster social gifting, increased visibility and brand appeal in the region. China is a very significant market for Starbucks and is likely to be its key long term growth driver. The company is expanding rapidly in the region and plans to have around 5,000 stores in China by 2021. To support this growth, it is essential for Starbucks to combine its digital initiatives along with physical stores. WeChat can play a crucial role in its digital expansion.
Higher Reliance On Wallet Payments
Smartphone adoption rates in China are much higher compared to other countries in the world. At the end of 2015, more than half of the Chinese population (nearly 688 million people) had internet access and nearly 90% of them (620 million) had mobile access to the internet. This smartphone revolution in the country has led to the use of mobile wallets as the preferred mode of payment, as opposed to credit cards usually used in the West. The WeChat wallet is one of the most popular wallets in the region. By allowing consumers to pay at Starbucks using the WeChat wallet, Starbucks is adapting to the local preferences and this should increase consumer convenience at its stores.
As Starbucks looks to China for its next growth wave, digital initiatives will be a key element of growth in the region. Social commerce is immensely popular in the country and the partnership with Tencent should help Starbucks’ brand in China and drive revenues over the long term.