Starbucks And Alibaba Bring An Augmented Coffee Experience

Starbucks (Shutterstock photo)Starbucks (Shutterstock photo)

Shanghai is now home to the world’s biggest Starbucks (SBUX) store. The two-story, 30,000 square foot roastery in China is Starbucks’ second roastery after Seattle. But that's not all, the Shanghai store is technologically most advanced among Starbucks’ 27,000 locations worldwide. The American coffeehouse chain has collaborated with Alibaba (BABA) for a first-of-its-kind store that will provide an enhanced customer experience by adding virtual and augmented reality to its menu.

Here’s a look at how Alibaba and Starbucks are leveraging advanced technology to offer customers a thoroughly interactive and fulfilling in-store experience.

Why China?

Coffee is gaining significant traction in China, with its domestic consumption rising substantially over the last few years. A report by the United States Department of Agriculture (USDA) reflects that coffee consumption in the mainland has almost doubled since 2012-13, moving up from 1,628 to 3,215 by June 2017-18 (thousand 60-kilogram bags). In the backdrop of a growing economy, the expanding disposable incomes and changing demand patterns have supported the growing trends. While the demand is still a fraction when compared to that in the U.S. or Japan, the potential for growth is at play.

"The presence of coffee shops is no longer a novelty, but rather an essential feature of the urban landscape. Although still predominantly a tea-drinking nation, China is rapidly developing a taste for coffee, which could have significant implications for the world market," highlights a report by the International Coffee Organization.

If you think coffee, Starbucks must be around

To take advantage of this trend, Starbucks decided to acquire the remaining 50% share of its East China business from long-term joint venture partners (Uni-President Enterprises Corporation and President Chain Store Corporation) for approximately $1.3 billion—the largest single acquisition in the company’s history.

China is now the fastest growing market for Starbucks outside the U.S. in terms of store count with the company committed to opening more than 5,000 stores in the mainland by 2021. During fiscal year 2017, Starbucks U.S. comp store sales increased 3% while China comp store sales increased 7%, driven by a 5% increase in transactions.

With its store expansion, Starbucks is trying to weave the coffee culture in China with the Starbucks experience.

Augmented Reality is here

Augmented Reality (AR) has begun to leave an impact on the world of retail. It is projected that AR will generate $120 billion in revenue by 2020 (Manatt Digital Media) and it’s time to leverage this enriched experience with consumers.

Starbucks’ Shanghai outlet is powered by Alibaba, which allows customers to use their mobile devices around the roastery for the new-age AR experience. This is accessible through the custom-designed roastery digital web-app platform or on Alibaba's Taobao app.

Guided by Jack Ma’s vision, “In the coming years, we anticipate the birth of a re-imagined retail industry driven by the integration of online, offline, logistics and data across a single value chain”, Alibaba has been working to bring advanced technology to a brick-and-mortar store.

This merger of online and offline shopping is dubbed "New Retail" by Alibaba and is expected to offer more efficient, flexible and fulfilling shopping experience to its customers.

The engagement of customers via mobile applications enhanced with AR is more likely to strengthen its bond with shoppers. A survey conducted by Retail Perceptions throws interesting insights into how shoppers perceive AR and how they prefer to engage with the technology as they shop. The survey shows that 40% consumers are willing to pay more for a product if they could experience it through AR, while 61% prefer to shop at stores that offer AR and 71% claim that they would shop at a retailer more often if they offered AR.

If figures are anything to go by, they are a clear indication that AR will soon become an inseparable part of retail in coming times and Starbucks and Alibaba have started to build on it to engage customers by providing a great experience at the store, all of which is instrumental in driving sales.

Overall, with its all-new, technology-enabled store in Shanghai, Starbucks will be able to capitalize on the rising demand levels for coffee as well as cater to the appetite of the increasingly sophisticated tech-enabled shoppers in China.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Referenced Symbols: SBUX , BABA

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